Reversal of fortune

David Coe had an easy grin and engaging manner. He was rich, well-connected and charming, one of those people who seem to glide through life with a little more grace and flair than the rest of us. For some reason, this made his death on a Colorado mountainside late last January all the more shocking. "It was a really nice, heading-into-spring Aspen day and he was skiing a mountain he knew like the back of his hand," says Tony Cochrane, a business associate and friend who was waiting for him in a tavern at the base. "He had a massive heart attack on the last run of the day."

Word spread rapidly through Coe's network. Corporate consultant John Eales, a former captain of the Australian rugby union team, was walking through Dubai airport when Investec Bank director Bob Mansfield rang to tell him. "I happened to have just got off a plane and I took the call," says Eales, for whom the news was the kind that "just stops you in your tracks".

In Melbourne, restaurateur Neil Perry was phoned by Nine Network cricket commentator Mark Nicholas. "I couldn't stop crying," says Perry, who regarded 58-year-old Coe as more than a friend. "I mean, I loved him. He was like a brother to me." In the bar at Aspen, Cochrane was equally shattered. "It was probably the worst day of my life," he says.

A fortnight later, on February 5, more than 1000 people attended Coe's memorial service at Sydney Grammar School. One after another, speakers portrayed him as an outstanding Australian: a brilliant financier, generous philanthropist, munificent arts patron, dedicated rugby fan, devoted father and delightful dinner companion. "I've never heard such glowing eulogies in my life," says one of his former colleagues. In the splendid auditorium, the mood was stunned and bereft: it scarcely seemed possible that this dazzling individual - once dubbed a "master of the universe" by The Australian Financial Review but known to most of his friends as "Coey" - was so suddenly gone.

Coe had been a key figure in Sydney's tight-knit business establishment. As the mourners spilled outside after the service, it became clear he was also the lynchpin of a circle that encompassed high-flyers from many different fields. Everyone loved Coey, and here they all were: company directors and captains of industry brushing shoulders with politicians, lawyers, entertainers and sportsmen. Australian cricket captain Michael Clarke was a face in the crowd, as was former captain Steve Waugh and bowler Shane Warne. Someone counted seven former Wallabies, including Eales, Michael Lynagh, George Gregan, Phil Kearns and Tim Horan. Also in the throng were Future Fund chairman David Gonski, Wizard Home Loans founder Mark Bouris, actor Russell Crowe, radio broadcaster Alan Jones, INXS guitarist Kirk Pengilly and Australian Olympic Committee president John Coates. Among those who had flown in from London to pay their respects were Princess Anne's children, Zara and Peter Phillips.

"The fantastic and distinguished turnout is an enormous tribute to the man," former PM John Howard told a reporter covering the event, going on to sum up Coe as "a citizen in full". Alan Jones was quoted as saying that Coe would be remembered as "a titan" of business. "There were gullies," Jones said of Coe's career, "but he navigated those without in any way impacting on anybody else."

In fact, a large number of Coe's fellow citizens had felt the impact keenly when his Allco Finance Group collapsed under $1.1 billion of debt in 2008. One of the biggest corporate implosions in Australian history, it is widely held to have been triggered by a controversial deal that enriched Coe, Allco's executive chairman, and another Allco board member, Gordon Fell, at the expense of the company's other shareholders. Like Coe, his friend Fell was a pillar of Sydney society: the chairman of Opera Australia, a trustee of Sydney Grammar and a former Rhodes scholar. The two men were the majority owners of Rubicon Holdings, a property funds business they sold to Allco for $276 million in cash and shares in late 2007. The property funds proved to be close to worthless. Both Allco and Rubicon ended up in the hands of receivers.

After Coe died, a letter to The Canberra Times questioned the laudatory tone of his obituaries. Plaudits for his financial support of institutions such as the National Gallery of Australia were misplaced, the writer argued, since "the money was not his, but was taken from his Allco and Rubicon shareholders, most of whom lost everything. While he was skiing in Aspen, I am still trying to make up for the shortfall in my retirement fund." Ian Curry, chairman of the Australian Shareholders' Association, was similarly surprised by how much was air-brushed out of tributes to Coe. "People focused on the good works," Curry says, "irrespective of how those good works might have been funded."

Now the law firm Maurice Blackburn has launched a shareholder class action against Coe's estate - as well as against Allco itself and the company's auditor, KPMG. Melbourne-based litigator Andrew Watson says the firm is acting on behalf of everyone who bought shares in Allco in the six months from late August 2007. "We're talking about many thousands of shareholders," Watson says. "It will be the full gamut, from mums and dads buying shares for their self-managed super funds right through to major Australian and overseas institutions acquiring Allco shares as part of broader portfolios."

