The great Baillieu stockbroking sting

With the benefit of hindsight, Scott and Stephen Macaw might have been a bit more wary of the mysterious man promising riches from the Arabian Peninsula.

Mustafa Algali claimed to represent United Arab Emirates investors with $1 billion in their pockets. He had pestered the Melbourne brothers for a meeting, and travelled to Scott's new home town of Copenhagen to plot Australian investments with a storied but mid-size broker that specialises in wealthy widows and middling stock raisings.

Two weeks ago the Macaws discovered they were targets of an elaborate sting against EL&C Baillieu, the stockbroking firm where Stephen has worked for 11 years as the driving force of its corporate finance team.

Their conversations were professionally edited – selectively and maliciously, Scott says  – then posted online and emailed to new Baillieu chairman Jo Dawson over the past fortnight. To compound the embarrassment, many of their peers in the Melbourne business world were blind copied on the email.

The recordings have caused such havoc that Stephen is now negotiating his exit from a broking firm where he boasted of exercising more power than the managing director.

Meanwhile, Scott, who this week complained he had been "entrapped" by the wired-up Algali, was caught boasting about inside access to corporate earnings.

HSBC accounts

In a recording posted Friday morning, Algali says: "It has to be a mutual responsibility that we don’t make a mistake that will blow on our face."

Scott Macaw responds: "All right. On that, I don’t wanna go that road. I’m not sure if we want to go that road. But there are a couple of things that are potentially interesting on that road. One is HSBC which I ... before. I know that the HSBC results a week before they publish every quarter."

In case the significance of what he has said is missed, Macaw repeats himself: "I know the HSBC results a week before they publish every quarter."

"Good connections?" Algali asks.

"Friends," Macaw replies.

On the recording, neither man talks about trading on the inside information, and AFR Weekend is not suggesting any illegal or unethical behaviour. But claiming access to highly sensitive information about one of the world's biggest banks can attract the kind of regulatory attention no businessman welcomes.

Selective editing

Scott hasn't explained the context of the HSBC discussion. But he said that several conversations had been edited to remove exculpatory comments.

There could be some truth to that: the eight recordings posted on Twitter seem to be snippets from a few conversations. The would-be investor's voice has been distorted, presumably to protect their identity.

"There were a number of meetings with the phoney investor – all of them in public places with audible (and different) background noises," Scott says in an email.

"You can hear the background noises changing within single sound files which is due to cutting and splicing of the recordings.

"It is not just the editing of the recordings which gives damaging inferences, but also those sections of the conversations that have been omitted – for example the phoney investor leading various topics of conversation or numerous discussions around due diligence, know-your-client and source of funds which I made clear were a prerequisite for being able to proceed with any business."

The perpetrator calls themselves Stratton Oakmont, the Wolf of Wall Street's bucket shop, and has been taunting Dawson in almost-daily emails that include jibes such as: "The tapes don’t lie, Jo."

The perpetrator

The Macaws want to know who is behind a sting that appears to have taken considerable time, effort and money. Theories abound. Evidence is scant. The Baillieu name, one of Melbourne's oldest business families, has added to the mystery, even though a Baillieu hasn't served on the broker's board since 1999.

"I hope that your investigations are able to identify, substantiate and expose the party behind the scheme," Scott Macaw said in his email. "He/she deserves to be brought to justice."

Whoever he really is, Algali dropped hints that his intentions were not noble. The conversations are littered with suggestions of close-to-the-line behaviour.

Conventional investments are "not interesting for me", he says. "I’m here for the big money, okay? As I said, 10, 15, 20 per cent.

"If you’re a partner here, that is something that cannot come out.

"If I put into the offshore company 100 million, do I have to put a KYC [know your customer declaration]?"

Brothers working together

While Scott Macaw isn't an employee of EL&C Baillieu, the recordings suggest that he worked closely and clandestinely with his brother on the sale of shares by the broking firm, which raises money for mid-size companies such as 4DX, a medical-software maker.

"When I spoke to Scott about this ... anything that he takes in positioning, I don't wanna know about it," Stephen Macaw said on one recording. "I trust him that the economics can flow back later."

Five years ago, the firm was involved in another controversy. Then named Baillieu Holst, the firm admitted selling 17 million unquoted securities in NewSat, which planned to launch Australia's first privately owned-and-operated satellite.

The deal appeared to break rules governing the sale on securities that aren't formally quoted. This failure on NewSat's part was not apparent to Stephen Macaw, who was assured by NewSat that he was legally able to proceed. The newspaper coverage wasn't flattering.

When the NewSat deal came up in Copenhagen, Stephen assured his would-be investor that the stories were motivated by jealousy.

"The problem was a technical-legal issue and tall poppy syndrome," he said. "At the time I was making more money, and I was probably doing the best in Australia in banking.

"And the media caught that technical issue and they were caught up and they wanted to get me, and they just lined me up. But that was all it was."