Thank you Allen and thank you ladies and gentlemen.

Before I get started on the real body of my speech I just want to introduce myself and tell you a bit about me.

My name is Frank Henderson and I am the 1999 FBI visiting Professor of Corporate Fraud specialising in Finance. I would like to add that I am the shortest person in my department but I am having the last laugh today, because they are all in chilly old Washington D.C. and here I am in Brisbane with you.

My lunchtime address to you is entitled Corporate Fraud - Lessons of the Past.

Before I get started though, lets be sure we are all talking about the same thing. This is possibly the hardest thing I will ask you to think about. What is the most important word in the title of my speech? Just in case you aren't sure, let me give you a hint. Is everybody with me? We are talking about fraud.

You see, I think most speakers at this symposium will be talking about Property. Many will think that their area of expertise has the most profound implications for industry, me included. But as far as I know, I am the only person who will be talking about fraud in the industry and that's what makes this speech so important in the context of the conference.

So, what is fraud? Would anyone like to hazard a guess and embarrass yourself in front of everyone? Well, according to the Macquarie Dictionary fraud is deceit, trickery, sharp practices or breach of confidence, by which it is sought to gain some unfair or dishonest advantage. If you take that definition too literally, I think we can all be accused of fraud at some stage or another in our lives. But it is pretty easy for any rational adult to distinguish between those "little white lies" that we all tell in order to grease the wheels of our daily lives, and out and out fraud.

In fact, in order that we can determine a more accurate definition of fraud the Macquarie Dictionary has helpfully also provided an accompanying photo.

It is pretty easy to make light of the topic of fraud, unless of course you have been a victim and it is not easy being a victim. A recent thesis by one of my students revealed that around 52% of cases of detected fraud are not immediately reported to company management. That's more than half of fraud cases that are not reported within 7 days of being discovered. What are the reasons an employee who did not perpetrate the crime, but discovered it, might cover up a case of fraud? Firstly, out of fear of either being accused of being involved whether or not they had anything to do with it, because who wants to be in a position where you have to defend yourself over something you had nothing to do with? Or that they may worry about their future in the company for allowing it to have happened or not detecting it sooner. But most often it is just a fear of looking stupid that you have been conned in some way. Because no one wants to admit that they have been outsmarted by a con artist.

A common strategy when someone has discovered fraud but doesn't report it is the hope that the fraud is discovered by someone else. They will even go as far as making an anonymous tipoff to senior management if the problem worries them enough and they are sure that they won't be accidentally implicated.

But if you are an employee and you do inform management, should it bother you that around 25% of cases of fraud known by management are not reported to police for one reason or another?

When you think about it, this is incredible. That the management of a company that knows know that they have been robbed and not contact the police. But why? Some companies want to stay out of public eye, especially in this sort of matter. They are worried that it might affect public perception of the sort of company they are and ultimately affect their share price. If one person can rip them off, they fear they will be seen as an easy target for other criminals. In certain industries, just imagine the ammunition this sort of information would be for your opposition. Also in some industries, companies want to avoid any sort of official investigation. And finally, because the amount may not be large, it might just not be worth the effort to investigate.

That's fraud in general, but let's look at the property industry and, as the title of my speech says, the lessons from the past. Needless to say, any and every industry is liable to fraud. The fact that you all need to face is that with property, most often it is the customer being ripped off rather than a company. Nonetheless, a lot of the reasons for not revealing fraud apply, particularly embarrassment. As long as the amount is insignificant, people would rather just lose their money than lose their money and look stupid because everyone knows about it.

There is a long way to go before people get the message that if a deal seems to good to be true, it probably is.

If we take a historical view it is easy to see that in an environment in which inflation was significant, property has often stood out as one of the only asset classes likely to provide the returns necessary to the keep the non-institution investors interested. But of course, it is a two edged sword that is sharp on one edge and twice as sharp on the other.

However, as people observe the continuing bull run of the stock market, the strength of the case for property investment has been undermined and it will probably take another share crash like October 1987 to undermine this attitude, you can see the trend here. Let's take a look at that graph in a different format. Hmmm…if anyone understands what the hell that means, please let me know.

But before there is another share crash it is essential that legislators step in by taking control and implementing safeguards and thus ensure that the market is a safe one for investors to return to. For that reason, I have been involved in a rather lucrative consulting program working with the Queensland Government as it drafts the Managed Investment Act that is designed to protect the public and I am delighted that one of my trips to Brisbane has coincided with this conference.

With this legislation and the introduction of ASC prospectus requirements I foresee a quick shake-out within the industry and an accompanying general lifting of the game.

While it all sounds promising, I can tell you that it isn't easy. It seems the white shoe brigade is now wearing white sneakers. As fast as we write and revise the legislation, the shadow of Estate Mortgage can be seen rearing its ugly head and sneaking up on us under a new guise.

