Collins Street had never seen anything like it. Inside EL&C Baillieu, there was panic. The IT department was instructed to delete incoming emails. Staff were ordered not to talk about them. An emergency publicist who had worked for Victorian premier Jeff Kennett was hired. The broker’s owners were called to a crisis meeting.
EL&C Baillieu’s star banker – a man who had seized control of the storied Melbourne broker through the force of his personality and money-making talent – had been fooled by what may be the most audacious set-up in Australian business history.
The industry was amazed that such a tough, experienced banker could be duped so easily. Or that he would be willing to have such sensitive discussions with a person he didn’t know.
What didn’t surprise some of those who have clashed with Macaw over the past three decades – and inevitably come off worse – was that the aggressive networker to the Melbourne establishment had racked up an enemy with the resources and motivation to conduct an international operation over the best part of a year to damage his career.
“I went to a dinner party last night and it was all anyone was talking about,” one of the city’s prominent QCs said this week.
Stephen Campbell Macaw was born in Melbourne on the first day of December, 1971. His father, Ross, became one of the city’s top intellectual property barristers.
The lawyer’s sons, Stephen, and younger brother Scott, were put through the Melbourne version of stockbroking prep school: Camberwell Grammar, Melbourne University commerce faculty, Trinity College, the University Blues Aussie rules football team. Their upbringing was basically a giant networking exercise.
Stephen Macaw worked at ANZ Securities after university, and was hired by Morgans stockbroking in 1999. A former colleague says he was a tenacious broker who seemed able to find money where others couldn’t.
“Steve is an old-school broker, strong networker, well connected, who attracts the sort of people who see him as someone who can create value for them,” says a former broker who worked with Macaw. “He gets things done by raising capital for companies that others might have looked at and said, ‘That’s a bit hard’.
“Steve has always been quite thick with the Baillieu-type crowd. He has made a lot of people a lot of money. That’s why he’s able to do repeat business with them.”
While Scott Macaw disappeared from the Melbourne scene after university, Stephen stormed through the unglamorous but lucrative world of mid-cap stockbroking. Clients liked him. Colleagues respected him. Then he hit a speed hump: the global financial crisis.
As the world teetered on the brink of an economic catastrophe, a Morgans share sale was in the balance. Desperate to close the deal, Macaw promised his clients they would be covered if the price fell, according to a former colleague. It did. After being shown email proof of the promise, Morgans agreed to compensation for the clients, the source said. Soon afterwards, Macaw left.
Morgans refuses to talk about Macaw’s departure today, and this week sent an all-staff email warning them against speaking to AFR Weekend.
Following a short stint at Canaccord Genuity, a boutique stockbroker that also doesn’t want to discuss its association with Macaw, he joined Melbourne’s Baillieu Holst in 2009. Initially, he was collaborative and friendly, according to former colleagues.
His early approach with colleagues was preparation for what, in hindsight, was a ruthless inside takeover. Macaw’s skill at attracting corporate clients who wanted to raise money turned him into the firm’s rainmaker. And he wasn’t shy about pushing past other bankers he thought were in his way.
In an alliance with managing director Gavin Powell, Macaw started to influence pay and bonuses across the relatively small firm. Those who didn’t like his style left, sometimes followed by a stressful lawsuit from Baillieu’s law firm of choice Arnold Bloch Leibler. Those who stayed were beholden to the new leadership.
“Within 12 months of joining Steve had sidelined everyone who could be a threat,” says one of those who chose to exit.
Among those who departed was Ray Chantry. The veteran mining analyst was widely read for his work on Rio Tinto, a company that shared a founder from the Baillieu family.
Chantry’s acrimonious departure, though, removed a headache for head of corporate finance Stephen Macaw. Chantry didn’t like Macaw’s deals, and Macaw wasn’t always a fan of Chantry’s research, according to three people who worked with both.
Chantry was a member of the firm’s old guard – when it was a respected but sleepy broker to old Melbourne money. Macaw was Baillieu’s star recruit.
Baillieu Holst was mostly owned by its senior staff. But there was a major external investor that could have resisted the takeover: Credit Suisse. Although the European bank has played down its connection over the past two weeks as damaging allegations about Macaw’s business approach have spilled into the public domain, it owns about one quarter of the broker, a figure that understates the high-level people-to-people links going back decades.
