18 Perspective 17-18 May 2014The Australian Financial Review | www.afr.com

When Lukas Kamayjumped in his BMWRoadster and raced tothe family home of hisold Monash Uni-versity friend in the

Melbourne suburb of Box Hill, he may havesuspectedthatpolicewereclosingin.

His mate Chris Hill had just called to sayhe’d nearly spent the $13,000 Kamay hadsupposedly given him on alcohol and “otherpersonal items” and needed “some morecash”, according to court documents whichallege insider trading. Hill joined Kamay inthe sports car and the two headed for BoxHillshoppingcentre,makingabeelinetotheOptusConnectstore.

Thepairboughttwonewpre-paidmobilephones, known colloquially as “burners”, inan effort to avoid attention. As they walked,KamayallegedlytoldHill“theynowhadnewphones and SIMs and that the old onesshould be destroyed so they could startfresh”,courtdocumentssay.

But Hill was increasingly nervous abouttaking the money “back with him on theplane” to Canberra, where he worked at theAustralianBureauofStatistics.

Kamay, a foreign exchange trader at theNational Australia Bank, assured Hill thatwhile trading on the sharemarket wasclosely supervised, “foreign exchange

onconfidential informationincludinghous-ingapprovalandlabourforcefigures.

Twodayslater,Kamayopenedapersonaltrading account at Pepperstone. Over thenext eight months he used his Apple iPhoneto make bets on movements in theAustralian dollar, making nearly $7 mil-lion in profits. Hill also began texting andcalling Kamay from his Sony Xperiamobilephone.

By Friday last week, police believedthey had enough evidence to launch acase and pulled the trigger on raids inMelbourne and Canberra, arresting the twomen and seizing documents, phones andcash, including three mobile phones and$9950incashstashedinHill’swalk-inward-robeinCanberra. Bothmenarenowonbail.They have not entered a plea to the criminalcharges and return to the Victorian Magis-tratescourtonAugust21.

Whatever the reason for the trades, it isclear the two men’s friendship went backsomeway.

They both studied commerce andeconomics at university and Kamay’s ties tohis alma mater remained strong. OnSeptember 24 and 26, a month afterKamay’s trades began, he returned to theuniversity to discuss “the world of trading infinancialmarkets”.

“Lukas brought an insight into the class-

Downfall of the insiders

Turning $1,000 into $7m in less than 9 months

Aug 13Kamay opens

Pepperstone FX account

with $1,000

Feb 27 $536,000Negative

ABS construction

figures send $A to 3-week low

Apr 2$62,000

ABS building approvals

Apr 3$55,000

ABS retail trade

Feb 20$930,000

ABS labour force

figures

Feb 26 $14,000

ABS construction

figures

Apr 15 $1.887m

May 8 $780,000

$6.98m

$1,000

2013

Aug 13, 2013

May 9, 2014Turbo trading

Sep 1, 20137 SMSs and1 mobile call

Sep 11Kamay opens

second PepperstoneFX account

with $8,000

Aug 11, 201315 SMSs and 2 mobile calls

Feb 13 $1.15m

Unemployment numbers released sending$A down making

$500,000 in5 minutes

Jan 16, 2014Kamay opens account with

FX broker AxiCorp

Feb 19, 2014Pepperstone

tips off police. Operation

Leith launched.

Kamay opens second FX

account with AxiCorp

Apr 8, 2014Kamay buys Block

apartment in Albert Park for $2.47m

May 9,2014

AFP freeze $7m including Block property. AFP raids in Melbourne

& Canberra arresting Kamay and Hill

$9,000$1,000 $47,000

$2.45m

$2.436m $2.972m

$3.49m

$5.99m

$5.928m $5.873m $7.76m

$6.98m

$1.52m

First call between Kamay's iPhone and Hill's Sony

Xperia

Aug 7,2013

2014Jan 16

$323,000Trades

2:03min before ABS

labour figures.

Pepperstone raises

red flag

$370,000

Dec 12$38,000

First big $20m bet minutes

before ABS labour force

figures

Chris Hill, 24ABS analyst since

January 2011

SOURCE: COURT DOCUMENTS, FAIRFAX MEDIA

ABS labour force

Sep 12$8,000

Start of Kamay's winning

bets

ABS construction

& building activity.

