Australia’s corporate watchdog is investigating what happened to $18 million in loans that saw money flow from publicly listed companies controlled by mining magnate Joseph Gutnick to a private company that he was also closely involved with.
The Australian Securities and Investments Commission has confirmed to The Age and Sydney Morning Herald that it is investigating loans involving the Gutnick-chaired Merlin Diamonds, whose shares have been suspended from trading since October, and a private company called AXIS Consultants.
The centrepoint for the loans drama is Mr Gutnick’s level-one office at 42 Moray Street in Melbourne’s Southbank precinct. It is home to both Merlin Diamonds and AXIS.
Since 2001, AXIS has been integral to Mr Gutnick’s financial dealings. Several of his listed mining companies have contracted AXIS to provide administrative, management and geological services.
Filings with the Australian Securities Exchange show listed companies such as Merlin Diamonds, Top End Minerals (now called Myanmar Metals) have over several years advanced unsecured loans of at least $18 million to AXIS.
Another Gutnick-controlled public company, United States-based Legend International, has loaned AXIS at least $5.6 million.
Unfortunately for the shareholders of the Australian companies, AXIS has proved unwilling or incapable of repaying the bulk of the loans. Most of them have been written off as impairments and are, most likely, unrecoverable.
The terms of these AXIS loans have been extremely kind. “No fixed terms for repayment of loans between the parties, no security has been provided and no interest charged,” is how Merlin Diamonds explained the arrangement in its 2015 annual report.
ASIC investigators are trying to determine if there is any justification for publicly listed companies closely associated with Mr Gutnick making such generous loans to AXIS, a private entity also linked to the businessman.
The next question is why AXIS has not repaid the loans?
The conduit
Mr Gutnick was a long-standing director of AXIS until he declared himself bankrupt in July 2016. But it’s still closely tied to him.
His eldest son, Mordechai Gutnick, and long-time business associate Peter Lee are present AXIS directors. Another loyal ally, David Tyrwhitt, who has worked with Mr Gutnick for more than 20 years, was an AXIS director until October 2017.
Mr Gutnick, his son, Mr Lee and Mr Tyrwhitt, the AXIS directors, have also all appeared as either directors or senior executives at publicly listed companies, including Merlin Diamonds, that have loaned AXIS money over the past six years.
So when the ASX began asking questions of Merlin Diamonds about its AXIS loans in October last year, it was reasonable to presume answers would be forthcoming given the crossover in directors and shared office.
Merlin diamonds is closely linked to Gutnick.
But, remarkably, Merlin Diamonds told the ASX it “does not have access to the financial information of AXIS”.
Unlike the Merlin Diamonds board, or the stock exchange regulator, The Age and SMH have been able to access some of AXIS’s confidential financial information.
It shows that AXIS has operated as a conduit for the transfer of huge sums of money from public companies controlled by Mr Gutnick to other businesses strongly linked to his family.
One AXIS balance sheet from 2014 shows that the publicly owned Merlin Diamonds, Top End Minerals and Legend International between them had loaned more than $12 million to AXIS.
Two more private companies associated with Mr Gutnick had also loaned AXIS $2.3 million
Money in, money out
While the loaned money was flowing from the publicly listed companies into AXIS, even more money was going out of the private company.
As of 2014, several other Gutnick-linked companies borrowed more than $15 million from AXIS. The AXIS balance sheet records a net loss in 2014 of $1.79 million and a $2.5 million gap between its current assets and liabilities.
While it is clear there is plenty of financial detective work for ASIC to do, some investors, while grateful for the regulator’s interest, are perplexed as to why it has taken so long for anyone to act.
“This has been hidden in plain sight for years. The loans, the conflicts of interest and the lack of repayment are all there in the ASX filings,” said one former Gutnick associate who asked not to be named for fear of receiving a writ from a businessman who has in the past sued his own family members.
Then rich-lister Rabbi Joseph Gutnick in his Melbourne office in 2013.CREDIT:JESSE MARLOW
Hard times for the chosen one
It is difficult to fathom that the man with two mortgages over his St Kilda East house was just five years ago wealthy enough to be included at the tail end of the BRW richest 200 list with an estimated fortune of $255 million.
Folklore has it that the starting point for Mr Gutnick’s amassing of riches was a prophecy made in the late 1980s by the New York-based spiritual leader of the ultra-orthodox Lubavitch Hasidic movement.
The late Rebbe Menachem Mendel Schneerson foresaw great wealth for Mr Gutnick in the discovery of gold and diamonds in the Australian outback.
The Rebbe’s endorsement of Mr Gutnick’s Australian mining ventures carried enormous weight among ultra-orthodox investors who ploughed money into Gutnick-led ventures. Some won and some lost. Such is the mining game.
By the end of the 1990s, Mr Gutnick was at the peak of his powers. The saviour of his beloved Melbourne Demons, Mr Gutnick and his family travelled by private jet and Rolls-Royce and Bentley cars. They had bodyguards and friends in high places in Australia, the United States and Israel.
No more so than Israeli Prime Minister Benjamin “Bibi” Netanyahu. When Mr Gutnick helped bankroll Mr Netanyahu’s 1996 election campaign, he made an influential friend for life.
Gutnick with Israeli Prime Minister Benjamin Netanyahu in 2001.CREDIT:JOE ARMAO
After experiencing great highs and depressing lows over the next 20 years, everything finally fell apart for Mr Gutnick in 2016 when a $103 million deal between his Legend International company and the Indian Farmers Fertiliser Cooperative came unstuck, resulting in expensive litigation and the businessman’s decision to declare bankruptcy.
LOSTMESSIAH 