Senate Economics References Committee Inquiry into Consumer Protection in the Banking, Insurance and Financial Sector

Senior Macquarie executives appeared today before the Senate Committee Inquiry into Consumer Protection in the Banking, Insurance and Financial Sector to provide the Committee with factual evidence that responds to allegations relating to a class action being pursued by lawyers Macpherson Kelley.

While there has been extensive media coverage of the lawyers’ allegations, litigation is yet to commence.  We have responded to the lawyers’ concerns where they were specified and otherwise invited them on a number of occasions to provide details to Macquarie and the appropriate regulators in support of their allegations. They have not done so. 

Macquarie has consistently stated that the allegations, which appear to be an attempt to solicit clients, lack any credible evidence. Macquarie has investigated all of the lawyers’ allegations of price manipulation and categorically rejects that this occurred. Macquarie has acted in accordance with all relevant regulatory requirements. 

Opening Statement to the Senate Economics References Committee Inquiry into Consumer Protection in the Banking, Insurance and Financial Sector, 22 February 2018

Thank you Senator for the opportunity of making an opening statement. My name is Greg Ward, Deputy Managing Director of Macquarie Group and Head of the Banking and Financial Services group which is Macquarie’s personal banking and wealth management arm as well as the provider of banking services to small to medium enterprises.  I have been at Macquarie for close to 22 years, five of those as head of Banking and Financial Services.

I understand the Committee’s invitation to this hearing is in relation to Cleveland Mining.  For this reason, I am joined by Rob Johnston, Head of Wealth Advisory, and Matthew McLennan, an Executive Director in Macquarie’s Group Legal division.  Mr Johnston leads the part of the Wealth business most relevant to Cleveland Mining and has done so since 2014. Mr McLennan has been involved in responding to the allegations about Cleveland Mining that were made in 2017.

Macquarie’s Wealth division has a financial advice business which historically has been known in the market as Macquarie Private Wealth.  MPW is primarily a retail broking and equities advice business which buys and sells shares on behalf of clients.  A significant number of MPW’s clients are high net-worth. 

With regard to Cleveland Mining, MPW had broking clients who had invested in the stock as part of their overall investment portfolio. These clients bought and sold shares in the company on-market through the ASX.  Our clients paid us brokerage commissions when they did so.

MPW also had clients that participated in Cleveland Mining’s off-market capital raisings.  Companies can raise capital off-market through a private placement. The company pays a fee to the broking firm so that it can market the placement to that firm’s clients. Separately, clients often source private placement opportunities through brokers.  When Macquarie conducts private placements, only high net-worth investors who have assets of at least $A2.5 million or earn at least $A250,000 per year are eligible to invest.

MPW was one of the firms that provided capital raising services for Cleveland Mining.  The company conducted a number of private placements and MPW assisted the company with four of these between 2010 and 2013.  These placements were conducted by the capital markets business within the Banking and Financial Services group which is separate to the client broking business.

Media reports have referred to MPW’s ongoing ‘support’ for Cleveland Mining stock and drawn inferences that are incorrect.  “Support” is a common market practice of seeking long- term investors for a company - rather than short-term trading clients - and providing after-market services such as facilitating investor updates, interactions with company representatives, and post-financial result briefings.

We appear today to assist you in your inquiries.  While I believe the Committee is already aware, I would like to reiterate there are parties who have taken steps to commence litigation against Macquarie with regard to Cleveland Mining.  To date, they have not made any meaningful progress.  The allegations made are serious, however they are either without merit or vague and lacking in specifics.  We have responded to these lawyer’s concerns where they were specified and otherwise invited them on a number of occasions to provide details in support of their allegations.  They have not done so. 

I note this for the Committee for three reasons. Firstly, we are mindful that responses to the Committee's questions may be used by such parties, should litigation proceed and we need to be careful to protect Macquarie's legal professional privilege in some material.

Secondly, I would like to emphasize that we've taken the allegations made with the utmost seriousness and have investigated them thoroughly. Having investigated the allegations, we are satisfied that they are unsubstantiated.

And thirdly, given some of the statements that Mr James has made this morning, we believe it is necessary to the Committee's work to hear facts which I will ask Mr McLennan to do at the conclusion of my opening statement.

We have also been thorough in informing clients.  In June last year, we wrote to all MPW clients who had owned Cleveland Mining shares. We invited them to provide any information or documents that would help with the review, and we offered to meet reasonable costs of up to $A5,000 to obtain independent advice if they were not satisfied with the handling of their review.   

The review used the same systems that ASIC and ASX use for monitoring market conduct.  We reviewed all trades in Cleveland Mining shares made through MPW between 2010 and 2013.   And we reviewed the email records of certain advisers who were most active in Cleveland Mining trading within Macquarie. 

We completed the review promptly and wrote to clients about the outcome in September last year. As mentioned, the investigation showed the allegations of unlawful trading were unsubstantiated.  We identified one instance of an adviser invoicing Cleveland Mining for $12,500 which was done without Macquarie’s approval.  While this was inappropriate conduct, we did not find any adverse client impact. That adviser is no longer with Macquarie.

Last year’s client review was in addition to a larger client remediation that we ran as part of the Enforceable Undertaking that MPW signed with ASIC in 2013, and which led to the transformation of that business.  Clients who had invested in Cleveland Mining shares were included in this remediation process which was conducted under the supervision of Deloitte and ASIC. 

During this earlier remediation process, we identified concerns about two advisers in relation to Cleveland Mining, specifically they had not disclosed to us the extent of their association with the company.  The complaints giving rise to those concerns were made and investigated after the advisers had left Macquarie. We notified ASIC of our concerns and reviewed all of the personal advice given by the advisers in respect of Cleveland Mining.  In one case we found an investment in the company that was not appropriate for the client given their risk appetite.  This client was compensated.

The media outlet that has given considerable coverage to Cleveland Mining has also alleged inappropriate workplace behaviour by some MPW staff.  None of the workplace behaviour allegations raised involve current staff. The allegations were either never previously put to Macquarie, or those that were made were reviewed and appropriate action taken. 

Let me emphasise, Macquarie has no tolerance for this type of workplace behaviour.  Staff receive training on appropriate workplace behaviour and related policies when they join Macquarie and are required to undergo regular refresher training. 

When staff make complaints, Macquarie supports those staff, and working from the information available, investigates claims fully.  Where there has been a finding of inappropriate workplace behaviour, consequences are applied which can range from warnings through to termination of employment.

Thank you again for the opportunity to make this opening statement.