$A recovers

Mar 13 $2.5mBiggest one-day

profit after strong job numbers

send up $A

Lukas Kamay, 26NAB associatedirector since

September 2011Mar 6 $518,000ABS retail

trade

Fraud Patrick Durkin reports on the sting that uncovered an alleged $7m haul from the forex market.

tradingisnot; it isbrokertobrokerandthereis no concern about insider trading”, courtdocumentsclaimhetoldhisfriend.

Little did they know that undercoverpolice were watching, using long-distancelistening devices as part of a four-monthsting codenamed Operation Leith, triggeredby their broker at Australia’s largest onlineforextrader,Pepperstone,OwenKerr.

Kerr had become suspicious about aseries of winning trades on “fluctuations inthe Australian dollar”, made minutes andsometimes seconds before the announce-ment of ABS economic data. Kerr begansurfingthenetviahisLinkedIngoldaccountand Kamay’s profile revealed he was friendswith Hill, a young employee at the ABS.“That was when it suddenly clicked that thisguywasonlytradingABSdata,”Kerrsays.

To friends and peers, Kamay had all thetrappings of a highly successful trader. OnApril 8 this year he successfully bid for thepurchase of a $2.4 million three-bedroomloft apartment in the inner-Melbournesuburb of Albert Park designed by twinsAlisa and Lysandra Fraser for the realitytelevisionshowTheBlock.

CriminalchargesallegethatHillhadbeenpassing on ABS data to ‘‘predict fluctuationsin the Australian dollar’’ before it wasreleased to the market by the ABS on the dotof11.30amontherelevantdays.

The charges have also sparked a debateabout oversight of the $5 trillion foreignexchange markets and the aggressivecultureontradingfloors.

According to court documents, Kamayreconnected with his old mate on aWednesday in early August. The two had alot to discuss including Hill’s graduate jobat the ABS and Kamay’s good fortune in

landingthejobatNationalAustraliaBank.The cut and thrust of the sharemarket

and currency trading must have seemedanother world to the young Hill, workingin a stuffy Canberra office of the ABS.The men spoke again the next day andaccording to police, that’s when the die mayhavebeencast.

Police claim that some time over thisperiod Kamay offered Hill $60,000 to pass

For every 26-year-old kidinsider trading, thereare probably 10 [people]not stupid enough tosettle their tradesthrough the FX market.Scott Schuberg, Rivkin CEO

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17-18 May 2014www.afr.com | TheAustralianFinancialReview Perspective 19

room that only experience can provide”,read a Monash University report which hasnowbeenremovedfromitswebsite.

Kamay was an “extroverted, switched onand inspiring” rising star, according to afriend. He was a first-rate student, graduat-ing Monash with Dean’s Honours andfinishing in the top 5 per cent of the course.His outstanding marks gained him oneof just two graduate positions from amonga few thousand applications to work atGoldman Sachs. The prized job launchedhim from his origins in an upper-middleclass family into the top echelons of thetradingworld.

His stellar rise gave Kamay theopportunity to speak to pastfriendsandpeersaboutthesecretof his success. He spoke to a

Financial Services Institute of Australasiaevent for young members on “personalbranding” and in late July last year spoke tohis old school Loyola College about hiscareerinfinance.

ButbyFebruary2010hewasmaderedun-dant as part of savage cuts to the investmentbank in the wake of the global financialcrisis,adaythatleftanindeliblemark.

“I vividly remember that day. They calledme up to the boardroom, sat me down andgave me the bad news, then directed mestraightoutthebuilding,”hesaidinaspeechto Loyola College students, according to theschool’snewsletter.

“My desk would be packed up and sentouttomeviacourier. I thinkthiswouldhaveto be the lowest point of my very shortcareer. Standing out the front of 101 CollinsStreet with less than a year’s experience andfeeling as if all that hard work I had put inwasfornothing.

“I mention this to you today because atsome point during your life you will experi-ence something similar to this, whereby youare knocked down or fail to achieve some-thingyoureallywant,”Kamaytoldstudents.

The young trader had a steely determina-tion to break back into the corporate worldand after a year’s break secured an analystposition at JBWere. In September 2011 heleapfrogged back to the National AustraliaBankinitsforeignexchangedesk.

