Leighton covered up project blowouts, claims executive
February 17, 2015 – 12:15AM
Nick McKenzie, Richard Baker, Jenny Wiggins
Giant Australian construction firm Leighton Holdings faces courtroom accusations it concealed a financial black-hole worth up to $4 billion from shareholders, potentially breaching continuous disclosure laws.The allegations from a former senior company manager in the Federal Circuit Court come with the firm facing a series of high-level investigations, including an internal probe into the purchase of expensive gifts for former NSW premier Barry O’Farrell and other politicians and business figures.
Fairfax Media can reveal that former senior technical manager Alan Henry told the court that Leighton’s chief operating officer, Adolfo Valderas Martinez, and other top executives have been publicly over-stating revenue “for fear” that disclosing adverse results “would jeopardise the company’s reputation and financial position”.
Mr Henry, a 20-year Leighton veteran, has also alleged that a number of Leighton executives had “suffered extreme stress and anxiety as a result of pressures to falsify or improve inaccurate reporting figures”.
The revelations come just three years after Leighton was sanctioned by ASIC for failing in 2011 to fully reveal the extent of its financial position in major projects in Victoria and Queensland, causing massive share market losses and a class action law suit that cost the firm $70 million.
A Fairfax Media investigation can also reveal that Leighton operating company Thiess has apparently breached its own policies by purchasing a $1195 Montblanc pen for Mr O’Farrell, who said in a statement he and his staff did not recall receiving the pen.
The purchase of the luxury pen is one of a number of expensive items bought with company funds that appear to breach company policies banning gifts to government officials or the purchase of goods unrelated to company business. A company legal source said other egregious examples include the personal assistant of a top company executive using a Thiess credit card to pay for botox treatments and staff using company credit cards while on leave.
The latest allegations add to the raft of misconduct claims already facing Leighton and suggest ASIC’s previous 2012 sanctioning of the firm for failures to disclose cost blow outs has had little effect on its corporate behaviour. The new claims also raise questions about the progress of other longstanding and unresolved probes into the firm.
Federal police are expected to soon charge several of former Leighton executives over alleged bribery linked to a multi-million dollar oil pipeline in Iraq in 2010, while ASIC is preparing its own case relating to accounting and disclosure discrepancies linked to a 2010 joint-venture project in India with firm Welspun. On Monday, Fairfax Media revealed how Indian police have issued a criminal summons to Thiess chief Bruce Munro over allegations he and Thiess defrauded Indian businessman Syam Reddy in connection to a massive coal deal.
The latest failure-to-disclose allegations are detailed in an unfair dismissal case lodged in November by Mr Henry. He says he was pushed out of Leighton after repeatedly urging Mr Valderas and other senior figures to release unflattering financial figures.
Mr Valderas was appointed Leighton’s chief operating officer in October 2013 ahead of a $1.1 billion takeover by Spanish construction company Grupo ACS in March 2014.
ACS, which controls 70 percent of Leighton, fired Leighton’s chief executive and chief financial officer in March last year, appointing former ACS executive Marcelino Fernandez Verdes as CEO and chairman.
Mr Henry has sworn that Mr Valderas knew of major project blow outs but “intentionally chose to disregard their significance.”
Among the evidence Mr Henry has presented to the court is a photo of a whiteboard used during a management meeting in Perth in February last year. The photo allegedly shows a $205 million blow out on the Chevron Gorgon Jetty Project, from $2.688 to $2.893 billion.
Mr Henry said that when he raised the issue of under-reporting on the jetty project at a further meeting with Mr Valderas and Leighton Contractors managing director Craig Laslett, and questioned whether it should be disclosed to the Australian Securities Exchange, his observations were “not favourably received”.
“The issues raised were a major concern for Mr Valderas and the company, particularly in light of the recent change of control and their desire to develop a good reputation,” he court case states.
Mr Henry said that during another high-level meeting executives discussed how Leighton should retrieve $1.464 billion from the client on the jetty project, given it had only approved payments of $1.428 billion to Leighton and had rejected most of the additional claims already submitted.
Mr Henry said it later became apparent that the firm had relied on “a knowingly false forecast” of $2.688 billion relating to the Gorgon project
Mr Henry has alleged he was “concerned” by this as the “number was … used to uphold the first quarter results publicly issued by Leighton Holdings”.
The court files state that Mr Valderas has previously rejected Mr Henry’s claims, but Leighton declined to respond to questions from Fairfax Media.
Australian listed companies are required by law to give continuous and honest disclosure to the market so their shareholders are fully informed of the financial position.
Mr Henry has also alleged the company relied on “a total of around $4 billion” in revenue that its clients had not agreed to pay, did not know about or would most likely dispute.
He has alleged this “unapproved revenue” stemmed from an oil pipeline project in Iraq, a Hong Kong Kowloon rail terminus project, the Chennai to Nashri Tunnel project in India and the Chevron Gorgon Jetty project.
Mr Henry said he sought to “avoid the victimisation that his previous colleagues had suffered [in questioning the failure to act on cost blow outs] by raising the issues with Mr Valderas on a number of occasions with the hope that the issues would be addressed”.
“However, in raising these concerns, the applicant received significant push back from Mr Valderas and the management team, for fear that such results would jeopardise the company’s reputation and financial position,” the legal claim states.
“Not only was Mr Valderas aware of the shortfalls but he also intentionally chose to disregard their significance despite the number of times the applicant [Mr Henry] raised them.”
AsianExtractor: Unearthing Accounting Fraud in Asia 