While researching this story, I contact the second of Coe's three sons, Robert, who was executive producer of Red Obsession, the recent, award-winning documentary about the passion of wealthy Chinese for the wines of Bordeaux. The film is dedicated to his father, himself a connoisseur of French reds. Robert declines to be interviewed, saying only that the family views the class action as "vexatious" -groundless litigation that serves merely to cause annoyance. Some time later, Good Weekend gets a call from high-profile spin doctor Sue Cato, who says her friends the Coes have deputed her to deal with the magazine on their behalf. The family wants the story delayed "for a couple of months", she says. Robert would then be willing to speak on the record and she would persuade others who were close to David Coe to co-operate, too. "I would twist arms," Cato says.

Her offer is declined. As it turns out, a number of Coe's associates are prepared to talk anyway.

John Howard got to know and like Coe at corporate lunches during his prime ministership. "He struck me as a particularly optimistic person and a bright, interesting personality," says Howard, who was grateful to him for giving career advice to his son Richard. Howard was out of office by the time the Rubicon transaction tipped Allco into a death spiral. "But I remember ringing David after some of the things happened, just to say hello," he says, "because I retained a very positive view of him." The former PM was pleased when he and Coe later caught up at a Test match at Lord's, where both were guests of the Marylebone Cricket Club. "I don't have all the information but I'd be surprised if he had done anything unethical," Howard says. "I would find that very hard to believe."

The Maurice Blackburn suit claims Allco misled investors by failing to disclose its true financial position: in August 2007, for instance, the company's current debt was understated by $1.9 billion. To Tony Cochrane, a co-founder of another of Coe's ventures, the marketing and management company Sports and Entertainment Ltd (SEL), any suggestion his friend was capable of impropriety is absurd. "He wasn't some sharp, shifty businessman who was behaving badly," Cochrane protests. "He absolutely believed that what he was building was a rock-solid, great Australian success story. I think he was just a tragic victim of the global financial crisis."

Coe and his wife Michelle lived with their sons - and a magnificent collection of contemporary art - at one of the finest addresses in Sydney. Coolong, their grand house in Vaucluse, had been built in 1936 for the music publishing magnate Sir Alexis Albert and stood on a 4000 square-metre harbourfront block with private beach. When Allco lay in smoking ruins in late 2008, Coe sold the house for $45 million, then an Australian residential property record. Conveniently, he and his family were able to move into the large and lovely abode next door, which they also owned. He quit the chairmanship of the Museum of Contemporary Art and cancelled a $5 million pledge to the institution, as well as resigning from the fund-raising board of the Sydney Children's Hospital, but on a personal level Coe lost none of his largesse. At home and on his yacht, he remained the most magnanimous of hosts. In restaurants, he picked up the tab. "Ridiculously generous," says a friend.

Not only did Coe pay, he guaranteed a great time. Though his style was down to earth, his conversation was both erudite and amusing, and to Basil Scaffidi, SEL managing director, the range of his interests and talents never ceased to amaze. "He could recite German poetry, play the piano incredibly, had a wonderful eye for art, loved all sport - he was just a wonderful fellow," says Scaffidi. And his energy. "He didn't seem to need to sleep. One minute he was sailing, then he was skiing, then hosting a charity night. That was Coey."

Another to be bowled over by Coe's cleverness and charisma was his lawyer, John Mitchell. "He was phenomenally intelligent," says Mitchell, the Arnold Bloch Liebler partner who represented him during an Australian Securities and Investments Commission (ASIC) investigation into the Allco collapse and is acting for Coe's estate in the shareholder class action case, "but what was really extraordinary was his breadth of knowledge. One minute he would be discussing complex financial arrangements, the next quoting T.S. Eliot or discussing the paintings of Rothko. He was a true Renaissance man."

I lose count of the number of Coe's friends who tell me they regarded him as an inspiration and role model. About the Allco debacle, they are infinitely forgiving. "Everyone makes mistakes," says stockbroker and ex-Wallaby Simon Poidevin, who was impressed by Coe's resilience during Allco's decline and fall: "Even though he was under immense pressure, David was still very upbeat. Cheerful." At Sydney Grammar, after the memorial service, Poidevin put it this way: "David Coe defined to all of us how you should live life."