“It is very easy to get caught in this lowpointbutyourabilitytoreboundissopower-fulandmakesyoumoreresilient.Ilivebythephilosophy that things are meant to happenfor a reason and your career will be shapedby many things that are not always in yourcontrol,”KamaytoldtheLoyolastudents.

Whatever the reason for Kamay’sextraordinary profits, physical and videosurveillance by the AFP certainly raisesseriousquestionsforthepairtoanswer.

Kamay’s biggest single one-day profit,according to police, came on March 13 thisyear, when he made more than $2.5 millionafter the release of surprisingly positivejobsdata.

At 11.30am precisely, on the secondThursday in March, the ABS publishedlabour force data that showed employmenthad surged by 47,300 in January. Theincrease stunned economists, who had fore-cast a gain of less than one-third of that. Inthe micro-seconds after the figures weretransmitted to trading screens around theglobe, the Australian dollar rocketed fromUS90.16¢ to as high as US90.81¢, makingKamayaprofitof$2.5million.

By this time, Kamay’s employer NAB andHill’semployertheABSanditstwoprinciplebrokers, had been brought into the stingwhich included video surveillance, phonetaps and undercover cops watching theireverymove.PoliceallegethatmoreABSdatapassedhands24minutesbeforenewfigureson job vacancies, retail trade and construc-tionactivity.

“About 11.06am on 2 April 2014, Hill wasobserved leaving his desk at the ABS in Can-berra, with a phone and a piece of paper. Ashort time later he entered a cafeteria.[Aminutelater]Kamaywasobservedleav-ing his NAB workplace in Melbourne”,courtdocumentsclaim.

At 11.14am Kamay supposedly madetrades via his iPhone but made a lossof $55,765. At 11.37am Kamay swiped backinto the NAB office and at 11.49am Hillswiped back into the ABS office. At 4.57pm

Kamay called his broker and said “he mightputsomethingontomorrow”.

Police will need to prove that the pairwas now deliberately making small tradesin the wrong direction when theyalready knew the outcome in an effort toavoidattention.

Pepperstone’s Kerr says that by thistime, Kamay was becoming increasinglynervous because the broker requiredthe AFP’s approval to transfer the money topersonal accounts. “Kamay would call usand be quite nervous about what was goingon because it wouldn’t appear in his bankaccount straight away,” Kerr says. “We justtold him it was processing. We didn’t giveanythingaway.”

When the men were simultaneouslyarrested last Friday week, the police seizedbooks, phones and documents. Hill’s bankaccount was frozen with a balance ofjust$36,891.

The case has sparked fresh discussion inthedebateabouttheregulationofthe$5tril-lion foreign exchange markets and the cul-ture at broking firms. Industry insidersparticularlyquestionthepressureplacedonyoung professions to quickly achieve, a fac-torinthecaseofconvictedinsidertraderandSydney socialite John Hartman who wassentenced in 2010 to 4½ years for insidertrading,asentencereducedonappeal.

The head of the stockbroking firmfounded by Australia’s highest-profileinsider trader, the late Rene Rivkin, has alsowarnedthe$7milliontradingscandal is justthetipoftheiceberg.

“Forevery26-year-oldkidinsidertrading,there are probably 10 smarter men andwomen not stupid enough to settle theirtrades through Australian FX marketmakers and who know their clients’ profita-bility intimately,’’ the chief executive ofRivkin,ScottSchuberg,toldclientsinabrok-ingnotethisweek.

Despite NAB insisting Kamay did not usetheiraccountsorsystemsandABScallinginan external auditor, Schuberg says there areseriousquestionsforthemtoanswer.

“While the ABS’s defence is that it’s thefirst time anyone has been caught in100 years and NAB states that it has a ‘strictcode of conduct that all employees mustadhere to’, the reality is that the reputationsof both of these organisations should bedamaged because that’s the only way they’llfocusondeeperculturalreform.”

Former prime minister KevinRudd and three of his formerministers – Mark Arbib, PeterGarrett and Greg Combet –took the stand this week at the$20 million royal commission

intothebotched$2.8billionhomeinsulationscheme.

The evidence from the Labor politicianswho proposed and bankrolled the schemewas supposed to provide some clarity abouthow a program to provide insulation to2.2 million homes failed so badly, but itquickly degenerated into the usual blamegamebetweenpoliticiansandbureaucrats.

