Ep 2. Moral Seduction

(gentle music) - People always ask me, oh, you must take Lucas, you must, you know, he fucked you over, he did this, he did that. Like, I don't look at it that way. And, you know, people don't always believe me. I don't like saying a word to trade. - Hi, I'm Angus Grig. I reported with the Australian financial review in Sydney. And this is episode two of The Shore Thing, a podcast sponsored by McGowan-Nickel. Previously. - During the party, it was, you know, sort of first brought up, you sort of jokingly said that, you know, you know, I can use that information. - We basically agreed to, couple hundred thousand. - But what Lucas didn't disclose to Chris on the night of their maiden trade was it he'd secretly opened a second shadow account. In the last episode, we learned how Christopher Hill and Lucas Kameh met at Monash University studying commerce and economics. Before reuniting, two years after graduation at a beach party on the Mornington Peninsula. It was here where Lucas first mentioned the plan. That plan would see them team up to commit modest under the radar inside of trading on the foreign exchange market, totaling $200,000. After that, they would tap out. In the words of Professor Clinton Free from Sydney University, who specialises in white collar crime, it was a near-perfect plan. - I think it was a pretty bombproof plan when they first laid it out. One thing to remember here is that the information Chris was giving, he could give to a lot of people and they wouldn't know what to do with it. - Jobless rate is spiked dramatically. It's now 5.9%. But Lucas was particularly attuned to what these outcomes meant. So you had this great marriage of immediate privilege access to secret information and he sophisticated the user. - The fact that the Australian dollar's heading up in the opposite direction again. - But greed and betrayal would mar this endeavor from the very beginning. - Hey, Clinton, have you seen this? This is, I just got this from the AFP. - I have it amazing. - A 97-page statement of facts laid out in clinical detail by Dean Wheelans and his team at the Australian Federal Police. Outlines clear and premeditated deceit. - It's not just on a whim, it's calculated. - Page 21 shows Lucas betrayed his agreement with Chris from the very first trade. On the 12th of September 2013, Lucas used the inside information to make $13,500, betting correctly on the direction of the Australian dollar. That would go into the joint account to be split evenly between himself and Chris. On that same day, using the same information, he would help himself to a little piece on the side with $7,700. Over the next eight months, Lucas's side hustle would become the main game, totaling almost $8 million. Dwarfing any joint profits and in clear violation of his agreement with Chris. And yet Chris bears no grudge. - I can't really forgive him 'cause I don't really have a strong sense that he did anything personally to me to need forgiveness. - Over the course of this episode, Clinton and I will attempt to unpack this friendship. The pressure on Lucas at the National Australia Bank versus the boredom Chris faced at the ABS, along with Chris's continued and baffling loyalty towards Lucas. So Clinton in six hours of interviews with Chris, I just couldn't get past his lack of anger towards Lucas. What do you make of this? His ability to move beyond that, I find incredible. I find that capacity to forgive in that situation, striking. And it seems genuine. Certainly doesn't speak with venom about him. So yeah, I think it speaks to a really striking capacity to forgive. (bell ringing) - I would definitely say that he's a loyal friend. That's probably one big cornerstone of the type of person he is. Overly loyal, maybe. - Craig Merritt, a school friend who has known Chris for 20 years, sees his loyalty to Lucas as part of an ironwheel to take full responsibility for what happened. - Both face charges of insider trading and identity theft. (bell ringing) - The one thing that I've always known about Chris after everything that happened was very much, you know, he never blamed anyone other than himself. Very much I'm such a flipping idiot for having done this. - Upon joining the ABS, you, Mr. Hill, became a Commonwealth public official. - So what does psychologist Juliet Tobias Webb make of Chris's loyalty to Lucas? - The loyalty is quite interesting. The shutting down when somebody's asking you questions about him suggests more of a defense mechanism there where he's not willing to explore that and comfort him within himself. - Which reinforced your obligations as an employee in a position of public trust. - Dean Willens from the AFP saw Chris as Lucas's subordinate. - It was definitely Lucas calling the shots from our perspective. Chris was the supplier of the information that Lucas needed to enrich himself while stringing Chris along. - In the moment, however, little thought was given to the consequences. As Chris and Lucas worked up