Like F. Scott Fitzgerald's Jay Gatsby, another magnetic character who entertained lavishly in a mansion on the water, Coe seemed to come out of nowhere. In newspaper archives, he barely rates a mention until 1998, when he is reported to have paid $15 million - regarded at the time as a stratospheric price - for Coolong, the house he would sell for a $30 million profit a decade later. "What's interesting about him is how he rose," says businessman and former NSW Labor Council secretary Michael Easson. "I admired the fact that he moved from humble beginnings."

Coe spent his early childhood in working-class, south-western Sydney. "We lived in the classic fibro house in Riverwood, with the end of the East Hills railway line just down the road," he said in a rare interview in 2007. His father, a tiler, had migrated from north-east England. When Coe, the second of three sons, was 12, the family moved to the red-brick suburb of Hurstville. He won a place at the government selective Sydney Technical High, where he excelled at maths and science as well as the humanities, played for the first-grade rugby and cricket teams, and became school captain. "Sporting hero, academic hero, led the debating team - he was the accomplished all-rounder," says Easson, who was a fellow student.

During a three-month student-exchange scholarship to Düsseldorf, Coe had become fluent in German. After studying for an arts-law degree at Sydney University, he returned to Germany and spent a couple of years writing a thesis on the complex, cryptic poetry of Paul Celan. In the 2007 interview, he said he was drawn to academia and loved living in Europe but eventually decided he should head home and pursue a legal career. "Even I knew there probably wasn't a huge demand for an Australian academic with a more-than-working knowledge of a little-known, recently deceased German poet," he was quoted as saying.

He was hired by the blue-chip law firm Stephen Jaques & Stephen, where he quickly made a mark. "Leaving aside his bright personality, with that big smile and the gap between his front teeth, he was very bright intellectually," says Richard Nettleton, the senior lawyer on whose recommendation he was made a partner in 1985, at the age of 30. Nettleton was disappointed when, later that same year, Coe was lured away from the firm to join Allco, a leveraged-leasing business founded by one of his clients, John Kinghorn.

Since Coe's death, the NSW Independent Commission Against Corruption has found that Kinghorn acted corruptly in a 2011 coal deal involving crooked Labor politicians Eddie Obeid and Ian Macdonald. Kinghorn had previously made headlines by pocketing $650 million when he listed his RAMS Home Loans on the stock market in mid-2007, weeks before the company lost most of its value in the global credit crunch. The New York Times called it "maybe the worst IPO [initial public offering] of the decade". But to Coe, who was on the RAMS board, Kinghorn was a valued mentor. Success might have come his way without the older man, he once said, "but certainly I'm a lot more successful because of him. Hanging around him, you couldn't help but learn."

At Allco, which he and Kinghorn initially ran as a private partnership, Coe specialised in cross-border leasing - intricately structured financing that enabled corporations and governments to minimise the cost of leasing expensive equipment such as planes, ships and trains by exploiting anomalies in tax laws between different countries. The sums of money involved were huge, and Allco's fees so hefty that a single deal could net the partnership $10 million. Coe became very rich, very quickly. "It was an incredibly successful business," says Mark Worrall, who in 1989 joined Coe's team of fewer than 30 people and watched with admiration as he built Allco into an international financial services company: at its peak in 2007, it had 650 staff in 12 offices around the world and was worth an estimated $5 billion.

No one was better than Coe himself at Allco's brand of financial wizardry. "He could walk into a room where there were six people mulling over a really complex issue," says Michelle Segaert, for three years the firm's corporate counsel, "and he could come out with three or four really viable solutions pretty quickly."

He first appeared on the BRW Rich 200 list in 2002, with an estimated fortune of $85 million. Allco was still a private concern - now owned by Coe and a coterie of senior executives known as the "principals" (Kinghorn had departed to concentrate on his home loans business) - but the previous year it had spun off a publicly listed company, Record Investments. The idea was that Record would use funds raised on the stock exchange to invest in deals devised by Allco. What Coe didn't seem to expect was that the members of Record's independent board, chaired by respected former Macquarie Bank and Boral chief executive Tony Berg, would carefully assess each proposal's potential benefit to its shareholders.

"Questions would be asked about a whole range of things," says a former Record director, "and David's standard reply would be along the lines of, 'You've got to trust me. Everyone trusts me. I've never let anyone down.' " Detailed discussions about possible risks held little interest for Coe. "He'd look you in the eye and say, 'This is a great deal. Nothing is going to go wrong, and if it does go wrong, I'll sort it out.' " Two former directors say they saw another side to his famously amiable persona. "When we were getting in his way, he became belligerent and threatened us, saying he'd destroy reputations," says one. Says the second: "He was not above using intimidation and threats to achieve ends."

