Former Star CEO breached director’s duties, other board members cleared

Former Star Entertainment chief executive Matt Bekier has been found to have breached his duties as a director of the embattled casino operator, but in a landmark Federal Court judgment, Justice Michael Lee found that the board’s other high-profile directors did not.

His judgment clears former chairman John O’Neill, and other members of the board of allegations that they did not pay sufficient attention to the risks of money laundering and criminal association that have led the casino operator to the verge of collapse.

Lee said ASIC had not established that O’Neil, Richard Sheppard, Katie Lahey, Sally Pitkin, Richard Sheppard, Gerard Bradley, Benjamin Heap or Zlatko Todorcevski had “each failed to exercise their powers and discharge their duties”.

But his judgment expressed disquiet over the non-executive directors’ submissions, noting that the “more self-congratulatory submissions of the non-executive directors are jarring” given the casino’s conduct.

But Justice Lee also defended the directors against hindsight bias, quoting philosopher Soren Kierkegaard: “Life can only be understood backwards, but it must be lived forwards.”

Justice Lee found Bekier had breached his directors duties in relation to his actions in response to a damning KPMG report detailing how Star was falling short of its anti-money laundering and counterterrorism financing obligations.

Justice Lee’s breach findings also related to Bekier’s response to the information about notorious junket operator Sun City and its conduct at the Salon 95 gaming room where bundles of cash were handled in contravention of gambling laws.

And while Bekier was found to be a “good witness” under initial cross-examination – ultimately his evidence was found to be “unconvincing” in some respects, “contradictory and, on occasion, highly improbable.”

The judgement also found that Star’s former chief legal officer Paula Martin also “failed to exercise her powers or discharge her duties as an officer of Star”.

The case could still have profound implications for corporate Australia, relating to how much trust directors can place in management assurances that a business is running well.

“Directors and officers are a critical part of the conduct of business in Australia. Their duty is to understand the operations of the company over which they preside, and the particular risks faced by the business,” ASIC chairman Joe Longo said at the time the legal action was announced.

Each breach of director’s duties carries a penalty of up to $1,050,000.

The watchdog had accused the former directors and executives who reported to the board of being blind to the red flags that pointed to money laundering and illicit activities at its casino.

The trial was conducted last year with ASIC’s lawyers telling the court of staff handling bags of $50 notes tied together with elastic bands being delivered in a blue Esky bag, and operators blocking the view of CCTV cameras with a blanket.

They also alleged the casino cultivated and maintained business relationships with overseas junket operators “despite having substantial evidence that those junkets were engaged in illicit activities which may involve money laundering and links to organised crime.”

While Star executives failed to provide the board with all the troubling information about Sun City and other junkets, ASIC told the court that each of Star’s directors also failed to take reasonable steps to oversee its executive team. They rejected that and were successful.

Last Friday evening, Star Entertainment released its unaudited accounts for the December half-year, reporting a $109.7 million loss as revenue continued to decline at its operations in Sydney and Queensland under the weight of regulatory reforms – including cash limits at Star Sydney – in response to the scandals which led to the ASIC charges.

The current board reiterated that there is material uncertainty regarding the group’s ability to continue as a going concern, as the federal court determines the Austrac penalty for breaches of anti-money laundering provisions.

Star said it has made provisions related to the ASIC case and the defence costs it pays for the defendants, but it has not made the financial figure public.

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