By Charlotte Grieve
It was a warm summer morning in December 2016 when Alex Turnbull and Pengana chief executive Russel Pillemer met in the harbourside eastern suburb of Sydney’s Double Bay.
Over breakfast at Indigo café, the pair discussed a business deal that led the former prime minister’s son to believe his family’s longstanding stake in the investment company Pengana was “dead” – not worthless, but no chance of rising in value.
It was here Alex Turnbull confirmed he wanted to exit the loan his father had given Pillemer in 2008 to buy shares in Pengana. It was a small, illiquid investment and if there was an opportunity to cash in, he was going to take it.
Former prime minister Malcolm Malcolm Turnbull on election night 2016 with his family Lucy, Alex and Daisy. Credit:Wolter Peeters
This moment would come to fracture the carefully nurtured relationship between two elite Sydney families. Malcolm Turnbull and Pillemer shared close personal and professional ties dating back decades.
Pillemer helped grow Turnbull’s political base within Wentworth’s influential South African Jewish community, and went to great lengths to shield the family’s sensitive business dealings from public view. While Turnbull invited the Pillemers to long lunches, allowing them to rub shoulders with some of the world’s most powerful figures.
The families are now no longer on speaking terms, after Alex Turnbull launched legal proceedings in the NSW Supreme Court alleging Pillemer engaged in misleading and deceptive conduct by withholding crucial information about the potential for Pengana to list on the ASX. Had Alex Turnbull been better informed, he claims he would have transferred the loan into shares and later sold them for a profit. He’s now suing for damages of up to $12 million to make up for the loss he claims he suffered.
But any deal regarding the loan was politically sensitive. His father had climbed the ranks to become prime minister and exposure to an investment firm that had stakes in major Australian companies was sure to cause grief.
If Pengana did list, its shareholders would become public and Turnbull’s enemies in politics and the media could pounce on his son profiting from a company that a year earlier, Turnbull had scrubbed from the register where politicians must declare potential conflicts of interest.
Both parties were acutely aware of this, but Alex Turnbull had already been forced to resign from his role at Goldman Sachs after being frozen out of deals due to conflicts related to his father’s career.
He had accepted there were “opportunity costs” in being the PM’s son but claims he was determined not to allow his family to prevent him from making money in this instance and says he would have covered the costs of the political storm had anything spilt into the media.
“Maybe I’d spend a couple of thousand dollars on communications advisors for a three-day rinse cycle with the media,” Alex Turnbull told the NSW Supreme Court this week. “So very trivial compared to the loan sums that’s for sure.”
In Pillemer’s defence, he claims he repeatedly asked the family to remain involved in Pengana, and even told Alex Turnbull a merger with Hunter Hall could lead to Pengana’s listing, but the family’s position was to cash-in with little public fanfare.
While the lawsuit is about a business deal gone wrong involving allegations of threats, lies and deception, it provides a rare glimpse into the machinations of power, money, family and politics that all too often occur behind closed doors.
The saga also raises key questions about Australia’s political disclosure laws, and the complexities of being a wealthy man who ends up leading the government.
But how did it get to this?
Malcolm Turnbull and Pillemer met in the 1990s while working at Goldman Sachs near Sydney’s bustling Chifley Square. Turnbull was his senior, being managing director of the investment bank at the time.
Turnbull, in his memoir, describes being disturbed by the firm’s workaholics who were determined to get rich above all else, and a culture of lavish entertainment and intense politics. But he made lifelong friends and thrived in the Howard days of deregulation overseeing big corporate deals.
Russel Pillemer (centre), with Malcolm Turnbull (right) in 2003, the year they co-founded Pengana. Credit:Bob Pearce
Pillemer – a successful chief executive who this week was described by Alex Turnbull as having a “fragile ego” – describes his business partner as his “hero” and a man he would “do anything for”.
So deep runs the relationship that Pillemer’s father regards the day Turnbull became PM as one of the best of his life and keeps a scrapbook of his political achievements.
In 2003, when Pillemer returned from living in New York with his young family, the pair went into business together when they co-founded Pengana from an office in Harry Seidler’s Australia Square building.