Credit Suisse’s former Australian CEO, David Trude, who stepped down two months ago as EL&C Baillieu chairman, was a driving force behind the broker for 15 years. A senior Credit Suisse banker, Ian Arnold, was on the board until last year. Before Trude, another Credit Suisse CEO, Rob Stewart, was on the Baillieu board too.
Within Credit Suisse, Macaw could rely on the support of Adam Lennen, the co-head of Australian equity capital markets, according to a banking source. Lennen was at Melbourne University at the same time as Macaw, where he played on the same footy team. The men are “best mates”, according to a person who knows them.
Lennen lived in Newman College, one of the four oldest residential colleges at the university. Powell, who is older, was also an alumnus of Camberwell Grammar and the Melbourne University commerce faculty.
“It all goes back,” the source says. “Everyone is connected.”
(Lennen, Trude and Powell didn’t respond to requests for comment.)
Over a five-year period Macaw’s team worked on more than 300 transactions, and led capital raisings worth more than $2 billion, according to the firm.
The figure doesn’t include a $108 million capital raising in 2013 for NewSat, which planned to launch the first Australian private satellite. The sale, which was a bonanza for the advisers and a disaster for shareholders, remains EL&C Baillieu’s most notorious deal. NewSat went bankrupt in 2015. Former CEO Adrian Ballintine, who was famously photographed with Macaw’s arm over his shoulder at a dinner, faces 15 years jail if convicted of creating false invoices.
EL&C Ballieu admitted that Stephen Macaw unwittingly sold NewSat shares that hadn’t been formally quoted as required under the law on behalf of Scott Macaw, who had provided the company with a $5 million short-term loan. “I was the client. I was the money,” Scott Macaw said.
The stockbroking firm has previously said neither it nor Stephen Macaw had a conflict of interest in the NewSat capital raising because the company had its own relationship with entities associated with Scott Macaw that provided finance. For payment, those entities received 20 million shares at 24.8¢; a payday of about $10 million.
The slip-up attracted some negative publicity but no regulatory sanction.
EL&C Baillieu, Credit Suisse and some other advisers split $US8.5 million between them. They were also allocated 21.5 million warrants that could convert into regular shares. It wasn’t obvious to other, small shareholders that the warrants would be sold at a nominal price. All up, the advisers were paid more than $20 million, a huge sum for a small deal in a bad company. (EL&C Baillieu denies the payment was this high.)
With deals coming in, Macaw appeared impregnable. He later boasted that he ran the firm and Powell was a kind of glorified human resources and compliance manager; a claim that isn’t disputed by former staff.
“He could go into any board meeting and count on 70 per cent of the votes around the table,” says a former Baillieu equity employee.
Macaw developed a taste for celebrities, expensive watches and waterfront property. He invested in Elwood Bathers, a bayside restaurant popular with the Brighton crowd, a subset of wealthy Melbourne socialites. Eddie McGuire, the city’s ubiquitous TV host, became an associate. Macaw bought a 62-foot yacht. With wife Megan, a Mandeville Hall blonde, he donated to his kids’ Toorak Prahran cricket club and Melbourne University’s Trinity College.
Meanwhile, Scott Macaw was busy too. From Denmark, he helped set up a New Zealand building society that folded in 2013. Danish corporate records say he is associated with eight companies there that went bankrupt.
Just four weeks after she replaced David Trude as chairman of EL&C Baillieu, on January 18 at 10.35pm, an email dropped into Jo Dawson’s inbox. Written by an anonymous person calling themselves Stratton Oakmont, the subject line read: “Blowing the whistle on E.L.&C Baillieu”.
“Congrats to you on the new gig, Jo, and hi to my old colleagues who will be reading this,” it said. “As you are the new Baillieu chairwoman, I thought I would finally take the chance to scratch an itch that has been annoying me ever since I left, and one that was never going to be fixed under David Trude.
“You see Jo, the crooked Baillieu culture needs a shake-up.”
Attached was a recording, and a transcript, of Stephen Macaw describing the firm’s inner workings. The location, date and identity of the other person in the conversation weren’t disclosed.
“Our CEO is more of an administration guy,” Macaw said. “So, basically, I run the business, but I have to push it all through him. And that’s good, because I don’t want to know whose dog got run over. He’s got 200 pets.”
