Ep 1. Friday Special

[Music] It was just before 5am in Canberra's pre-dawn chill and Christopher Hill, a 24-year-old data analyst at the Australian Bureau of Statistics, is woken by persistent banging on his floor. Police open up, comes the shout as the tempo of their knocking increases. Hill hung over and disoriented after a night spent drinking with friends, opens the door, believing police have the wrong house. We're just yelling and screaming for me to open the door, which I, after I woke up, I eventually did and, oh, it just, just gave us, like there was, must have been 15 of them. I think there was two dogs. At the same hour in an equally cold Melbourne, officers from the Australian Federal Police and the Australian Securities and Investments Commission, are pounding with similar intent on the door of Lucas Kamei, a 26-year-old currency trader, working at the National Australian Bank. We get out of the car and it's straight up to the door. Knock, knock, knock, please. There is a nervous energy. You never know what to expect. You never know how the day is going to unfold, but yes, we know we're going out there knowing that Lucas Kamei was going to be arrested. Once inside the apartment, authorities would find a box of Rolex watches, brochures for a Ferrari, and a burner phone hastily thrown out the window. I would say people were pretty excited about what was about to unfold. It is May 9, 2014, and Australia's biggest insider trading case has just begun. I'm going to take you live now to Canberra, a news conference with Federal Police, following the arrest of two men on charges of insider trading. He then used his millions to buy an apartment from TV show The Block. You've pleaded guilty to four charges of abuse public office. One charge of identity. Lucas James Kamei, you've pleaded guilty to four charges of insider charges of identity. Lucas was a rising star at NAB. The leveraged nature of margin effects contracts, then you only needed to invest a small amount of your own money to make very substantial profits. This is probably one of the biggest matters that Asick has been involved in, and the fact that we were working together with the AFP. Absolutely, I felt the pressure. I think it's Shakespearean in its betrayal. The lack of loyalty. We see two actors who become bonded in the commission of almost a game. They become two parts of executing this elaborate strategy, which is going to enrich them and unravel. Lucas Kamei, he definitely had a high opinion of himself. He's showpony, cocky. Lucas was exposing himself to about $400 million worth of trades. You could see he was just profiting more and more. There were plenty of times I thought we were never going to get this evidence. He thought highly of himself, and that he was the Australian version of the Wolf or Paul Street. Lucas probably represented an idea that was quite attractive to Chris. Everyone from my boss to their boss to their boss's boss was very, very interested in the outcome of this investigation. People always ask me, oh, you know, you must take Lucas. You must, you know, he fucked you over. He did this. He did that. Hi, I'm Angus Grieg, an investigative reporter with the Australian financial review in Sydney. I've spent most of my career chasing stories around fraud, corruption, and corporate wrongdoing, including Eddie O'Beeade, and he's now infamous Colmine, Ponzi schemes, and Chinese billionaires behaving badly. In that time, including postings in Indonesia and China, I've never come across a story quite like this one. And so, over the next six episodes, I'll be bringing you the sure thing, an Australian financial review podcast sponsored by McGowan-Nickel. It's the inside story of two university friends who reunite to pull off one of Australia's great trading heists, only to be undone by betrayal and greed. I first heard about this story from an academic friend of mine, Clinton Free from Sydney University. Hey, Clinton, good as there. Good to see you, Angus, good to see you. Okay, so let's go up to level six in the studio. The sure thing, Clinton Free interview, roll tape. Correct me if I'm wrong here, but we first talked about this at a dinner in 2019, where you sort of sketched out the story for me. Is that my memory right on this one? Yeah, that's what I think. I'd been thinking and talking about this case for a little while beforehand. And it was a panel on financial crime, which you were chaired. And when we went for dinner afterwards, I remember being really keen to pitch to you this idea, because I think it's an incredible story. And I've spoken to Chris, and I thought he had a great story to tell, and I thought he was open to telling it. Clinton seems like an unlikely collaborator, a Rhodes scholar with a PhD from Oxford University. I always thought he should be working at a fancy law firm, rather than researching white collar crime. An interest, which has seen him spend much of the last decade, traipsing around prisons in the United States and Australia. So please join me in welcoming Professor Clinton Free to the stage. I've always been interested in