Former HIH Director Acquitted in Australian Court

Daniel Wilkie, a former director of Australia's FAI General Insurance Co. Ltd., and defendant in criminal case related to the collapse of HIH Insurance Ltd., was acquitted of three charges by a New South Wales Supreme Court jury.

Wilkie was found not guilty on three criminal charges arising from an Australian Securities and Investments Commission investigation into HIH. He was charged with two counts of knowingly failing to act honestly in the exercise of his powers and discharge of his duties as an officer of FAI, and one count of being privy to the fraudulent altering of a book relating to the affairs of FAI, ASIC said.

All three charges were related to reductions in the recording of estimates of claims made on insurance policies written by FAI made in January 1998.

ASIC didn't comment further on Wilkie's acquittal.

In its statement, the agency also pointed out the sentencing of Ashraf Kamha, another former director of FAI, who got six months in prison. That sentence was suspended on condition Kamha remain on good behavior for 12 months, ASIC said.

Kamha was sentenced in New South Wales Supreme Court after pleading guilty on July 7 to a charge arising out of ASIC’s HIH investigation. He pleaded guilty to being privy to the fraudulent altering of a book relating to the affairs of FAI, namely the AEGIS database that recorded case estimates of claim files, in 1998 between Jan. 5 and Feb. 20. A further offense of failing to act honestly in the discharge of his duties with the intention of deceiving the company’s external actuaries by permitting them to prepare and furnish their half-yearly estimates of outstanding claims based on data that was incomplete or inaccurate, was placed on a schedule and taken into account on sentencing, ASIC said.

The commonwealth director of public prosecutions prosecuted both matters.

Kamha is the 10th individual sentenced in relation to charges brought by ASIC as part of its investigation into the collapse of HIH and referrals made after the HIH Royal Commission presented the findings of its investigation in 2003.

HIH, once Australia's largest property/casualty insurer, went into provisional liquidation in March 2001 with more than A$5 billion (2.5 billion euros) in liabilities (BestWire, March 15, 2001). The HIH Royal Commission, appointed to investigate the insurer's collapse, identified 56 possible breaches of federal law related to the company's demise, along with a number of regulatory shortcomings warranting policy review (BestWire, April 16, 2003).

HIH-related convictions to date include as follows:

-- William Howard, former finance general manager of HIH, sentenced on Dec. 22, 2003, to three years in prison, fully suspended on the basis of a number of factors including his ongoing assistance to the HIH investigation;

-- Rodney Adler, former director of HIH, sentenced on April 14, 2005, to four and a half years in prison with a nonparole period of two and a half years;

-- Ray Williams, former chief executive officer of HIH, sentenced on April 15, 2005, to four and a half years imprisonment with a nonparole period of two years and nine months;

-- Terry Cassidy, former managing director of HIH, sentenced on April 29, 2005, to 15 months in prison;

-- Antony Boulden, former financial controller of FAI’s corporate and professional insurance division, sentenced on Dec. 1, 2006, to 12 months in prison, to be served by way of periodic detention;

-- Bradley Cooper, former chairman of FAI Home Security Group, which had dealings with HIH Group, sentenced on June 23, 2006, to eight years imprisonment with a nonparole period of five years;

-- Robert Kelly, former assistant company secretary of HIH, sentenced Nov. 3, 2006, to 500 hours community service;

-- Frederick Lo, former company secretary of HIH, sentenced on Feb. 23, 2007, to nine months imprisonment; and

-- Dominic Fodera, former chief financial officer of HIH, sentenced on June 7 and Nov. 6, 2007, to four years and 10 months imprisonment.

In addition to its criminal proceedings, ASIC achieved as follows:

-- Successfully brought a civil penalty action against Adler, Williams and Fodera, who were found to have breached their duties under the Corporations Act. Adler and Williams were banned from acting as company directors and were ordered to pay aggregate compensation totalling nearly A$8 million to HIH Casualty and General Insurance Ltd. (together with Adler Corporation). All three men also received various pecuniary penalties.

-- Accepted an enforceable undertaking from General Re Australia Ltd., which provided for the payment of A$27.2 million by General Re to the liquidator of HIH Group;

-- Accepted an enforceable undertaking from Jonathan Pye, former audit partner of Arthur Andersen, the auditor of HIH. The enforceable undertaking was offered after ASIC expressed concerns about the audit of FAI in 2000, particularly in relation to the disclosure concerning a A$200 million preference share issue; and

-- Accepted an enforceable undertaking from John Buttle, former partner of Arthur Anderson and auditor of HIH after raising concerns regarding the 2000 audit of HIH.

(By David Pilla, international editor, BestWeek: [email protected])