Dawson wasn’t the only recipient. Journalists, former and current Baillieu employees and other people in the Melbourne business community were blind copied in. An item about the “poison pen” letter appeared in this paper’s Street Talk column, creating a flutter in broking circles.
Then, three days later, the mystery emailer struck again. “Dear Jo,” he said. “It’s Stratton here. Hope my e-mail didn’t create too much drama. But I hear it did.”
There was another recording and transcript. Scott Macaw had joined the conversation. The topic was how to avoid another NewSat.
“When Steve said he’s thought about it, I’m very sure he has,” Scott says. “Because we had a very unpleasant situation around that and Steve … I’m quite sure that you know that this other arrangement, he’s thinking about his, you know, thinking about it very, very carefully to make sure that there is not going to be any shit that pops up.
“Steve can’t afford it. I can’t afford it. You can’t afford it. None of us can afford to pay that. I was in that deal. I was the client. I was the money.”
Stephen Macaw then explains his brother’s involvement.
“The issue was Credit Suisse Private Bank offered the same deals to their clients in Singapore,” he says. “And they couldn’t do it, so, I rang Scott in and asked for a favour. And he took the instrument.”
“I don’t understand why if you were the customer; if you were the client, and your brother?” they are asked.
“It’s OK. We can deal,” Stephen replies.
“We can deal but we’re not,” Scott says.
Stephen says that money could be directed into EL&C Baillieu share floats through Scott. The cash would probably start in the Caribbean and pass through New Zealand, which doesn’t charge capital gains tax on investments.
The investor was promised favourable access to deals. Some of the financial benefit would return to the brothers. When the investor wanted to sell, they should use another broker to avoid offending Baillieu’s corporate clients, Stephen Macaw says.
“You’re sitting in New Zealand, or an entity, and you put dollars into that client,” he says. “That becomes a client of Baillieu’s. The adviser of that client’s Scott.
“He’s the adviser that’s got a client, which is your money. That client puts money into our deals and then, as we … as they list on the stock exchange. We take money out and money falls back.
“And no one that’s going to circle around it. No one can never link that to you in the Australian market.”
The Macaws thought they were talking to Mustafa Algali, a representative of United Arab Emirates money with $1 billion to invest. “Algali”, who said he was based in London, had been introduced through what Scott would later call a genuine and respected channel.
The man would spend four months building up the relationship. He spoke with Scott on the phone about 10 times, met him in London twice and three times in Copenhagen, where Scott introduced his brother, who was in town on a family visit.
Describing himself as a father of two born in Lebanon, Algali’s red, heavily rimmed glasses made him look like an intellectual in his late 40s. He claimed to have lived in Australia while his wife worked there as a doctor. He said he wanted to diversify away from oil into renewable energy, Scott’s area of expertise.
“He brought a credible manager to one of the early meetings who purported to be taking care of a number of energy assets in Asia for the investor group,” Scott said in an email. “His focus and discussions moved later to Australian opportunities. At no point was there any suspicion that he was not who he claimed to be.”
In Copenhagen, the three men lunched at a restaurant, then had dinner followed by a meeting the next day at an airport hotel. Algali presented himself as a man obsessed with secrecy, avoiding tax and maximising profits.
In reality, he was part of an expensive, elaborate hoax prosecuted by someone who must harbour a deep desire to damage the Macaws and EL&C Baillieu.
After the NewSat recording, there was another email the next day, the following, and two days later. Stratton Oakmont, named after Jordan Belfort’s corrupt brokerage in The Wolf of Wall Street, opened a Twitter account and began posting what looked like professionally edited recordings that included the brothers’ photos. Algali’s voice was cloaked.
Adding to the sense of crisis, the person ultimately responsible for holding the firm’s biggest earner to account was barely known inside or outside the company. After 14 years at Deloitte, where she qualified as a chartered accountant, Jo Dawson led the finance and planning unit at National Australia Bank’s funds management arm, National Australia Financial Management. She stayed in the job two years, and then settled into a quiet life on boards: Catholic Church Insurance, the Templeton Global Growth Fund, Bank First and Vision Super.
Corporate records show the 55-year-old joined the board on December 12. EL&C Baillieu put up a cherubic publicity photo that made her look like she was barely in her 40s.
Even though Dawson was a Melbourne University commerce graduate too, she was a newcomer to an organisation that had been dominated by the same three men for a decade: Macaw, Powell and Trude.