For those wanting to take advantage of the gullible or unwary, as soon as one door closes, they find another to open. This is just not good enough and you are all to blame. It is no accident that one of the cliched sayings when someone appears gullible is "Do you want to buy some swamp land?".

But there is hope for a change despite the rather grubby image that property investment has at the moment. No doubt everyone saw this item in The Weekend Australian less than a month ago. The headline is "Done like a dinner" and the sub-header is one of the worst things your industry could see. "High pressure selling of Queensland properties is leaving investors disillusioned and in the red.". They say there is no such things as bad publicity, but this is BAD publicity.

Now, I should emphasise that although based on an unsavoury side of the industry and a couple of case studies, the article did have a positive spin on how the people giving the property industry a bad name are going to be curbed. But the mud has stuck. Investors are now very nervous about purchasing in Queensland, and rightly so.

This article revealed several examples of two tiered marketing. In one, case people were flown from interstate to the Gold Coast. They were then taken in a light plane for a flight over some prime looking land and made an offer that only lasted while they were in the air. Now the reason they were taken to see the land by air is because it is so flood prone that you can't get to it on a humid day.

In another case, also, coincidentally, on the Gold Coast (is there a message here?) about properties being sold at inflated prices, with promises of attractive negative gearing and ongoing rental income. When the rent fails to materialise people are often forced to sell, often it is back to the original agent at a fairly substantial loss. Within a few days agent has sold it on to an associated company at a huge profit and the cycle starts again. Illegal? No. Unethical? You be Judge Judy!

I don't want to get into a discussion about the sort of person that would sign on the bottom line in scams like these, but lets look at the lessons from the past. Lets face it, the most worrisome part is the negative publicity, since these matters are not only before the courts, they are also before the media.

Before we get to that lets take a look at who is bearing the brunt of all this. The forgotten player who is caught between a rock and a hard place, the poor old valuer.

The sticking point and place that buyers get caught is in the purchase prices as compared to the valuation. Often banks have known that the property is selling for thirty, forty, even fifty thousand dollars above its valuation and what have they done about it? Probably rubbed their hands in glee as they lend more and more money. After all, its not their fault…or is it?

Because banks have been taking such a beating in the last few years, they will do almost anything to improve their public perception. Well, anything short of lowering their fees that is. But how short sighted were they given how many people default on the repayments when reality and expectations are further apart than price and valuation.

So, banks are now bowing to pressure and revealing their valuations, possibly alerting the purchaser to the fact that something is fishy, but more likely, leaving the valuer open to legal action. THIS IS INCREDIBLE GIVEN THAT THE VALUER IS DOING HIS OR HER JOB CONSCIENTIOUSLY AND IS PROBABLY THE ONLY PERSON WHO IS ACTUALLY DOING THE RIGHT THING. Have we learned anything from the lessons of the past?.

As an aside, I want to tell a story on a mate of mine, a valuer. He was indulging in a little, lets call it, "horizontal folk dancing" with one of his clients...am I going too fast for anyone? Suddenly and unexpectedly her husband pulled into the driveway. Since it would have been a little hard to convince him that they were discussing a property deal while they were naked, he decided to attempt a rapid exit. Cut off from the front door, he grabbed all his clothes and dived into the cupboard. Just as he thought he had gotten away with it, guess what happened. His mobile phone started ringing. Now this guy was a better salesman than valuer, because when the husband flung the cupboard door open, he handed him the phone and said "Its for you". It didn't work.

One of the points of that story is that we can and will say almost anything if it suits our purposes and this is where we get into trouble. As you all know, there is no underestimating the stupidity and gullibility of the general public, which is part of the problem. Have you ever noticed how easy it is for you to be fooled by someone who has an air of authority? It sometimes takes legislation to protect people from themselves.

On the social pecking order, you real estate people are way up there with accountants, used car salesmen and Amway distributors and it is the scams and crappy deals that help keep you there.

I think that what we can learn from the past and the implications for the industry are obvious, especially if you are in the development sector building resort-style properties on the Gold Coast, or anywhere else in Australia for that matter.

The negative publicity associated with recent cases has seen a dramatic down-turn in sales generally but particularly of speculative property eligible for negative gearing.

From the research we are doing, I can boldly predict that this will cause such a loss of confidence that the managed funds market will collapse. This may be shocking news to some of you, but look at the evidence.

The managed funds market has effectively doubled every year for the last five or six years. But the year 2003 is going to be the crunch. While some people are going to do very well out of the Olympics, we predict that in 2001 there will be a significant downturn leading to a general slide and then a decline towards major deterioration before a decay and then a downward spiral leading to oblivion Things are looking decidedly bleak. Have we ignored the lessons from the past?.

So if things are looking this grim, what can you do about it? Well, for a start you can stop listening to the frauds and impostors who speak at gatherings like this. If you have any sense you shouldn't believe a word they say. Because, in a classic example of how easy it is to trick people by pretending to have a little knowledge, I have sucked you in today. My name is really Steve Davis, I am a stand up comedian and I would like to sell you some prime swamp land..