Critics say the inquiry is a witch hunt setup by the Abbott government to damageLabor,butsofarno“smokinggun”hasbeenfoundorlikelywillbe.Thereisjustonemoreday of public hearings. The insulation pro-gram was just a hastily cobbled togetherscheme which was badly implemented andexploitedbyunscrupulousoperators.

There is no doubt the pink batts schemewas primarily aimed at kick-starting theAustralian economy after the global finan-cialcrisishit inlate2008andearly2009.

Evidence to the inquiry showed Garrettalone saw the scheme as a worthy vehicle toboostenergyefficiencyinAustralianhomes.But his ministerial colleagues – includingRudd and Arbib, who described himself asthe “salesman” of the scheme – were moreconcernedwiththeeconomicstimulusfromthe scheme as part of the $42 billionresponsetotheglobaldownturn.

Rudd told the inquiry this week his gov-ernment was “under the pump” to respondto the cascading economic fallout from theGFC. The home insulation scheme was awaytocreatejobsquickly,especiallyinareasof high unemployment such as regionalAustralia.

The inquiry, headed by Ian Hanger, QC,earlier heard politicians put a tight timeframe on the program – cutting it from fiveyears to two years – and implementing alaunchdateofJuly1,2009.

Despite seven weeks of evidence andmore than 50 witnesses, no one has takenownership of the scheme, or the watered-down safety training requirements forsupervisorsonly,notindividualinstallers.

Rudd, who took the stand on Wednesdayafter flying back from the United States to giveevidence,returnedfire,pointingthefin-geratpublicservants.

His historic move to release cabinet dis-cussions to the inquiry – originally blockedby Commonwealth lawyers – helped bolsterhisargumentthatothersweretoblame.

He said the bureaucrats proposed thehome insulation scheme and the July 1launch date. “It was never top of my mindabout what to do with ceiling insulation,”RuddsaidduringhisevidenceonThursday.

After cross-examination from one of thearmy of lawyers at the inquiry, Rudd saidthat as prime minister, he took ultimateresponsibilityforthescheme.

But he said the collective ministerialresponsibility for the failures of the schemeonly goes so far, and if there were designproblems or safety issues he would havehopedtohearaboutit.

“If any public servant said there was asafetyrisktoworkersorhouseholdsI’mcon-fident the reaction of ministers would havebeen,‘Whoa,thishastobedealtwith,’”Ruddtoldtheinquiry.

“If that involved a delay that would havebeentheresponse.”

Rudd admitted there had been chronicsystem failures. “I have accepted ultimateresponsibility for what is not just bad, but atragedy,”hesaid.

“I want to know which of these [oversightmechanisms] failed to deliver and why. Ican’t point to a public servant or ministerandsaytheywereincompetent.”

The final big witness to take the standthis week was former minister GregCombet, who was appointed to tied up looseends after the scheme was shut down inFebruary2010.

The former ACTU boss, who was well-versed in health and safety issues, says thehome insulation scheme was an accidentwaitingtohappen.

He says there were “obvious flaws” in thedesign of the scheme, which were exploitedby dodgy insulation companies whichclaimed rebates for work not done andbreachedsafetystandards.

“My colleague, Minister Garrett, did theright thing. Those who did the wrong thingweretheinstallerswhocontinuedtousesta-ples for the installation of foil insulation andthey carry the onus of the responsibility,” hetoldtheinquiry.

Combet drafted a $15 million assistanceprogram for installers, many of whomwent out of business once the scheme wasclosed down. They are now consideringlegal action against the Commonwealth forfinancial loss.

The families of the four installers whodied have sat through every day of the hear-ing, and their hopes for a definitive answerfromthe$20millioninquirymustbefading.

The Royal Commissioner’s report is duebymidyear.

Ex-Labor chiefsbat away clarityInsulation scandal Evidence-giving degenerates intoblame game and recriminations, writes Mark Ludlow.

Ultimate responsibility ... former prime minister Kevin Rudd. PHOTO: GLENN HUNT

Lukas Kamay’smother hides herson outsideMelbourneMagistrates’ Court.PHOTO: WAYNETAYLOR

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