LAWFUEL – The NZ Law Jobs & Legal Announcement Service – Mr Dominic Fodera, former Finance Director and Chief Financial Officer of HIH Insurance Ltd (HIH) was sentenced today in the NSW Supreme Court to three years and four months imprisonment on charges brought by the Australian Securities and Investments Commission
Mr Fodera had earlier pleaded guilty to a charge of knowingly or recklessly failing to act honestly in the discharge of the duties of his office, dishonestly and intending to gain an
advantage for HIH, namely a beneficial accounting treatment.
ASIC Chairman, Mr Tony D’Aloisio, said that today’s sentence served to demonstrate how seriously the Courts treat failures of company officers to properly discharge their duties.
ASIC had alleged that Mr Fodera, in his capacity as an officer of HIH, failed to inform the directors of HIH and its auditor of the true terms and effect of the understandings and
contractual arrangements proposed and entered into between HIH and its related companies and Hannover Ruckversicherungs-Aktiengesellschaft, Hannover Reinsurance (Ireland) Ltd and E + S Reinsurance (Ireland) Ltd (Hannover Re), relating to the financial reporting period
ended 30 June 1999.
HIH had entered into reinsurance arrangements with Hannover Re. HIH had accounted for the arrangements with Hannover Re on the basis that they were reinsurance contracts involving a transfer of risk. The overall profit and loss impact of this accounting treatment was the booking of an additional $92.8 million to HIH’s operating profit before abnormal items and income tax. On 9 September 1999, HIH lodged its annual report
for the 18 months from 1 January 1998 to 30 June 1999 with the Australia Stock Exchange and ASIC. HIH recorded a consolidated profit of $102 million before abnormal items and
income tax and a loss of $21.2 million after abnormal items and tax.
In determining the sentence, Her Honour Justice Bell said, ‘As the company’s Chief Financial Officer, the offender bore heavy responsibility in its dealings with the auditor and as a senior
executive member of the board he bore a heavy responsibility to ensure proper disclosure of all relevant matters within his area. The offender’s deliberate breach of his responsibilities in
each of these respects was a serious breach of trust.’
Mr Fodera is presently in custody having been sentenced on 7 June 2007 to three years imprisonment, following his conviction on other criminal charges laid by ASIC of authorising, on 26 October 1998, the issue of a prospectus by HIH Holdings (NZ) Ltd to raise
up to $155 million of converting notes, that contained a material omission.
Justice Bell directed that the sentence be partly concurrent with the sentence Mr Fodera is presently serving on the prospectus charge. Her Honour specified a single non-parole period
of three years in respect of both the Hannover Re and the prospectus charge.
The Commonwealth Director of Public Prosecutions prosecuted the matter.
Mr Fodera is the ninth person to be sentenced in relation to charges brought by ASIC as part
of its investigation into the collapse of the HIH Group of companies and referrals made after the HIH Royal Commission.
The other persons to have been convicted were:
• Mr William Howard, former Finance General Manager of HIH, sentenced on
23 December 2003 to imprisonment of three years, fully suspended on the basis
of a number of factors including his ongoing assistance to the HIH
• Mr Rodney Adler, a former director of HIH, sentenced on 14 April 2005 to
imprisonment of four and a half years with a non-parole period of two and a
• Mr Ray Williams, former Chief Executive Officer of HIH, sentenced on 15
April 2005 to imprisonment of four and a half years with a non-parole period of
two years and nine months.
• Mr Terry Cassidy, the former Managing Director of HIH, sentenced on 29
April 2005 to imprisonment of 15 months.
• Mr Antony Boulden, the former Financial Controller of FAI’s Corporate and
Professional Insurance Division, sentenced on 1 December 2006 to
imprisonment of 12 months to be served by way of periodic detention.
• Mr Bradley Cooper, the former Chairman of the FAI Home Security Group,
which had dealings with the HIH Group, sentenced on 23 June 2006 to
imprisonment of eight years with a non-parole period of five years.
• Mr Robert Kelly, former Assistant Company Secretary of HIH, sentenced on 3
November 2006 to 500 hours community service.
• Mr Frederick Lo, former Company Secretary of HIH, sentenced on 23 February
2007 to imprisonment of nine months.
In addition to its criminal proceedings, ASIC:
• Successfully brought a civil penalty action against Messrs Adler, Williams and
Fodera, who were found to have breached their duties under the Corporations
Act. Messrs Adler and Williams were banned from acting as company
directors and were ordered to pay aggregate compensation totalling nearly $8
million to HIH Casualty and General Insurance Limited (together with Adler
Corporation). All three men also received various pecuniary penalties.
• Accepted an Enforceable Undertaking from General Re Australia Limited,
which provided for the payment of $27.2 million by General Re to the
Liquidator of the HIH Group.
• Accepted an Enforceable Undertaking from Jonathan Pye, former audit partner of Arthur Andersen, the auditor of HIH. The Enforceable Undertaking was offered after ASIC expressed concerns about the audit of FAI in 2000, in
particular in relation to the disclosure concerning a $200 million preference share issue.