Say It Aint So ...

The biggest scandal in Australian sports history.

The Melbourne Storm is an Australian professional rugby league football club based in the city of Melbourne. They have competed in every season of the National Rugby League (NRL) Premiership since its inception in 1998.

The first fully professional rugby league team based in the Australian rules football dominated state of Victoria the Storm have played in the last fourNRL grand finals making them one of the league's top teams.

The club won the minor premiership three times in a row from 2006–2008 and contested each grand final from 2006 to 2009, winning in 2007 and 2009, although these titles were later stripped for salary cap breaches. They were named the NRL Team of the Decade for the 2000s.

Last week it all came unstuck by the largest corruption scandal to have hit Australian sport.

Following claims by a whistleblower that the club was keeping a second set of books, the NRL conducted an investigation early in 2010.

Initially denying the claims, on 22 April 2010 the Melbourne Storm eventually admitted to the NRL that the club had systematically circumvented the salary cap conditions for the last five seasons.

This included a breach of $400,000 in the 2009 season and a projected breach of $700,000 in the 2010 season.

The Storm admitted that a dual-contract system was run within the club, in which the NRL were not able to know of payments made to the players outside of the $4.2 million yearly cap.

As a club's compliance with the NRL salary cap is supported by statutory declarations, the club's owners have requested that fraud charges be laid against those responsible and has stated that any person who knew of the breach would be expelled from the club.

Storm executives had arranged for inflated invoices to be submitted to hide the payments to players. This involved submitting invoices of up to $20,000 above the real value of the services rendered with this amount paid directly to players by the third party suppliers although there is no suggestion that the suppliers were involved in submitting the inflated invoices.

As a result, NRL Chief Executive David Gallop announced that the Melbourne Storm would be stripped of their 2007 and 2009 premierships (which are currently not expected to be awarded to Manly and Parramatta, their opponents from the two respective grand finals), minor premierships from 2006, 2007 and 2008.

A $500,000 fine and was ordered to repay $1.1 million in prize money, which will be redistributed equally among the other 15 NRL clubs.

The eight premiership points the Melbourne Storm had already received in the season were deducted, and the club was barred from receiving premiership points for the rest of the season.

Storm are expected to meet the task of reducing salaries by $700,000 to meet the cap by the end of the season; failure to do so will result in the club being excluded in the 2011 Season of NRL.

Former CEO Brian Waldron (pictured), current chief executive and former financial officer Matt Hanson, and current financial officer Paul Gregory, are alleged to have been the main culprits behind the incident.

On 23 April 2010, Brian Waldron was asked by the Melbourne Rebels rugby union club to stand down from his position of chief executive of the club after just six weeks of taking over the expansion team entering the new Super 15 competition.

On the same day the NRL seized a secret dossier hidden in the home of acting chief executive Matt Hanson. The dossier contains letters of offer to four of Storms star players guaranteeing illegal payments in the form of goods from third parties.

For one player with a $400,000 contract lodged with the NRL, the letter of offer valued at an additional $550,000, contained a $20,000 gift voucher for a national retailer and a $30,000 boat. Other offers included a new car for a player’s partner and $30,000 in home renovations. The offers together amounted to $700,000 of which the four players had already received $400,000.

The news was referred to by The Melbourne Age newspaper as "The biggest scandal in Australian sports history".

Club supporters had mixed reactions and feelings towards the situation as the club was left with "dishonour and shame".

In 102 years of professional rugby league in Australia, no club had ever been stripped of a competition title.

Many fans dumped their jerseys and other memorabilia at the team's headquarters on hearing about the incident, and many others simply broke into tears; there was a feeling that former CEO Brian Waldron was to blame and not the players.

But amongst all of this one thing worked as it should have - the information market.

Betting agencies received an "old fashioned betting sting" as some punters found out about the salary cap allegations before they became common knowledge. The Storm were at $4.20 favourites to win the title at the time and $251 to win the wooden spoon.

TAB Sportsbet has claimed it will be due to pay out at least $500,000 before betting was suspended.

The Fabulous Fab

We know that Goldman Sachs has been playing both sides of the street but we've never been able to put together a situation where the same office in Goldman Sachs knowingly sold bad securities to one group of investors while letting another investor bid against them.

