The decline of City Tattersalls Club - who is to blame ? (Part 4)

There is no question that City Tattersalls Club has gone downhill dramatically since Tony Guilfoyle started in the top job. But he is only an employee, answerable to the Committee. It is the Committee who are supposed to be in charge, in this or any other members club. So who is to blame ?

Jimmy Chen - gone to the dark side ?
In City Tatts one of the best guides to whether a Committee member is doing anything is to watch the reaction from the rest of the Committee. Anyone upsetting the Committee is probably acting in the interests of members. And this certainly did apply to Jimmy Chen. He was very unpopular with the established Committee from the time he was first elected. We don't know what exactly he did to upset the others but presumably he was asking questions about things that they felt should be left alone.

But he really had them hopping mad when he decided to run for Treasurer in 2009 - against the Committee's nominee, Paul Cavallaro. (Both Chen and Cavallaro are accountants.) To say that the Committee were unhappy about this does not begin to describe their reaction. They were fuming. (This will tell you what the Committee thinks about democratic elections in the Club.) This anger, at his decision to run, reached it's high point (or low point) when another Committee member called him a "chinese c**t" !

Jimmy Chen as Treasurer
Jimmy Chen managed to get elected by a narrow margin. And this gave his supporters some hope that at last someone would probe the mysterious finances of City Tatts. But they were in for a letdown. Jimmy's first Treasurer's Report turned out to be a replica of the useless propaganda that used to flow from Keith Free. All the same empty jargon was there to conceal the facr that the Club was incredibly badly run. In fact Jimmy may not have written the report. Certainly at the AGM he gave every impression that he was seeing it for the first time.

So what has gone wrong ?  Basically there are two possibilities -

1. Jimmy's gone to the dark side - ie. decided to go along with the Committee and stop asking the tough questions. Why would he do that ? Hard to say - but he may have a long term goal to be Chairman and thinks this is the best way of achieving it. If that's what he is thinking he will be very disappointed - the Committee will never support him.
2. He has done nothing as Treasurer because he has been denied the information that would allow him to do anything. This is a real possibility. In reality Mark Cooper (Keith Free's nephew) controls the financial information and may supply Jimmy with the minimum possible. It could be that Jimmy really doesn't know much about the finances of the Club.

But whatever the reason it is clear that Jimmy Chen has been a total failure at discovering the real story of what happens to all the money at City Tatts.

The Decline of City Tattersalls Club - who is to blame ? (Part 3)

There is no question that City Tattersalls Club has gone downhill dramattically since Tony Guilfoyle started in the top job. But he is only an employee, answerable to the Committee. It is the Committee who are supposed to be in charge, in this or any other members club. So who is to blame ?

Patrick Campion - a study in weakness
When John Kennedy decided not to run again, because of the rising anger over his role in the Bookmakers Superannuation Fund, he was replaced by Patrick Campion. Campion, a solicitor, had been the Vice Chairman under Kennedy and had been on the Committee since 2005. Campion's key personality trait is that he is weak. He never really takes a stand on anything - he just goes along with whatever others have decided. There is no record of him ever standing up for members.

Campion;s track record - before becoming Chairman
Since Campion's time on the Committee coincides exactly with the the decline of City Tattersalls Club we need to have a closer look at his track record:

• First and foremost, since he joined the Committee, Campion has gone along with everything that Tony Guilfoyle has done to the Club. And that means everything. Every reduction in member amenities, every bit of waste (fees to consultants, overseas trips, legal fees etc), every failed project (Zest, the Coffee Cart, 194 Pitt Street etc) - you name it, Campion supported Guilfoyle om it. Not once did he question anything. And it also means that he voted for every pay increase and bonus that Guilfoyle has ever received.
• Campion blindly followed John Healy and John Kennedy on everything they did to restrict or remove the rights of members trying to save the Club.
• Campion was on the Committee when a donation of $80,000 was paid to a clinic in Moree run by his brother, Michael Campion (but never disclosed to members).
• Campion was Vice Chairman when he, along with most of the Committee, discovered that an employee had taken over $200,000 without their knowledge. Naturally Pat decided to do nothing about it.
• Campion's role in the Supreme Court case deserves special mention (see below).

Patrick Campion and the Supreme Court case
Campion's role in the Supreme Court action is very interesting for two reasons - he is a solicitor, and he specialises in defamation, which would be central to the case.