crime, but specifically white collar crime, and the way that people who are relatively affluent, educated, and also law-abiding for the most part cross the line and do something which is illegal. It was after that, Clinton and I met Chris for a beer at a pub near Sydney University. And while he wasn't exactly sold on the idea, he didn't say no either. He was a bit apprehensive, as his last experience of the media was being paraded through Canberra Airport for the waiting cameras. After a couple more phone conversations in the early months of 2020, Chris was more comfortable with the idea, but he'd yet to commit. The state saw 165 new cases overnight. Then COVID-19 struck, and Melbourne went into a second lockdown. And so we would have to wait. The Victoria Police will have a range of new directives. Finally, two days after New South Wales reopened the border with Victoria. Clinton and I hopped in a car and headed for Melbourne. Chris had agreed to speak publicly for the first time. (BEEPING) (BEEPING) Hello. Hey Chris, how you doing? Good to yourself. Yeah, very well. Just rolling into Melbourne now. I got Clinton here with me as well. How are you, mate? Yeah, good. How you doing? Yeah, good. Good. Good to be here for you. We meet Chris at one of South Bank's many unremarkable service department blocks, with a view of the next building and little else. He's dressed in jeans and a polo shirt, which speaks to ours spent in a prison gym. And while he's stockier than I remember, he also seems more relaxed than our early meetings. We were pretty fortunate. You know, we were, you know, I'll say, yeah, I'll say, middle-class, probably a good way to describe it. Yeah, we certainly had, you know, good opportunities going up, pretty good school. Seven years ago, Chris was working at the Australian Bureau's statistics in Canberra. When he'd taken up a graduate job after leaving Monash University. My division at the ABS specifically, the methodology division, which has a lot of people who are very, very academic, very book smart, you know, mathematically minded. It's no exaggeration to say these are the people trusted, with expressing the country's performance in numbers. A low profile but crucial function, which informs government policy making and sets the level of markets. At that time, I was looking after the employment data. Chris had been with the ABS in Canberra for two years and by his own admission, getting bored. At the same time, Chris's friend from Monash University, Lucas Camay, was working on the currency trading desk at the National Australia Bank in Melbourne. Now, he tried to speak with Lucas, but once again, he chose to remain silent, just like he did outside court in 2014. So here's my Finn Review colleague, Vestna Poliak, markets editor, to explain to us lifehook what a currency trading desk is and Lucas's role within the bank. He was to, you know, your average big, probably Melbourne based company. The equivalent of a stock broker, but further currency market. So if they need to worry about the direction of the currency and how that will affect, you know, the ordinary margins of a business, they would take out some protection. That can be called hedging, but really it's just almost insurance against the currency moving in an unfavorable direction. So he's just helping them buy or sell the Aussie dollar? Basically on a forward basis. So what sort of people would have traded through someone like Lucas? Oh, and this is a big fallback. So the clients are really big clients and, you know, we're talking about ASX 50 institutions. At just 26 years old, Lucas was earning $200,000 a year and a rising star within the National Australia Bank. He was athletic, good looking and already driving a BMW roadster. It was pretty clear this kid was doing okay. You described Lucas before as the smartest guy you knew. Is that right? Once. He's a very smart guy. He's a pretty, pretty full up. You know, but in a good way, very, very excitable, very intelligent, very well, well spoken. But you know, as soon as you meet him, you can just see him in that corporate finance world like it was just sort of him down to a T. Lucas strikes to me as someone who's attracted to the trappings of success. He's someone who bought elaborate, lavish things when he had the capacity to do so. Been incredibly successful. Excellent student. Got a job that, you know, most graduates would see as the job to get at Goldman Sachs. He was on a path to be one of the masters of the finance universe. You know, there's probably five or six people at uni that we all had the same classes and and kind of did a few social, you know, things on the weekend. Was that how you met Lucas through common subjects? Yeah, he did. He did the exact same degrees, man. And when we did a few assignments together and wrote a paper or two, I think together. Craig Merritt, a school friend who was known Chris for 20 years remembers him and Lucas being pretty tight. I think he might have been a little bit enthralled by Lucas. I think when you come out of high school and you're into university, you know, the world starts