their plan an hour zero approached, they would commit their first criminal acts. Three days before that first trade, they would each buy burner phones and register them in false names. A crime which carries a maximum sentence of 10 years jail. He is Kylie Standing from the AFP. - They used a burner phone to communicate, which is how they'll pass in that sensitive ABS information to each other and they'll very, very careful not to contact each other on their regular phones. Eventually, most people slip up somewhere along the line but they're very good. They're very cautious. - In Chris's case, he used the name of an old flatmate whose details were elicited through the promise of repaying a bond. Lucas used the identity of someone he was helping get a job at NAB. - NAB, more give, less take. - He texted an old friend of his and said like, "Hey, look, you know, this is job going at NAB. If you want me to put in a good word for you, send me your name and your license detail and your data birth." And, you know, just so I can start the process. As soon as his friend did that, he then goes out and purchases a semen registers in that name. - What does that tell you about his personality? - Clearly a manipulative and just in a for himself. You know, it just kind of goes towards a lot of the planning, a lot of them actually understanding that what they're doing is wrong. It really goes to their intent to actually do something illegal for their own benefit. - Carly's standing from the AFP saw Lucas running the operation. Lucas was very good in the way in which he operated. I believe to some extent that Lucas just thought he could in a way outsmart law enforcement and it would just go undetected. - It goes to the idea, if not for Lucas's greed, they would not have got caught. - It was actually a compliance officer inside one of those companies that recognized this pattern of him winning too much and it not being probable. And he started to do a little bit of digging around, whether or not it may be from insider trading. And it was actually that employee, that compliance employee that identified that possible first link to Christopher Hill. - There a good chance I could have got away with it. So it was Lucas hubris that got them caught. - That compliance officer was Joel Murphy, who in addition to his oversight role, ran the brokerage Pepperstone. His name was on the financial services license and that meant he was responsible for reporting any suspicious trading. - As a trader at Pepperstone, Lucas was definitely the biggest Australian client by some margin. And if we looked over all at Pepperstone, he was in the top three for volume and deposit size, that's for sure. - My colleague, AFR market senator, Vestner Poliak. - So Vestner, if you gave this information to any idiot, they wouldn't really have a clue what they're doing, right? - Exactly right. The thing is you need to know what you're doing. You could give this information to most people. They wouldn't know what to do with it or how to use it. So even with an insider's edge, there's still an element of risk, right? The market might respond to a political event that happens at the same time, rather than the actual data that's coming from the ABS. The other thing is you have to understand there is a whole industry of economists and trading desks trying to correctly predict these ABS numbers. And the best of them are only right, maybe half the time. So for Lucas to get it right again and again and again, well, that's just unheard of. - So Joel, what did you see that made you suspicious? - Initially, there was a lot of small trades from one trader, they were all correct, as in how to strike rate of 100%. Typically an FX trader is only looking for a pretty thin margin, you know, if you're trying to be right 55, 60% of the time, you know, see they're up or down. So getting it right every time is pretty rare. That's why he came up on the radar because all his trades were accurate. And Lucas's success was not just a little out of the ordinary. The police fact show his first 21 trades with Pepperstone over a five month period were all correct. Giving him a win rate, double the best traders in the market. His success was as unlikely as a player on the roulette table, choosing correctly between Red and Black, 21 times in a row. He clearly didn't account for success being its own red flag, in a market which really acted more like a casino. And his actions sat directly odds with a plan, where Lucas repeatedly sold the idea that if the trades were kept small, they would not be detected. He was not only going against his own advice and risking jail time, but betraying a friend in the process. It was, as the court would later hear, a succeeded all costs mindset. He's always, you know, had he said on his shoulders, he's very intelligent. You know, he did very, very well at uni. I think he won one of the scholar awards. It was actually the university medal for the commerson economics faculty. And that success and