The 'silly bastard' who bought shares in the tender company

By David Donaldson

February 26, 2016

Ultranet document
Ultranet document

Former employees invested in a company before and after it was awarded a contract for the doomed Ultranet software system, anti-corruption hearing into Victoria’s Department of Education have heard.

The Independent Broad-based Anti-corruption Commission heard on Thursday that former deputy secretary Darrell Fraser told then-regional director Ron Lake he was a “silly bastard” for buying around $110,000 worth of CSG shares. Ultranet was developed by CSG in consortium with Oracle, and was scrapped in 2013 after failing to work properly.

Lake purchased the shares after the company was awarded the Ultranet contract, but the day before it acquired another company, Delexian Pty Ltd, the inquiry heard. Lake, who was a member of the Ultranet project board, had attended a board meeting the day before, at which CSG CEO Denis Mackenzie was also present.

The court heard a recording of a phone call in which Fraser and Lake discuss whether the phone might be being monitored. Said Lake:

“If people are listening to this, fuck them. We’ve done nothing wrong.”

Both said they had pushed the boundaries. Lake:

“Jesus Christ, you’re allowed to have a life. If they examined everything I did as a principal, did I push the bloody boundaries? Absolutely I did.”

Lake told the hearing he had bought the CSG shares — which after a subsequent purchase amounted to $160,000 worth — because he “overheard somebody or somebody made the comment that the share price is doing well”.

He told a KPMG inquiry in 2011 that someone on the Ultranet project board had commented on the share price rising, but said on Thursday he could now not remember where the information had come from.

Lake also failed to initially declare his new conflict of interest to the board, and continued to attend meetings and participate in decision-making, which included being party to information that was commercial in confidence. Fraser called him a “silly bastard” after he made the conflict known.

“Lake also failed to initially declare his new conflict of interest to the board …”

The day after Lake purchased his shares, he gave his partner Julie Baker a cheque to buy $10,500 worth of CSG shares. Both said he was paying her back for furniture purchases.

Baker, who had only once previously bought shares, told the hearing that after Lake gave her the cheque she decided to buy some shares and asked around for the name of a share broker. Baker bought the shares the same day without researching the company, she said.

Counsel assisting Ian Hill QC pointed out, however, that the cheque had in fact been written out directly to share brokers Baillieu Holst, preceding that conversation. Baker did not tell the KPMG inquiry she had paid with money owed to her, stating that this question had not been asked, but that the shares were purchased out of discretionary funds.

Baker said that although she was aware CSG was in a contracting relationship with the department at the time she bought shares, she was unaware her partner Lake had owned $160,000 worth of CSG shares, the bulk of which were purchased the day before hers, until Thursday’s hearing. She said:

“I’m shocked at the 160,000 that you talk about today.”

Lake went to work in Saudi Arabia after he was asked to leave the department by secretary Richard Bolt.

Profit-making share purchase

On Wednesday, IBAC heard that former Department of Education employee Ian Morrison had purchased nearly $10,000 of CSG shares after a tip from best friend and Ultranet panel member John Allman. By the time he sold the shares 10 months later, Morrison was to pocket around $12,000 in profit.

Morrison said Allman purchased 12,300 CSG shares two days before he had, and the day before the contract was announced to the market.

Probity adviser Anne Dalton also stated she had “escalating” concerns throughout her time observing Ultranet board processes. Dalton was concerned about private discussions between two board members, Fraser and PWC partner and independent technical adviser Chris Bennett, and the CSG/Oracle tendering consortium eventually awarded the contract. This occurred after she “specifically” told them to cease contact:

“I recall them admitting to me that they had been having conversations and/or contact with the CSG/Oracle people over the weekend or at night and I recall being very angry and concerned … I told them not to do it and that it was putting the project at risk and then I left the meetings.”

Dalton told the hearing:

“I had never encountered a situation where a client blatantly acted against my advice.”

She took the “very unusual step” of informing the departmental secretary, then Dr Peter Dawkins, of these probity worries. Dawkins took her to speak to the then-minister Bronwyn Pike. Dalton said:

“I, in my discussion with the minister, explained to her that I formed the view that the process could not continue if Darrell Fraser and Chris Bennett work in — continue to be in positions of power within the board and that the only way the process could continue would be if the board was reconstituted with other — with independent members and that those two were removed, and that was done.”

Asked to clarify whether Fraser and Bennett remained on the board, Dalton stated:

“I don’t really remember, but they were certainly sidelined.  I think they might have had some involvement, but they weren’t in power any more. … what happened as I best recall it is that the board was reconstituted with at least two new members.”

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