opening up to you and you really do think there's a hell of a lot more out there in the world really. And you start meeting all these fantastic people at university. You know, you start having some great nights out and these people really do become your good friends. And I think Lucas really did become Chris' good friend at the time. Two years after graduation, this group of friends got together for a birthday party on the Mornington Peninsula. An hour's drive south-east of Melbourne. It was just the two day piss up really. I think we went to the beach one day. Yeah, there was nothing, nothing big planned. It was just, you know, 10 or 12 people with a heap of grog and just catching up. I think a lot of us hadn't seen each other for quite some time. Perhaps even since uni, you know, everyone was working different jobs, different states. So I kind of brought everyone back together for a couple of days, which was nice. Had you been in contact with Lucas prior to that weekend? I think so. Yeah, I think we had spoken a couple of times. But nothing would prepare Chris for what Lucas would raise. During the party, it was, you know, sort of first brought up that I worked doing the employment figures. And, you know, he at the time was working for NAB on the foreign exchange desk. And, you know, it's sort of, I can't remember exactly how it sort of happened, but he sort of jokingly said that, you know, you know, I can use that information or something like that. And, uh, I don't think anything else was discussed at that time. Kind of a passing comment. Chris's laissez-faire recollection stands in sharp contrast to the seriousness of that proposition. As Justice Hollingworth would later remark, it was far from a throwaway line. Given your work experience, you, Mr. Kameh, were the person who best appreciated the likely value of having access to that information before it's official release. Now, this is not your usual insider trading, where someone with information, which is likely to move a company's share price, uses that to make money, like in the movie Wall Street. No, the plan hatched by Lucas and Chris was to use highly confidential government statistics, mainly around employment, construction activity and inflation, to bet on fluctuations in the Australian dollar. Chris, having helped compile these numbers, would pass them to Lucas, who would then place trades in the foreign exchange market. It is the only known case of this ever happening, either in Australia or abroad. So, Vessna, can you explain the ABS data? It comes across as really complex. It does sound complex, but it's actually pretty simple. It all comes down to expectations. So, if the data is better than expected, the Australian dollar will rise after the ABS information is released. So, if you knew the information beforehand, you'd be buying Australian dollars and selling them at a higher price once everyone else in the market has come around. But, if the data is worse than expected, then the dollar falls. So, in this case, you would short or sell the Australian dollar and then buy it back at a cheaper price once the data has been released. So, having these numbers early, what might you equate that to? Well, I mean, the only thing you can sort of say is it would be like knowing the dealers hand in blackjack, right? I mean, no one knows these numbers. There wasn't a lot of moving parts there, you know. It was, is the information. And you make the trade, just the simplicity of it was probably kind of why it went ahead. I would like to call it a Friday special. Federal agent Kylie Standing was working in the criminal assets confiscation task force at the AFP known as the cat when she was first alerted to the case. Five months after Lucas and Chris began trading. It was a Friday afternoon. My team leader had just come back down from attending a meeting and yeah, he just approached me. He mentioned that we just received a new referral from Asik. My name's Raymond Waschel. I'm a senior investigator in the markets enforcement area of Asik. I've been working with Asik for over 20 years now. The Ken May and Hill matter is certainly one of the highlights of my time at Asik. The Aussie dollar remains very much an investor focus this year. Most forecast. The word back from above was that we should probably have a chat to AFP as soon as possible to arrange a discussion as to how we might approach this matter working together because at that point we understood that, you know, there was a government official potentially involved in this and that would have peaked the AFP's interest rather than just an insider trading matter on its own. The person whose interest was ultimately peaked to the AFP was federal agent Dean Wilens, a mid-career investigator who just come off the convent with a homicide squad at Victoria Police. He was more accustomed to drugs and the mob than the intricacies of financial crime. Yeah, that insider trading on you absolutely nothing. I knew, you know, generally what it was, you know, you read the news article most of the things. I understood the concept, you know, of having information