hard work saw Lucas land a highly-covered job at Goldman Sachs in Melbourne. As an industry leader, we at Goldman Sachs are aggressively expanding our presence. I think we go back to the time that Lucas and Christopher were coming out of university. The hot jobs would have been international investment banks, traveling the world, highly remunerated, high opportunities for young people to move up fast. And I think those sorts of banks did push people up quickly, you know, where there was the possibility to earn in ways that weren't possible and probably still aren't possible in many sectors. Goldman Sachs' new exception, he talented and motivated individuals. Let's bring back behavioral scientists, Juliette Buyersweb, to give us some insight into the culture of banking and the trading floor. Stop, stop! The interesting thing about the banking environment, particularly sort of trading rooms, is that there is a culture of just succeeding. And if you don't succeed, then, you know, you let go, you're not worthy in some ways. So the culture itself is almost around, hey, let's take more risks. It puts you into what I would call like a gambler's hot state. You can hear, well, traditionally, the ringing of the bells, you hear people yelling and calling out when they've got deals. And so it gets the blood pumping, it gets put you into a more impulsive state. And in that state, you know, you're more likely to take risks. You put a bunch of young people in the environment and you attach lucrative incentives to certain behaviors. You are turbocharging those behaviors. Don Moore, an academic, talks about this idea of moral seduction, which I like, which is a theory that if we expose people to consistent gradual pressures to achieve a certain outcome, it tends to give rise to things like euphemistic labels for behavior, blind spots around ethics, and acceptance of things in grey zones. In terms of Lucas's case, he might have some underlying vulnerabilities in his behavior in terms of his need to succeed and feel accepted. Maybe he is more impulsive. He has been driven to really focus on good outcomes, all of his life. But then he's then enters this trading environment where that's reinforced. And all that's talked about are the wins. So to fit in, you've got a win, you've got a look good, you've got a feel good, you've got a just, you know, talk the talk, walk the walk in some ways. And that in itself is a really dangerous culture. In Lucas's story, by the time he conceived to break the law, there was an underlying insecurity, a sense, perhaps, that he didn't belong. The court heard how Lucas felt he'd arrived on gaining a job with Goldman Sachs, the world's most famous investment bank, but still continued to drive a forklift at Safeways Dispatch Warehouse, while being a master of the universe in training. His doubts about job security turned out to be well placed, but it had nothing to do with his ability or work ethic. In the fallout from the global financial crisis, Lucas and other graduates at Goldman Sachs were laid off in September 2011. It was last in, first out. I think it's highly plausible that being retrenched at Goldman Sachs did have a negative impact on his ego and may have set him up to be a little bit more ambitious and a bit more eager to entertain schemes like this than otherwise. Other people would have been upset that that happened, but I think he moved on pretty quickly into a, another, you know, very successful position. That position was on the NAB trading floor. I think in terms of graduates wanting jobs, Goldman Sachs is right up the top and, you know, I think NAB is probably, in the domestic scene, a great outcome, but I think for the sort of elite finance roles that Lucas was seeking out, I don't think NAB would be seen as on par with, you know, the elite investment banks, which are international, which offer opportunities to trade in bigger volumes, probably being involved in larger deals. When you spend quite a bit of time, you know, looking at someone and investigating them, you get a fairly good appreciation for how they, you know, interact with people. And Lucas, you know, he was a very sociable person. I mean, he had a lot of friends, you know, a lot of people like him, did really well at the NAB. You know, they liked him. He got a promotion somewhere in the investigation as well, like why he was there. It was, it was, it was an up and coming person. (upbeat music) ♪ He was a king to me ♪ Lucas was, you know, rising star at NAB. He was already on very good money for his age. But with that money, $200,000 a year, came the pressure, Juliet mentions. ♪ The walls came clumbling down ♪ Along with an environment which only served to stimulate Lucas's predisposition for risk-taking, narcissism, and exaggerated self-confidence. Lucas's barrister with Teller Court, he felt like a failure for being made redundant. And from that point on, he resolved to push even harder. And when he secured a job on NAB's foreign exchange desk shortly