While Coe's relationship with the Record board was often tense, he was revered within Allco itself. "He had some very bright people around him but no one ever really challenged David," says a third Record board member. "He was the high priest and he would deliver them all to the promised land." It wasn't only colleagues who hung on his words. Says once close observer, "I'd go into the office and there'd be John Eales. Tim Horan. All the sports people, they wanted David's advice. He was seen as really successful, a great guy. Everybody wanted to be around him."

So many things to do and people to see. Coe seemed to be in constant motion, jetting first-class around the globe to monitor Allco's foreign operations and catch up with friends made through his chairmanship of the sports and entertainment firm, SEL. He played golf at St Andrews with Shane Warne and watched the cricket at Lord's with Michael Parkinson. "His life was frenetic," says a former associate. "There was too much happening. His phone would vibrate at board meetings and he'd be texting under the table. He had to be on call, available. Moving, moving, moving."

For sheer audacity, little in Australian corporate history beats Coe's bid to buy Qantas. In 2007, the year after Allco merged with Record to become a public company, he led a consortium of investors that somehow won federal government approval for an $11 billion takeover of the national airline, to be financed by $10 billion of debt. The deal fell through at the last minute, which analysts agree was a lucky escape - not just for Coe, but for taxpayers, who most likely would have had to foot the bill for a bailout. (The consortium offered $5.60 each for shares that now trade for less than a quarter of that amount.) "A fiasco," says Coe's old school friend Michael Easson of the failed bid.

In the lead-up to the 2008 global financial crisis, Coe and a few of the Allco principals seemed to some to be too self-confident for their own good. "These guys thought they were shit-hot," says a former Record director. "And they were good. They knew how to close deals. They were very smart at a whole bunch of things. But ultimately, when the GFC hit, they weren't as smart as they thought they were." Allco's problem was its high level of debt. "They had taken on too much risk, hadn't covered their backsides," the director says. "They could tell you about risk. But they didn't really get it."

Where some detected arrogance, others saw avarice. In his 2010 book Pigs at the Trough: Lessons from Australia's Decade of Corporate Greed, Adam Schwab presents Coe as one of the greediest pigs of all. Schwab, a former corporate lawyer, cites Allco's advancing of a $50 million unsecured loan to the Allco Principals Trust, in which Coe and Allco principals housed shares in the company. The aim was to save the trust from its own folly of having made big margin loans against its stake in Allco. "It was shareholders giving money to Coe and his mates, essentially," says Schwab. What was more, the rescue bid failed, and the $50 million was lost.

Then there was the Rubicon transaction, summed up by Schwab as "just outrageous". In December 2007, after selling to Allco a business, Rubicon Holdings, whose income stream was about to dry up because the property trusts it managed were close to insolvent, Coe walked away with $12.7 million in cash, and his friend Gordon Fell with $28.6 million. At about the same time, Fell paid $28.7 million for a house on the harbour. A year later, when both Allco and Rubicon had gone bust, a journalist asked Fell if he would consider handing back any of the money he had made from Rubicon. "Would you do that?" he reportedly replied. "No one's children were kidnapped and held up at gunpoint until they invested in the trusts." (Allco's receivers, Ferrier Hodgson, are now suing Fell, alleging that he hid information from Allco shareholders before they approved the purchase of Rubicon. Fell has described the claim as "hopelessly flawed, both logically and factually" and says he intends to defend it vigorously.)

Another of Coe's friends, Ross Grant, is the chairman of Grant Samuel, the corporate advisory group that recommended the Rubicon purchase to Allco shareholders as fair and reasonable. "I wasn't directly involved," Grant tells me, "but I saw enough of it to have a high level of confidence that it was done because it was seen to be the right thing for Allco, not because it suited David and Gordon Fell." Grant's friendship with Coe was grounded in their shared enthusiasm for rugby, wine and alpine scenery. Together they went heli-skiing - an expensive pastime in which skiiers are conveyed to the tops of remote mountains by helicopter. Grant says of Coe, "I'm absolutely sure that nothing he did was deliberately bad."

Christine Bowen, who was Allco's global head of external relations, is one of a group of 50 former staffers who discovered after Allco's collapse that they had been employed by a subsidiary company without any assets. Only after a Federal Court judge ruled in their favour in 2010 were they able to recover about $5 million worth of unpaid wages, holiday pay and other employee entitlements. Yet, like Grant, Bowen believes only the best of Coe. "He had great caring for people," she says.