before to release, but how valuable that information could be in, you know, currency market, those sorts of things, you know, really no appreciation and really didn't even really know how those currency markets kind of work. We've seen the Aussie, you know, against that currency, I'm just plucking seed back above 90%. Wilens thought a little time in the fraud squad would be a nice change of pace, but in this case he would underestimate the trade craft used by a couple of amateurs. I didn't expect them to be so disciplined in their use of COVID phones and the like to share that information where people making bets in the office. If you get these guys, I'm going to run around the office and make sort of stuff like, you know, it was just a definite hard investigation, you know, it was just almost impossible. While police marveled at the pair's discipline, those in the financial world were taken by the sheer scale of the trading and profits generated. Unbeknownst to Chris. We basically agreed to a couple hundred thousand small amounts of money, not to ring any alarm bells. Those small amounts of money were trades Lucas would place with foreign exchange broker Pepperstone, which allowed so-called mum and dad investors to try their luck in the highly unpredictable world of international currency markets. The pitch Lucas made to Chris was that if these trades on the Australian dollar were kept relatively small, nobody would notice in a market where a staggering 463 billion dollars was traded each day. I certainly couldn't see any consequences occurring to anyone. There was no, you know, say victims like in my face, you know, that I was being reminded of every day or anything like that. It was just, I was giving him some numbers on a piece of paper and we were making a bit of money and at that point did you know that you were breaking the law? I knew, obviously I knew that I wasn't meant to be giving out these figures to people and you know I knew that it was inside a trading. As Chris said, their plan was beautiful in its simplicity, not to mention victimless as he saw it. The idea was not to go overboard. Using $10,000 of seed money they would work towards $200,000 in total. After declaring all their earnings, they would each pocket 50 grand after tax. Then they'd be out. Modest, legitimized the ATO and no one would get hurt. The employment rate overall, we had a 5.8% jobless rate so that stays at the biggest level. So just talk us through the mechanics of releasing ABS data. Well very long time ago when I worked at a newswire I would have to go up to the ABS building which was behind Town Hall in Sydney and you go up to this floor and there's a room where this happens right and it's totally barren and you'd sit down at a table and what you'd be waiting for is for someone to drop over your shoulder the hard copy of the economic data right. This data is classified as market sensitive for good reason right because you know no one's ever laid eyes on it. And your job is to get the number, get the result as quickly as you can and you've got to know where to look and you've got to know what you're looking for and you've got to repeat that over an open phone line to someone else who was back at the office usually an editor who will transpose it into a headline. We're talking really high-stakes stuff. How did you take the information out of the building? What did you do? I just wrote it on a bit of paper and just put it in my pocket. That was it. Nothing high-tech. Did anyone ever check you at the door or? No that was my job. I wasn't unusual to be to be looking at them all the time. How did you feel the moment? You wrote it down and put it in your pocket. At the start you know it was pretty, the start was pretty full on you know pretty nervous after two or three times of doing it. Just didn't really think twice about it to be honest. I knew it was wrong and that was kind of all I sort of as far as I sort of got thinking about that. In chatting with Chris it always struck me as odd. Our little thought was given to breaking the law. In trying to understand this I was put in touch with behavioral scientist Juliet Tobias Webb who has a PhD in experimental psychology from the University of Cambridge. How are you? Pretty well. How are you doing? Good. So first up think about these young guys. Takes me back to when I was in my early 20s and doing lots of dumb stuff. Is there something about young men doing stupid things? So the brain is less formed in young men particularly the area associated with sound judgment and rational decision making. So it means that young men generally don't make as many sound decisions potentially as they say female counterparts but also as grown men. It also means that they are more likely to take risks. Yet despite these two young men taking an extraordinary risk they have the sense to formulate a near perfect plan. Here's Clinton again from Sydney University. It's an incredibly executed plan on one sense you know they for two people of no criminal records no criminal history at all they do end up devising quite a sophisticated path