after, the bank became a vehicle for this ambition. And while Lucas's barrister, Peter Moracy, stopped short of blaming the culture at NAB for his crime, he certainly pointed a finger in its general direction. Here's an actor reading the transcript of what he told the court. The key factors that existed at the time of the offending were that he was very much immersed in his work. Very much immersed in the workplace culture. The culture was one which is designed. It might be reminiscent of certain Hollywood films where the morality of actions is secondary in conversation to the success of actions. - Grease for lack of a better word is good. - It is not our intention to blame the culture of the NAB because he is an intelligent person who makes his own decisions. But what he felt was that there was, in that environment, a focus upon winning, a focus upon success, a focus upon reward. And particular deals will be celebrated by the ringing of a bell over $10,000. A ringing of three bells at the value was over $30,000. The culture was one of rewarding success and praising success. Lucas entered this environment as a 22-year-old and was quickly promoted. He was seen as a young leader in the bank and a mentor to the fresh graduates. But with promotion came more pressure. He needed to make $15 million in commission to meet his annual budget. More than any other person at his level. Lucas would tell the court each time he met this budget, it was increased. And the pressure to keep hitting sales numbers was reinforced by the ringing of a bell whenever one of the traders filled a large order. In a statement, NAB said the bell is no longer wrong on its trading room floor. The other thing that's really interesting about the ringing of the bell is that it makes other people's behavior much more salient. So again, it's not that you have to be driven by success. But now you see others succeeding more frequently or just as often as you and it creates that real culture of competition. And therefore, everyone's driving for success. No one has each other's back and it just creates a really terrible culture. As the bell rang, the promotions were handed out and the budget's got larger. So did Lucas's trading through his secret accounts. What began as a relatively modest affair in September 2013 with profits for the month of $20,000 quickly escalated? By November, his profit for the month was $50,000. In December, it was almost $90,000. And by January, it had climbed above $270,000. In February, his private profits hit $1.96 million. In that short amount of time, he'd already amassed $2.5 million. So Joel, inside Pepperstone, what was a feeling when Lucas was making all that money? It was just so over the top and just got so out of hand so quickly. We all talked about in the office like, why is he going so hard? He just dug himself into such a big hole so quickly. Yeah, it was just watching a car crash and being on the side of the road. And it was more than a car crash. It was like a 10 car pile up by the end. The betrayal of Christopher by Lucas, I think, is one of the highest obscene in terms of being actually able to sit there and look at it. Lucas came a design scheme in 2013 with Christopher Hill. Despite whatever an LC's, Christopher fans Lucas against claims of betrayal. Defends himself. He was no patsy. Remember his friend, Craig Merritt? He never blamed anyone other than himself. Hill, an official at the Australian Bureau of Statistics, sent Kamei, unpublished economic data. Craig remembers Chris as someone who never had many problems at school. Some people just sort of naturally gifted him naturally smart and clever. And Chris was certainly that. Yeah, he just always seemed to have a knack that he just got it when a lot of me personally. I didn't come as easy. And I think Chris really just was really a natural student. He never took a note in class. My mum was a mass teacher ahead of maths at Yara Valley Grammar. Really, my mum said that he was one of the smartest blocs, the smartest kids, rather that she'd have it taught. So it's not surprising. A smart guy like Chris found himself a little bored at the Australian Bureau of Statistics. He is Chris. Board and perhaps unfulfilled is probably the best way to describe it. So I was probably a little bit depressed at that time. But I think more so bored and a bit stagnant. I was supposed to stuck in a bit of a rut doing something that was not something I really enjoyed, but it was just a job. Craig recalls Chris being a little off. Part of the reason that he probably wasn't feeling great at the time was to do with the fact that I think he'd broken up with a girlfriend who had been made in Canberra. Looking back now, I did get a sense that he was probably not all that happy in Canberra at the ABS. I think he probably realized that he had a really good job and all that type of stuff. But often like a job isn't enough. You need all this other stuff around you. And possibly part of that was the fact that he'd left