On paper, at least, Coe lost a fortune when Allco's share price went into free fall. "Hundreds of millions," estimates the company's former rail boss, Mark Worrall. Not that Coe was left on his uppers. "The bulk of David's wealth would have been made when the business was private," Worrall says. And he was soon making money again. He was, for instance, a partner in Global Aviation Asset Management, an aircraft leasing business sold for $US1.4 billion in 2011. He still part-owned SEL, and until 2010 remained a director of John Kinghorn's RHG Home Loans - the year before he quit, he picked up $80,000 for attending two board meetings. He also took a stake in the since-failed doughnut business Krispy Kreme Australia with Kinghorn and two other friends, Sydney businessmen John McGuigan and Greg Jones.

Both McGuigan and Jones were investors in Kinghorn's Cascade Coal, and were investigated by the state's Independent Commission Against Corruption. Jones, a former Allco executive, was an old friend of corrupt NSW resources minister Ian Macdonald, who in his other role as minister for state development was instrumental in a controversial government decision in 2008 to allow V8 Supercars races to be held at Olympic Park in Sydney's west. At the time, Coe's SEL was part-owner of the company that ran the V8 events. Coe, Jones and Macdonald reportedly lunched together at Buon Ricordo restaurant in Paddington a couple of days before the decision was announced. "There was a huge amount of wine drunk," a source was reported as saying.

Museum of Contemporary Art director Elizabeth Ann Macgregor says Allco's demise had a big emotional effect on Coe. "He took it very hard, very personally, that he'd let people down," says Macgregor, who believes the former museum chairman had a highly developed social conscience. "He spoke up for the responsibility of people who are successful to think about those who are not so successful. He was one of those people who felt he should give back, and he did." The Coe she knew was warm and kind-hearted, Macgregor says. "I could never equate him with the guy I read about in the newspapers - this supposedly ruthless guy taking all these risks he shouldn't have been taking."

Steve Johnson, of the Intelligent Investor funds management and research company, argues that this kind of dichotomy is quite common in the corporate world. "These guys can completely and utterly separate their business operations from the morals and ethics that they operate by in their personal lives," he says. "Their view is that they are in a game, and the object of that game is to maximise the money that they make." To Martin Lawrence, a director of governance advisory firm Ownership Matters, Coe's record is proof that "you can be very pleasant interpersonally but play brutally hard in the world of business". Says Lawrence, "He might have been a lovely, charming, incredibly generous guy, but let's not beat about the bush. His life was dedicated to the pursuit of wealth. This was somebody who was prepared to push the boundaries to enrich himself.

"That happens all the time in capitalism, particularly in financial markets. But this was, I guess, one of the cases at the sharp and pointy end. Everyone was happy to go along with it so long as they thought they were getting rich, too. And I suppose that's why you see the unwillingness to hold people like David Coe to account - because there's a certain amount of complicity that allows this to happen." Lawrence adds that Coe's closeness to the big end of town might help explain why he escaped the opprobrium heaped on an outsider like Eddy Groves, whose ABC Learning collapsed at about the same time as Allco. "In the corporate community, the views on what is acceptable or not tend to be a little bit looser - so long as you're one of them," Lawrence says.

Shareholder activist Stephen Mayne points out that Allco's cross-border leasing schemes were designed specifically to take advantage of tax loopholes. "And is that something you want to be eulogising?" Mayne asks. "It was extremely clever. But where was the public benefit?"

To Coe's close friend, financier Greg Woolley, that kind of carping is all too familiar. "Anyone who is successful - anyone who had a big house or a big boat, who is put up on a pedestal - ultimately there will always be people who are critical," says Woolley. "David had got comfortable with that a long time ago. That was water off a duck's back to him." Woolley says Coe recognised that Allco shareholders had a right to be peeved. "He didn't ever shy away from the fact that if you're the custodian of people's money and you lose it, they are going to be angry with you." But while Coe acknowledged he had made commercial mistakes, Woolley says, he was confident he had in no way acted improperly. "David did everything, morally and legally, by the book."

Eight months before Coe died, he received a letter informing him that ASIC "did not presently intend to take any action" against him. An ASIC spokesman, Andre Khoury, says the corporate watchdog will monitor the current shareholder class action: "If anything emerges from it that warrants further investigation, we will look at it. Otherwise the matter is closed."

About three years ago, Coe was buried by an avalanche while skiing in New Zealand. That he pulled himself out and turned his brush with death into an entertaining dinner party anecdote seemed to those who knew him to be entirely typical. Such panache. That ability to defy the odds. But in Aspen last January, Coe's luck ran out. A US coroner's report attributed his heart attack to arteriosclerotic cardiovascular disease. Hardening of the coronary arteries - it somehow seemed too prosaic an end for a one-time master of the universe.

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