Banking royal commission: Hayne chastises IOOF for ‘impeding’ inquiry work

If there’s one overriding rule in the banking royal commission, it’s this: you should avoid antagonising Ken Hayne.

If there’s one overriding rule in the banking royal commission, it’s this: companies and their advisers should move heaven and earth to avoid antagonising Ken Hayne.

That’s why you have to wonder what blue-chip law firm King & Wood Mallesons was thinking when it used a “junior solicitor” to bowl up a claim of legal professional privilege for some board packs and other documents of the IOOF subsidiary Questor Financial Services. Hayne brutally slapped down the claim, which included an affidavit sworn by the hapless rookie lawyer.

In a judgment released yesterday, Hayne said many of the documents were not created for the dominant purpose of obtaining legal advice, some did nothing more than record conversations with APRA, ASIC and the Australian Taxation Office, and others related to generic governance and compliance issues.

While privilege was claimed for board packs after 2015, this was in “sharp contrast” to similar documents produced from previous packs.

The sting came in the final sentence of Hayne’s ruling, which said that “ill-based claims for privilege impede (the commission’s) work”.

KWM made a serious mistake in putting forward a junior lawyer to do the work of the partner in charge, or someone of similar standing.

Hayne, after all, is a former High Court judge, and his reference to a junior solicitor is telling.

The date of the board packs in dispute is also interesting. In December 2014, an IOOF employee made allegations that a colleague had used Questor funds to trade in securities prior to the release of IOOF research reports relating to those securities. The practice is called front-running.

The allegations leaked to the media, and they became the subject of an inquiry by the joint parliamentary committee on corporations and financial services. ASIC started inquiries in July 2015. A year later, after its market surveillance team had reviewed the trades and all the circumstances, the watchdog determined that the release of the research reports had no material impact on the price of the securities. It therefore decided to take no further action.

ASIC, however, identified a long laundry lists of compliance concerns related to breach reporting, management of conflicts of interest, the staff trading policy, disclosure, whistleblower management and protection and cyber security. The regulator told IOOF that the company’s corporate culture had contributed to the problems, and the company has since made significant changes.

KWM is acting for Questor and the IOOF group.

Along with the date of the disputed board packs, it suggests we’ve not heard the last of the IOOF saga.

Word on the street

The odds are shortening that The New Daily — a small online publishing project backed by the industry super fund network — will soon blast into the public consciousness.

The word on the street is that the free news site, which is published by a company associated with media entrepreneur Eric Beecher, has been targeted in the usual blitzkrieg of notices to produce documents ahead of the financial services royal commission’s public hearings on superannuation.

The hearings start on Monday.

The New Daily has generated controversy in federal Coalition circles since it was established in November 2013 as a joint venture between six industry funds. In no particular order, they were AustralianSuper, HESTA, LUCRF, United Super, First Super and Cbus.

A restructure occurred about three years later, with an industry fund umbrella company, Industry Super Holdings, taking control of all 12 million shares in The New Daily for “nil consideration”.

ISH also owns the investment advisory firm Industry Fund Services and IFM Holdings, the global investment manager with $107 billion in funds under management.

The controversy relates to the obligation of not-for-profit funds to spend money in the best interests of members, and whether millions invested in a niche publishing venture discharges that obligation.

In the words of US President Donald Trump, the industry fund network believes it’s all a witch hunt, invoking the well-worn Trump technique of “whataboutism”. Inquiries about funding arrangements for The New Daily often prompt a return question: “What about all the scandals in the for-profit sector?”

But whataboutism will not deter Hayne from conducting a forensic investigation of the entire venture if he believes it’s warranted. That’s because it would fit snugly into the commissioner’s terms of reference. One of those terms authorises an inquiry into any use of retirement savings that “does not meet community standards and expectations, or is otherwise not in the best interests of those members”.

A thorough examination of The New Daily’s commercial arrangements would please the government and Financial Services Minister Kelly O’Dwyer no end. O’Dwyer targeted “money sloshing around (the superannuation industry) for other cultural practices” in a speech last April. Super fund members, she said, had to “stand by and watch as their retirement savings are spent on straight out political advertising”.

O’Dwyer didn’t mention The New Daily, but you can bet the minister reckons it falls into the same category.

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