Pillemer’s brothers helped build the funds management business, while the foundations of Turnbull’s political career were also starting to take shape. From Pengana’s office, Liberal veteran Scott Briggs worked full-time on Turnbull’s recruitment drive.
When Turnbull became the federal member for Wentworth in 2004, he declared an 8 per cent stake in Pengana on the register of members’ interests. But that all changed in 2007, when Turnbull was environment minister and forestry enterprise Gunns Limited was given government approval to build a paper mill in Tasmania.
Pillemer claims he received an inquiry from a journalist about Pengana’s holding in Gunns and asked whether this created conflicts of interest for the minister.
After quickly checking the records, Pillemer found Pengana was no longer invested in Gunns, but it was a timely reminder of the risks in mixing business and politics. “That was a very close call,” Pillemer claims he told Turnbull at the time, in an affidavit. “Pengana did actually previously own this stock but fortunately, we sold it a few months ago.“
Turnbull has no recollection of this conversation, rather claiming Pengana’s largest shareholder, the National Australia Bank, had forced the Turnbulls out of the company because the major bank was uncomfortable with the political connection.
Whichever version is the truth, Turnbull loaned $6 million so Pillemer could buy his shares, and accordingly, updated his public disclosures register to replace the Pengana shares with a loan to Pillemer’s family trust.
Enter Turnbull junior
In 2013, Turnbull’s son was enlisted to review the family’s investment portfolio to identify assets “which could be disposed of to reduce my father’s disclosure obligations as a federal member of parliament”, according to affidavits.
It was here Alex Turnbull discovered Pillemer had paid himself dividends of up to $500,000 from the loaned shares. Turnbull said he was “disappointed” and “surprised” yet conceded there was no legal obligation for the family to receive dividends.
There were tough conversations between two old friends and the loan was restructured so the Turnbulls would now receive dividends from the loan, which Pillemer’s lawyer, Robert Newlinds SC, would later call a “synthetic equity” in Pengana.
Newlinds this week argued, as a result of the restructure, the Turnbulls were now more exposed to political attacks than when it was “just a vanilla loan agreement”
“The reason I say that is because once that changed, it meant that you could be said to have a direct financial interest in whether Pengana makes a profit out of which you could defer dividends?” Newlinds quipped.
Turnbull maintains disclosing the loan was adequate and at any time, journalists or politicians could have asked questions. The members’ interest register is “not a comprehensive audit”, he told the court, but Turnbull would have explained the arrangement in full, if asked.
During the loan restructure, a key clause was inserted – “Clause 19” – that compelled Pillemer to keep the Turnbulls abreast of any changes to the value of Pengana.
Russel Pillemer helped build political support for Malcolm Turnbull among Wentworth’s powerful South African Jewish community. Credit:Joe Aarmao
Pillemer was immediately concerned by the “extent and frequency” of information he would have to provide, as being chief executive he was privy to mountains of sensitive information.
“The purpose of this clause should only be to provide you with the same level of information that you would have if you were an outside shareholder in Pengana,” Pillemer requested.
“I understand your concerns and I agree with you,” Turnbull responded, according to Pillemer’s affidavit.
But now, the extent of this clause is a crucial part of the lawsuit. Pillemer says he was bound by confidentiality agreements that prevented him from disclosing internal financial modelling that predicted Pengana’s share price could triple if it were to be merged with Hunter Hall.
He says he kept the family across all information that was provided to shareholders, but there was a limit to how much could be divulged, regardless of the close personal ties.
“There were certainly things that I have not told him,” Pillemer told the court. “I always would consider myself to uphold confidentiality agreements.”
Malcolm becomes PM
When Malcolm Turnbull replaced Tony Abbott to become the 29th prime minister of Australia in September 2015, he hatched a plan to offload the loan allowing him to scrub any remaining link to Pillemer or Pengana from his members’ interest register.
“I have numerous enemies in both politics and in the press, and I am under a huge amount of scrutiny,” Turnbull allegedly told his old friend and business partner. “I therefore want to get rid of any sensitive investments.”