The basic facts of the Supreme Court case are fairly simple. A website devoted to City Tatts posted two articles - one explaining John Kennedy's role in the Bookmakers Superannuation Fund and another detailing a potential conflict of interest involvimg Tony Guilfoyle. A member was expelled by the Committee on the grounds that he was responsible for the website and he took action to have his membership reinstated. It is clear that there was no benefit to members from the Club's action. It was done purely to protect Kennedy and Guilfoyle. From a variety of sources we have been able to piece together Campion's role in the case:

• Kennedy and Guilfoyle were watching the website, and getting legal advice on it from Bartier Perry, from January 2010 but did not tell the Committee until April 2010.
• This is the explanation for the so-called Committee Executive mentioned in the Club magazine. There is no Committee Executive - that was just a way for Kennedy to justify the delay in informing the Committee. In fact, the Club rules have provisions for setting up a Sub-Committee. But they didn't suit Kennedy because they would mean that the Committee would set the terms of reference of the Sub-Committee and also require that minutes be kept of any meeting - which defeated the purpose of what Kennedy wanted to do.
• Campion's initial reaction was that the website was fairly harmless and that there was no need for the Club to do anything.
• When the rest of the Committee decided to expel the member Campion agreed with them !
• The Club (ie. Kennedy and Guilfoyle) claimed that the website was defamatory. Every court in the country would have rejected that idea since the website basically pointed out what had been obvious for years - that the Club was going downhill under present management. And truth is an absolute defence to defamation. If Campion knew anything about defamation he must have known that the defamation case was nonsense.
• After the member served notice of his intention to take action in the Supreme Court, Campion altered the minutes of the earlier meeting to make it appear that he had given the member a fair hearing before voting to expel him. (Bet you never thought anyone would find out about that  - eh Pat ?)
• The Club's legal tactic was essentially to bully the host of the website. They basically said to him - "just sign an affidavit to say that the expelled member was responsible for the website and we will drop any action against you". Did Pat have any problem with this blatant blackmail? - Not at all, he specifically mentioned in his own affidavit how he was confident in expelling the member because of the credibility of the web host's affidavit !
• But Campion's key move was during the week leading up to the hearing in the Supreme Court in September 2011. The case essentially rested on whether the Club had given the member a fair hearing or had just decided to get rid of him without any real cause (the legal term is "pre-judgement"). The problem for the Club was that the summons served on the member before they expelled him pointed strongly to the latter - that they had pre-judged the member. Campion's legal tactic was to get the entire Committee, including himself, to swear an affidavit that they were not aware of the contents of the troublesome summons !
• Let's just stop and consider what Campion is asking the court to believe here:

1. In a case which will be decided on the issue of pre-judgement, Campion simply swears an affidavit to the effect that he has not pre-judged - how simple is that !
2. Campion, a solicitor specialising in defamation, never bothered to read the summons - in a case where the Club's stated reason for taking action was the website's alleged defamation !
3. Campion was happy to spend over $100,000 of members' money to expel one member with no knowledge of the contents of the summons. 

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Boolmakers Superannuation Fund

The Bookmakers Superannuation Fund (BSF) pays .615% of its assets each year to Super Promoters Pty Ltd to be its "promotor". This has generated millions for the shareholders of Super Promoters since 2004 and enabled them to sell the company for $7 million to Diversa Limited, a company listed on the Australian Stock Exchange. From its formation in 2004, until its sale in 2009, Super Promoters had four Directors (who were also the shareholders) - three of whom were members of the fund's policy Committee and one was the fund's Administrator.

Documents lodged with the ASX revealed for the first time the full extent of this arrangement and it is hard to believe that a scheme like this could be acceptable to supervisory authorities.

The following are just some of the issues that arise from this arrangement:

A Super Promoters received almost $2m from the BSF in 2008 but it's operating expenses were less than $500,000 resulting in a profit of $1.5m to be distributed to the four principals. (In fact, Super Promoters only spent $24,000 on advertising and promotion in 2008.) The obvious question is - Why didn't the Trustee of the BSF insist on paying these expenses directly and save at least $1.5m of members funds ?

B Apart from the cost of this arrangement, there is no benefit whatsoever to the members of the BSF from this "promotion". Part of the arrangement is that the total fee to Super Promoters is fixed at 1.108% of fund assets. This means that increases in total assets could not lead to reduced expenses for existing members - but did result in extra fees to Super Promoters. It also means that the statement in the accounts that it is important that the fund "grow and thereby provide economies of scale" is simply false. Where was the benefit to members ? In reality the average member paid $800 each year to Super Promoters in an arrangement where the only party that could possibly benefit was Super Promoters !

C The announcements by Diversa released to the Australian Stock Exchange were very revealing. They openly state that "the opportunity exists to generate attractive returns from the Super Promoter's business by growing the Funds Under Management". And this is due to the "relatively low cost base which results in an increasing margin and increasing profitability". But this artificial "business" only exists because the fund paid $2 million for expenses that in reality cost less than one quarter of that. The "increasing profitability" is coming directly from member's retirement savings.

D How many superannuation funds pay "promoter" fees ? Is there another superannuation fund in Australia that pays fees to a "promoter" in a scheme like this ? The most likely answer is that in other funds someone in a position to protect members interests, whether a Trustee or a Member Representative, would have rejected a scheme like this at first sight.