**

Here at Honestly Lay Bare we like to think that we can see into the future (remember our insightful 2007 post on SecondLife ... OK so not everything works out) and identify the issues that will be around for a long time.

We are making a wild guess to suggest that the fraud charge against Goldman Sachs may just fall into the category of being around for a long time.

And as such we feel obliged to the Dear Reader to bring you up to speed on what has been alleged.

**

According to a civil law suit filed in New York last week, Goldman Sachs manufactured an investment designed to fail.

It was approached by a wealthy hedge fund manager, John Paulson, who saw the global financial crisis coming.

He'd already made deals with Goldman betting that securities backed by sub-prime mortgages would collapse but he'd run out of securities to bet against so he asked Goldman Sachs to make him one.

And it did, in early 2007.

In the jargon of Wall Street, a synthetic collateralised debt obligation, or CDO, tied to the fate of sub-prime home loans.

The SEC says the hedge fund boss played a key role in choosing the portfolios of loans that went into the CDO. Then he placed trades with Goldman that would see him paid money if the security went bust.

But none of this was disclosed to other investors. They didn't know that the product they were being encouraged to invest in was designed for and by a man looking to profit from its failure.

But the rising Goldman star who did the deal did, 28-year-old Fabrice Tourre, who liked to be called the fabulous Fab.

On the 23rd of January 2007, he emailed this to a friend:

More and more leverage in the system, the whole building is about to
collapse any time now. Only one potential survivor, the fabulous Fab,
standing in the middle of all these complex, highly leveraged exotic trades
he created without necessarily understanding all the implications of those
monstrosities.

Goldman Sachs says the case against it is wrong in law and fact.

And for now, at least, the fabulous Fab is still working for the firm, in London as an executive director of Goldman Sachs International.

Tourre is a graduate of one of France’s oldest and best known engineering schools, the École Centrale Paris, where he studied from 1998 through 2000.

His degree at the school, which is among France’s grandes écoles, was a bachelor’s in mathematics, and his path to Goldman Sachs was not uncommon for elite French students with a background in formal math. Demand for quantitative skills has grown on Wall Street in recent decades, especially in areas like structured finance.

On Monday, Goldman said that Mr. Tourre was taking “a bit of time off,” but that he was still an employee of the firm.

Before going to École Centrale, Mr. Tourre attended two equally famous preparatory high schools — Louis LeGrand and Henri IV — both feeders to the universities that create France’s governing elite. After the École, he attended Stanford University and obtained a one-year master’s in operations research, which cited a LinkedIn profile that has since been closed down.

On another Web site, Viadeo, the French equivalent of LinkedIn created by a fellow École central alum, Mr. Tourre describes himself on his résumé — now erased — as being a “trader/structurer of exotic derivatives.”

Mr. Tourre joined Goldman Sachs in 2001, was based in New York when the 2007 deal happened between Paulson's hedge fund, Paulson & Company; ACA Management and the eventual clients like IKB Deutsche Industriebank that bought the synthetic collateralized debt obligations. Tourre earned $2 million that year — regardless of how much Goldman Sachs lost on the Paulson-ACA trade.

In November 2008, he was sent to Goldman’s London office as an executive director, where he was given the jobs of setting up a similar program.

Meanwhile, the Democrats are treating the charges as new fuel for their campaign to pass the financial regulatory bill and have bought a sponsored link from Google for the search words “Goldman Sachs SEC” that takes you to my.barackobama.com.

I Had To Eat

Management is doing things right; leadership is doing the right things.

Honestly Lay Bare has previously examined a number of the lessons learnt from the terrible Black Saturday bushfires in Victoria, Australia in February 2009.

Today we take a slightly different tack and examine the actions of the Victorian Chief Commissioner of Police on that fateful day and what her actions say about accountability, leadership and the tone set at the top in a crisis.

**

The Black Saturday bushfires were a series of bushfires that ignited or were burning across the Australian state of Victoria on and around Saturday 7th February 2009 during extreme bushfire-weather conditions.

The fires resulted in Australia's highest ever loss of life from a bushfire. 173 souls perished as a result of the fires and 414 people were injured. As many as 400 individual fires were recorded on 7 February.

3,852 firefighting personnel were deployed across the state on the morning of 7 February in anticipation of the extreme conditions. By mid-morning, hot northwesterly winds in excess of 100 kph (62mph) hit the state.