In sworn affidavits, Pillemer says Turnbull had told him by gifting $6 million to his children and transferring the loan to a single-purpose vehicle called Maurtray, “I would be able to amend my parliamentary disclosures.”
Pillemer says he supported the arrangement and understood the loan to be sensitive for two reasons – Pengana owned shares in companies “that were impacted by government actions and inactions”.
And even though Pillemer believed Turnbull’s disclosures were above board, he feared the PM’s “detractors would claim it was in essence equity” in Pengana.
Turnbull denies all of this, and claims the gift has nothing to do with disclosure. “Parents often, you know, gift, make gifts to their children obviously,” he told the court.
But Alex Turnbull made a crucial error in the first version of his affidavit, accidentally referring to the $6 million “gift” as a “loan”. Newlinds accused Alex Turnbull of amending his evidence to suit his fathers’ narrative and pressed the former prime minister for details of the exchange.
“Do you remember them saying ‘thank you’?” Newlinds said with a smile. “Of course. Both of them have always been very grateful for the love and support of their parents.”
But he was less friendly with Alex Turnbull, raising serious allegations the arrangement could be perceived as an effort to hide his father’s assets from public scrutiny.
“You can imagine, if it ever came out, that such a hypothetical transaction ever came out, and, obviously, the transaction is being designed to keep things secret, what the financial press and the opposition politicians would make of that, can’t we?” Newlinds said. “We can imagine, can’t we, phrases such as, warehousing, being turned out, can’t we?“
He said, she said
Whether it was a gift or loan, Alex Turnbull and sister Daisy now owned the asset.
Private companies, especially those involved in funds management where cash is tied up in stocks, are stubbornly illiquid. So, when Pengana’s major shareholder, NAB, said it wanted to sell its shares in October 2016, this opened up an opportunity for the loan to be cashed in.
Alex Turnbull was thrilled and quickly moved to seal the deal. He didn’t want to have to deal with Pillemer for another 10 years.
During the next few months, a series of contested conversations took place. It’s impossible to tell who is lying because Alex Turnbull often used “burner phones” during travel to China and Pillemer was in the habit of deleting text messages because he was being sued by another business partner over a similar matter.
What is agreed is that Pillemer made repeated efforts to persuade the Turnbulls to remain involved with Pengana. “I viewed their continuing involvement to be a major positive for Pengana going forward as well as for me personally,” his affidavit states.
What’s not agreed is to what lengths Pillemer went to in an effort to persuade the Turnbulls to stay.
During the same period, Pillemer was navigating a series of fast-paced and high-stakes financial deals that would ultimately result in a reverse takeover with Hunter Hall that would see Pengana listed on the ASX, and drastically increase the value of the shares.
In one key telephone call, Pillemer claims to have specifically told Alex Turnbull about the potential merger and once again made the case for the Turnbulls to stay involved.
But in complete contradiction, Alex Turnbull says he was told there was “no chance” Pengana could be listed, now, or anytime soon and this was the key reason he decided to cash in the loan. He claims to have asked “is there anything you’re not telling me?” to which Pillemer responded “no”.
The Turnbulls visit to Hurstville: Alex, Yvonne, granddaughter Isla, Malcolm and Lucy Turnbull. Credit:Twitter
When Pengana’s deal with Hunter Hall was eventually made public, Alex Turnbull sent Pillemer a text message. “Congratulations on the deal.”
Newlinds this week argued this response, and friendly conversations between the two over the next few months, showed Alex Turnbull was not only aware of the potential deal, but showed no remorse over his decision to cash in the loan before the listing.
As Pengana’s stock price climbed, Pillemer made contact with Alex Turnbull, offering to compensate the family as a gesture of goodwill. “I feel bad that you guys not sharing in any of this upside – and would be very happy to get you back in. Let’s discuss,” Pillemer said in a text, according to court documents. “The friendship of your family is infinitely more important to me than the $$ and I would be very happy to get additional value for you.”
Two minutes later, Alex Turnbull responded: “Yeah look would have taken the shares but given that AFR [Australian Financial Review] would have been onto to who Maurtray is within 10 minutes it’s been extremely frustrating dealing with all this stuff without being able to act in a 100% commercial way. Let me know what you think is fair.”