As the firm came under attack, staff and clients would look to her for leadership. To the outside world, she would remain silent.
“Hi Jo & Partners,” said the seventh email, which arrived on Monday. “I said I would be back. So, if Steve or any of your team were asked about insider trading, what would you hope the answer would be?”
In the 8500 words of conversation made public, perhaps the most confronting were claims that they had access to confidential information.
“I know the HSBC results a week before they publish every quarter,” Scott Macaw says.
Stephen Macaw claims to have a source in China who knows when products will be approved for sale in pharmacies, and offers to share the information. “He’ll show to me when he’s … when he gets told stuff, which is, like, a month before the Department of Agriculture gets told,” he says.
Like much of the recordings, it is impossible to distinguish bravado from reality. Scott Macaw doesn’t deny he boasted about HSBC Holdings, but says he never bought or sold the Hong Kong-listed stock or advised anyone else to do so. Through a spokesman, Stephen Macaw says that the information he was referring to wasn’t about a company listed on the share market, which meant it couldn’t be traded on.
The Macaws were obviously trying to impress a wealthy investor who appears to be on the shady side. That’s hardly unusual, and doesn’t make them bad people. “Mustafa” repeatedly tries to lead them into making embarrassing comments. Sometimes he succeeds. Other times, they back away. They say the conversations were edited to remove exculpatory statements, and there are minor but important mistakes in the transcripts that alter the meaning, to their detriment.
The sound on the recordings is crystal clear. But the transcripts are not entirely accurate. (A revised version has been posted on afr.com.)
“I also want to have high-quality people putting their money in, that aren’t going to just rip it out one day later,” Stephen Macaw says.
In the transcript, the sentence becomes: “I also wanna have high-quality people putting their money in there that I could just rip it out one day later.”
“It is not just the editing of the recordings which gives damaging inferences, but also those sections of the conversations that have been omitted – for example the phony investor leading various topics of conversation or numerous discussions around due diligence, know your client and source of funds which I made clear were a prerequisite for being able to proceed with any business,” Scott Macaw says.
Scott adamantly denies any wrongdoing “in relation to what was talked about in the edited sound bites”. There is no sign any official investigation is underway.
In an email to AFR Weekend Stephen Macaw says: “I have been the victim of a sustained and malicious character attack.
“I do not intend to respond to specific erroneous allegations other than to say I am extremely proud of my conduct as a professional in the Australian business community. At all times I have acted according to the law and guidelines as defined by our regulators.
“It has not been pleasant to listen to repeated, highly edited audio files of conversations that occurred as part of an elaborate entrapment scheme, were illegally recorded and published by a person posing as a potential investor of the firm and then cut and spliced to create a false impression.”
Nonetheless, last weekend, EL&C Baillieu said Macaw had resigned at the firm’s instigation. His departure was attributed to the reputational damage from the recordings, which appear to discuss preferential treatment at the expense of other EL&C Baillieu clients, who are referred to as “f—ers”.
“When you hear Steve speak, you halve what he says, and halve it again,” says a former colleague. “But reading it in print, it looks really bad.”
He has been scrubbed from the EL&C Baillieu web site, but will remain at the firm through an undefined “transition” stage, a spokesman said.
In the middle of the drama, the man who dubbed himself “probably the best in Australian banking” seemed to lose his edge. When an unknown number came up on his phone, Stephen Macaw rang back straight away. It was a reporter asking if he was resigning. He quickly got off the phone.
A few days later, he mistakenly messaged the same reporter. He had apparently meant to text EL&C Baillieu’s publicist about an interview request he had received for this article. “Hi Stephen – I just received that – Gavin asked me to send to you and call you – thanks,” he wrote.
His wife has been upset too. When a remote-controlled drone flew over her Melbourne house this week, she complained to the police.
After the meetings in Copenhagen, Mustafa Algali vanished. The last message Scott Macaw received was that the mysterious man had fallen off his bicycle and was in hospital with a badly injured leg. Scott dubbed the excuse “very unlikely”. He called on the press to help uncover the perpetrator.
A former colleague of his brother’s doesn’t believe this is the end of the affair. “I can’t imagine the Macaws, having suffered the humiliation that they have, will sit back and let it go,” he says. “They will see some wrongdoing has been done to them and will try to see that situation is rectified to the extent they can.”