As the day progressed, all time record temperatures were being reached, 46.4 C (115.5F) in Melbourne, the hottest temperature ever recorded in an Australian capital city and humidity levels dropped to as low as 6%.

By midday, windspeeds were reaching their peak. The overwhelming majority of fire activity occurred between midday and 7pm, when windspeed and temperature were at their highest and humidity was at its lowest.

**

The 19th Chief Commissioner of the Victoria Police, Christine Nixon, was sworn in on 23 April 2001 - thereby becoming the first woman to become a police commissioner in Australia.

She was appointed to that position by the Victorian government following an extensive career in the New South Wales Police Force and attaining the rank of Assistant Commissioner. Nixon was a police officer for over thirty years.

Her actions on Black Saturday last week became the source of great criticism after her appearance at the Royal Commission set up to investigate the tragedy.

What she did and what it meant is probably best summed up by a columnist from the Melbourne tabloid newspaper, the Herald Sun:

She admitted under cross-examination that she did not attend the State Emergency Response Co-ordination Centre until noon on Black Saturday, despite knowing the fires were already out of control on a day the Government warned would be "as bad a day as you can imagine".

Not once did she check if police had fulfilled their formal responsibility to issue warnings to towns in the path of the fires.

From 1.30pm to 3pm, she actually left the SERCC and retired to her office to clean up paperwork, neither seeking nor receiving in those 90 minutes a single briefing or call on the fires.

Nor did she call any police in the fire zones to check their wellbeing, ask for news or offer help.

She did not call the Premier once, even to discuss - as is her job - declaring a state of emergency.

She did not call in her Deputy Commissioner in charge of disasters, Kieran Walshe, and he himself - perhaps following his boss's example - did not turn up at work until nightfall, and only to give a press conference.

She failed to check that every regional commander in the fire-prone areas was at their post, and to this day does not know if they were.

It was as if she were a mere spectator. Not once did she seem to actually do anything to help. And it got worse.

On returning to the emergency headquarters at 3.30pm, Nixon did not ask for another briefing on the fires, even though she says she heard the staff say: "This is looking terrible; there are many more fires."

"I should have, but I didn't," she told the commission, explaining that everyone seemed "very busy" and "carrying out their responsibilities".

They acted. She watched. And was treated as a mere watcher, too.

Her senior officials didn't bother to tell her that nursing homes and hospitals were being evacuated in Neerim South and near Bunyip. She also didn't check how police planned to protect fans at a country music festival at threatened Whittlesea.

Nor did she ask for or read the police log in the room that noted what her officers were battling to do.

"It sounds rather passive, Ms Nixon," the startled counsel assisting the bushfire commission exclaimed.

At 5pm, the fire service chiefs did at last brief the paralysed Nixon, warning her the fires seemed about to burn Strathewen, and there was a "real potential for people to lose their lives". Worse, a change of wind later that evening threatened Kinglake and other towns and "we were facing a disaster".

The Police Minister had been called in to help co-ordinate the effort.

It was now about 5.30pm. And what did Nixon decide to do at this moment of crisis, with lives to save?

She asked an Assistant Commissioner, Steve Fontana, to brief the Police Minister in her place while she went out to dinner. (Last week on Melbourne radio, she defended this decision by saying that she "had to eat").

She deserted her post. And didn't return that night, not even after hearing whole towns had been destroyed.

Nixon has tried to mislead the royal commission, in my opinion, about how profoundly she betrayed her duty.

She did not tell it she'd actually gone to a restaurant, and implied instead she'd stayed at home, keeping in touch.

She denied she'd had another appointment that night, saying only she'd "had a meal" and "was obviously listening to the radio ... and watching television". Asked if she'd had email and web access, she said: "Yes."

But presumably not while you were at the restaurant, Christine. You weren't properly monitoring anything then but the menu.

I cannot think of a worse failure of duty by an Australian police commissioner than this.

**

The revelations present a fascinating case study as to what is expected of our leaders in a crisis.

Do we expect them to take charge or do we expect them to have confidence in the delegations that they have exercised in moments when crisis is not upon us?