Newlinds regarded this as a smoking gun, Alex Turnbull now had access to detailed information about the deal and still did not feel he had been misled or deceived.
It took another month for the relations to sour. Alex Turnbull wanted $3 million, Pillemer said that was unreasonable and in any event, he was low on cash and couldn’t sell shares for another two years.
“You don’t want my parents to come after you,” Alex Turnbull allegedly told Pillemer.
Now that matter is in Justice Kate William’s hands who will determine which account is more believable and to what extent Pillemer could have met his, at times, conflicting legal duties between his powerful friends and shareholders.
Why does it all matter?
University of Sydney Business School senior lecturer Dr Andrew Grant says information related to mergers is always treated as top secret, regardless of whether you’re the prime minister’s son or not.
Inside details of merger negotiations are incredibly sensitive and leaks can have drastic impacts on the stock value, especially for Hunter Hall which was listed at the time. Insider trading offences carry jail sentences of up to 10 years.
Alex Turnbull said he could have been asked to sign a confidentiality agreement, which would avoid any legal breaches. The family’s strong ties meant there was an element of trust and a belief that Pillemer would “act reasonably”.
But Dr Grant questions whether other borrowers would have been offered that same courtesy, and in any event, a merger is no guarantee the stock price will go up.
“The merger could have failed, they could have made bad transactions, the share price could have gone down,” he says. “What would Alex Turnbull say then, ‘you told me to take the shares, now the stock price has gone down. I’m going to sue you for that?’
“It’s not his job to offer Alex Turnbull financial advice,” he says. “He needs to look after his shareholders.”
Dr Grant says Alex Turnbull should have done his own analysis of the market based on publicly available information and factored in the possibility for a merger when making the decision to cash-in the loan. He says this lawsuit smacks of someone suing with the benefit of hindsight.
“It’s all after the fact. It would have been nice to invest in companies go up. You’re telling me I wouldn’t have put money into vaccine manufacturers a year and a half ago?”
But the lawsuit has also exposed how policymakers deal with potential, or perceived, conflicts of interest. Independent Senator Rex Patrick says transparency is the best policy as it’s essential to upholding integrity and faith in the country’s political leaders.
“Wealthy people tend to have more complicated financial arrangements,” Patrick says. “That means that politicians with a lot of wealth need to go that little bit further when it comes to their disclosure.”
Independent Senator Rex Patrick says wealthy politicians should go further with disclosure. Credit:Dominic Lorrimer
Patrick says the Turnbull lawsuit, combined with Christian Porter’s blind trust saga, demonstrates the need for reform. “The current parliamentary disclosure requirements are inadequate and need to be more prescriptive.”
However, one former senior Liberal veteran, who declined to be named, says the public misunderstands how politicians deal with conflicts. “Who has gone into Australian politics in the last 40 years and come out better off than they were before, physically, mentally or financially?
“The better test of politicians is – let somebody value them going in and value them going out again. 99 per cent of them were worth nothing when they went in, and nothing when they came out.”
Your own man
Malcolm Turnbull’s memoirs make multiple references to the importance he placed on “being your own man”.
“Dad had drilled into me the importance of working for yourself, of being your own man,” he says. “What did I really want to do? The desire to be my own man remained paramount.”
In mid-December 2017, after a series of threats were allegedly exchanged between Pillemer and Alex Turnbull, Malcolm set up a meeting at the family’s Point Piper home.
It was here Turnbull encouraged the parties to settle and put the dispute behind them. But Pillemer wasn’t prepared to pay the amount Alex Turnbull had sought and claims he would not be bullied by a powerful family with deep pockets.
Any effort to ensure the Turnbulls’ dealings with Pengana were kept quiet have clearly now failed, with mainstream media covering the family’s intimate private dealings.
These revelations have raised questions about the way money and power intersect, with many left asking the question, why would the Turnbulls bring this upon themselves?
One source close to the family believes the answer is simple. “It’s Malcolm letting Alex be his own man.”
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