E In the Annual Report members are told to direct any enquiries to the Administrator. But the Administrator has been part of the "promotion" from the start (and was able to get $1m from Diversa for his business). Likewise the normal procedure for a concerned member is to contact the Member Representative on the Policy Committee. But in the BSF the Member Representatives were often the same shareholders who received substantial amounts from the arrangement. It seems that in the BSF the very people who would normally protect members interests were part of the arrangement to extract fees from the fund.

F Many members of the BSF joined the fund on the recommendation and high praise from the Committee and senior management of City Tattersalls Club. Almost all of the leading players have been or still are connected with the Club -

• Of the four individual Trustees before it converted to a Public Offer Fund in 2004, three were Committee members or senior employees of City Tattersalls Club.
• The former Treasurer of City Tattersalls Club, Keith Free, managed the BSF for many years.
• The Policy Committee of the BSF, even in 2010, was still composed entirely of Committee members or senior employees of City Tattersalls Club.
• The BSF operated from an office in City Tattersalls Club for many years.
• The City Tattersalls Club Staff Super Fund merged with the Bookmakers Superannuation Fund in September 2004. (It would be very interesting to know how this came about.).

G When Super Promoters was set up in 2004, the four Directors and Shareholders were the same four people who had complete control of the Bookmakers Superannuation Fund -

• The Trustees of the fund, before it became a Public Offer Fund were John Kennedy, Peter Mueller, Peter Hayes-Williams and Ian Buxton. (It would seem to be a blatant breach of fiduciary duty for any Trustee to set up a scheme for their own benefit by exploiting the very assets they are holding in trust for others. And it must be a serious matter when it is done in a Superannuation Fund which has far more stringent regulations to safeguard member' funds.).
• The Manager of the Fund was Peter Mueller & Associates (who employed Peter Hayes-Williams)
• The Member Representatives were John Kennedy and Ian Buxton.
• The Employer Representatives were Peter Mueller and Peter Hayes-Williams.

Incidentally, these Member Representatives seemed to get appointed and replaced without any input from members

Given the circumstances outlined above it is easy to understand that APRA or ASIC would want to have a close look at this "promotion" scheme. It is hard to believe that a scheme like this could be legal.

The Decline of City Tattersalls Club - who is to blame ? (Part 2)

There is no question that City Tattersalls Club has gone downhill dramatically since Tony Guilfoyle started in the top job. But he is only an employee, answerable to the Committee. It is the Committee who are supposed to be in charge, in this or any other members club. So who is to blame ?

John Kennedy - Started with a bang, ended with a whimper
When John Kennedy started as Chairman in 2008 he told everyone in the gym that he wasn't going to take any nonsense from those "troublemakers" that caused Healy to quit. By 2010 he was afraid to show his face in the Club. In between, his performance was a mixture of comedy, failure and tragedy.

City Tattersalls Club with John Kennedy as Chairman
If you were even a casual observer of City Tatts you would know that Kennedy was a complete failure as Chairman. Everything that was going badly under Healy got even worse under Kennedy. Restaurants, bars and just about everything else in the Club continued to go downhill. But Kennedy deserves special mention for his particular contribution to the decline of City Tatts in the following areas:

• The purchase of 194 Pitt Street. This has been explained in detail elsewhere so there is no need to elaborate here. Suffice to say that Kennedy watched and did nothing as this disaster unfolded
• Misleading members became standard practice with Kennedy. For instance, he would lament the cost of a General Meeting ("in the order of $37,000") called by concerned members but say nothing about going on an overseas trip that cost the Club $125,000 for 5 people !
• Kennedy set a new low for neglecting the interests of members. He was Chairman when the Committee discovered that a senior employee had taken $200,000 years before. Kennedy apparently saw nothing wrong with this - maybe he secretly admired someone who exploited their position (given his track record in the Bookies Super Fund - see below)

It is worth noting that Patrick Campion was Vice-Chairman during Kennedy's time as Chairman and never once questioned anything that Kennedy did.

John Kennedy and the Bookmakers Superannuation Fund
It is impossible to understand John Kennedy's time as Chairman of City Tatts until you know about the Bookmakers Superannuation Fund. The story of the Bookmakers Superannuation Fund is so bizarre that anyone who had not followed it closely for years would find it hard to believe (see separate post).

Many members of the Club had their money in the Bookmakers Superannuation Fund and a few of them knew about Kennedy's skim operation in the fund. But when the Australian Financial Review devoted a full page article to it everyone knew. This was especially bad news for Kennedy who would meet these members in the City Tatts gym, where he was a regular attendee for 20 years. As the fund members got more agitated Kennedy simply stopped going to the gym. In fact, he avoided going to the Club if at all possible - only going in for Committee meetings. It was absolutely comical to watch the Chairman rush from the Club at 3.45 just before his old buddies would show up for gym classes. After about six months of this he realised that he would find it difficult to be re-elected as Chairman so decided not to run.

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