Honestly Lay Bare will reserve judgement on the politics of the matter and simply conclude that of the many lessons that have been and are being learnt from that terrible Saturday the actions of Christine Nixon deserve to be studied by crisis management experts for as long as the discipline exists.

Post based on part on "Chief Nixon Copped Out" by Andrew Bolt, Herald Sun, 9th April 2010

The Fable of Captain Crunch

Experience is the name we give our mistakes.

Honestly Lay Bare decided that for this week’s post we would explore the history of hacking.

Then as is usually the case we got distracted down one of the many lane ways that archival searches tend to take you.

And we met Captain Crunch – one John Draper.

**

In 1964, after taking some college courses, Mr. Draper joined the Air Force, which his parents thought would provide much-needed discipline. He was sent to Alaska and later Maine, where he served as a radar technician. Since the soldiers had only one phone line on which to call home, Mr. Draper began tinkering with the access codes and figured out how to make free calls through the local switchboard.

After an honorable discharge in 1968, he built gear for several companies in the San Francisco Bay area. But his work, much of which was military-related, was out of step with the counterculture blooming around him. Mr. Draper grew his hair and began spending more time on a pirate radio station, which he operated from the back of his green Volkswagen van to make it harder for authorities to track the signal. He also turned his attention to the phone system, an attraction for like-minded techies before the arrival of personal computers.

Mr. Draper learned how to make free calls by imitating the tones used by the phone company.

He learned from other "phone phreaks" -- as the hackers called themselves -- including blind teenagers with near-perfect pitch. Mr. Draper learned that a toy whistle found in a cereal box would also imitate the required tones, earning him the nickname Cap'n Crunch.

The point was not just to make free calls but to explore and learn from the phone company's rich and complicated system. On one occasion, Mr. Draper says he learned the code word needed to speak with the president -- "Olympus" -- and got through to someone on a secure line he thought was President Nixon. Mr. Draper says he told the man about a toilet-paper shortage in Los Angeles.

Authorities began to take notice, particularly after a lengthy article on phone phreaking appeared in the October 1971 edition of Esquire magazine. Mr. Draper, the group's ringleader, was arrested for the first time several months later on charges of wire fraud, and received a five-year probation.

The Esquire article also caught the attention of Steve Wozniak, an eventual Apple co-founder, who invited Mr. Draper to his dorm room at the University of California at Berkeley. When Mr. Draper appeared that evening, Mr. Wozniak, then 21, was taken aback by his guest's appearance and odor, Mr. Wozniak wrote in his recent autobiography.

"Are you Cap'n Crunch?" Mr. Wozniak asked in disbelief, according to the book.

"I am he," Mr. Draper responded as he strode into the room.

Mr. Draper showed Mr. Wozniak and a friend, Mr. Jobs, how to build a device that could produce telephone tones. The pair turned the knowledge into a small business on the Berkeley campus, their first collaboration before founding Apple a few years later.

Mr. Wozniak employed Mr. Draper at Apple, where as a contractor in 1977 he designed a device that could immediately identify phone signals and lines -- such as ones that made free calls -- something modems were not able to do for a decade. The technology would later be used for tone-activated calling menus, voice mail and other purposes.

**

On a recent morning at a Bob's Big Boy restaurant in Burbank, Calif., where he goes when he has enough money, Mr. Draper ordered his usual breakfast: eggs and bacon first, to be followed five to seven minutes later by grilled pancakes loaded with butter and syrup.

The first course arrived. "The bacon's too greasy, I can't accept these," he shouted at the waiter. Mr. Draper sends back his bacon about 70% of the time. He says that since he has no opposing teeth, the bacon needs to be crisp enough to break off in his mouth. He lost most of his teeth from infrequent dental care, which he blames on his lack of health insurance.

After breakfast, Mr. Draper returned to his one-room apartment beside a four-lane expressway. The apartment was in squalor, with open cereal boxes, clothes in trash bags, computers and old newspapers strewn about. Mr. Draper left an angry voice message for a client who hadn't paid for some programming work. He fretted that without the money he would have difficulty covering his electricity bill that month.

"I'm blacklisted, man, a permanent menace to society, I guess," he said. "It's too bad because there are some things I think I could contribute."

**

The fable of Captain Crunch!

Post based on “The Twilight Years of Cap'n Crunch” Wall Street Journal January 13, 2007.