out of this and possibly a path where absent a few things happening they might have got away with it. This plan was hatched in the weeks after that two day piss up at the B-chess. I met at a couple of pubs when I was down in Melbourne. We did made up specifically to talk about that so I guess at some point either on a phone conversation or something we must have discussed it to some extent but it wasn't really until we met up in person that we kind of sort of seriously started talking about you know what sort of could happen. What was discussed we were discussing if it would work if if the numbers you know that I had access to you know we're actually the headline figures at that stage like I was doing my job and creating the figures but I never really I never really linked them to you know the monthly and and and quality announcements and then news and those sorts I never really thought about it that I just did my job but did the numbers and that was it I never yeah to me they weren't they really weren't that important. Due to the market sensitive nature of MEIs they are treated as highly confidential and kept under strict embargo until official release at 11.30am on their schedule release date. Four months after the plan was first mentioned Chris and Lucas were ready to put it into action. The latest jobless figures steady at 6% last month. Lucas had been familiarising himself with the trading application on his iPhone while Chris had checked to see if the numbers he was producing each month were the same as those being released by the ABS. But overall 47,300. I mean obviously had had some doubts and and I was was feeling nervous about it all initially. And while the court documents were very clear it was Lucas's idea. Chris's adamant his friend didn't pitch him the plan. I wouldn't call her pitch I think it was just us really discussing discussing logistics of of of how it could work you know with me giving him the numbers a few days prior and and and then him trading on them. Take note of that bell. We'll come back to it. Well economists had expected employment growth in October of 20,000 and so on September 12, 2013 Lucas and Chris made their first trade. Just 30 seconds before the labor force figures were released at 11.30am. Lucas acquired 20 contracts to sell the Australian dollar through his broker Pepperstone. 27 seconds later after the official figures had been released he closed out the contracts for a profit of $13,500. Now remember that bell you heard earlier? It was a sound of Lucas buying those foreign exchange contracts. The next time you hear it he will have made the equivalent of two months wages for the average worker in just 57 seconds. It was that sort of sense of thinking about something and executing something that was successful it was you know it was a good feeling. You know I sort of likened it to kind of like to starting a small business or something. So the boys were on their way. They pulled off their first heist making $13,500 dollars in just 57 seconds of trading. And Lucas did this while sitting in a toilet cubicle at Nab's Melbourne office. Easy. In Chris's mind that left $186,500 before reaching their agreed goal of $200 grand. So had Lucas comeay stopped at $200,000? Yes it very well could have gone undetected. He've their head stuck to their agreement to profit of $200,000 in total over 12 months using trades, some wins, some losses. I'm pretty confident that definitely if they had walked away after that they would have totally gotten away with it. But what Lucas didn't disclose to Chris on the night of their maiden trade was that he'd secretly opened a second shadow account. It was the first of many betrayals that would lead to Lucas secretly turning $10,000 of seed money into a whopping $7.8 million over nine months. And ultimately bring about their undoing. Next on the sure thing. Lucas was very good in the way in which he operated. He's very intelligent, he's good at, you know, pretty much everything he does. Chris was the supplier of the information that Lucas needed to enrich himself while stringing Chris along. Lucas just thought he could in a way outsmart war enforcement. Clearly a manipulative and just in a for himself. Eventually most people slip up. I don't like saying the word to trade. The sure thing is brought to you by the Australian financial review and sponsored by McGowan Nickel, Australia's leading forensic investigations and cyber firm. It was presented and written by myself Angus Grig, produced and edited by Lapfan, scripted editing by Colin Delaney, technical production by David McMillan, Call Mac Lally and Tim Mummary. Graphics by McHale Apollo and with thanks to nine news librarians Georgina Jannings and Marianne Zachnik. Additional thanks to Sydney University Business School and Professor Clinton Free. The sure thing was overseen by AFR Digital Editor Fiona Buffini and Head of Audio Tom McKendrick. At the financial review we investigate the big stories about markets, business and power. If you like the sure thing and want more of this kind of journalism, subscribe at afr.com/subscribe.