Melbourne, not necessarily too sure. Leaving home is really hard. Kissing your body, family and your friends, and you're up there. And it's all a bit of a novelty for a time. And then it sort of begins to wear off and it becomes a bit of a slog. Chris speaks of being in a rut and feeling unmotivated to change. But he did apply for one job. I actually applied for the defense signals directorate, which is a very full on interview process. You start with a group test and then you move on to another round. And then eventually you see a. You'll go see a psychologist and I've basically got an email from him. And all it said really was sorry, but he won't be proceeding. And the reason they gave was that I was too susceptible to blackmail. So I really didn't know how to interpret that. Or if they. I don't know. It was just a bizarre, very bizarre email. The job would have been very high security position. Juliet, what does that say about his personality? Well, that would be consistent with his loyalty to Lucas in some ways. And so it suggests that he's easily influenced by others. I think that this shows a predisposition that Chris had that then Lucas was able to take advantage of. For Clinton and I, there was always a larger question of why Chris would go through with this scheme. He knew he was committing a criminal act and only stood to make $100,000. Half of that after tax. And more perplexing was that Chris was earning good money. As a recent graduate, he was making just over $85,000 a year. So while Chris admits he didn't know how to interpret the email from the federal government's digital spy agency, with hindsight, there might have been some parallels between the psych test and Lucas and Chris' friendship. In my mind, Lucas didn't even need to coerce Chris to secure the information he was privy to. There was no pitch, only charm and opportunity. I think Chris would acknowledge that he was a bit taken in by Lucas the time that he did do the offending. And I think Lucas probably represented an idea that was quite attractive to Chris of, you know, working in an investment bank, quite a nice, lavish lifestyle, which I think probably did appeal to Chris at some level. I always sort of saw myself as getting into sort of the corporate banking finance sort of world. But I suppose after a couple of years, and I think it's after two or three years, you start sort of applying for placements and those sorts of things. And, you know, the competition to get in was really on a next level. And I sort of realised pretty quickly that even my grades to date was going to make it very, very difficult to sort of get into those sorts of places that I wanted. For someone who'd excelled at school without much effort, this kind of been an easy realisation. But he was his mate, Lucas, offering another path through. And for an unfulfilled Chris, it was a way out, an opportunity for a little taste of the action. Chris was never going to make a lot of money out of this. And he had a good job. So it's hard to see it purely through a financial lens. I think there was a thrill seeking lens. I think there was a lens of wanting to be successful in this undertaking. And I think there was also an important part of wanting to appease Lucas, who was a very high-achieving, good-looking, successful character. So I think there was probably a bunch of factors which lined up to engage Chris in. But I don't think you're sort of general financial greed story works here. I don't think I was necessarily looking for something more. But I suppose when it came about, it kind of, it did. I suppose it made me feel a bit better, yeah. A lot of like I was saying, it was that sort of feeling of achievement and just doing something that he's been successful. I think Lucas was an attractive figure to anyone. And having Lucas's commendation and being part of that, I think, would have been a driver in this. It's hard to know if the seemingly upbeat and unflappable Lucas kept a cool exterior and made those first few months of his illicit trading. But for Chris, the sense of achievement quickly wore off as the conspiracy got to him. That's probably just anxiety. At the start, you know, just knowing that, you know, that feeling, you know, you get when you know you're doing something wrong. And perhaps to deal with the stress, Chris mentioned the plan to a couple of his mates, including Craig. There are a few of us at a mates place having a few beers and the like. And I think it just sort of came up at that point. In my mind, it sounds kind of absurd, but you don't necessarily think that, oh, that's insider trading. I don't know if you should be doing that. I was one who kind of knew. I think there are a couple maybe who might have known, but not the full extent of, you know, what he was actually up to. I suppose the logistics of how they were sort of doing things. Craig remembers a couple of throwaway remarks that have taken on extra significance with a benefit of hindsight. I think he was in the car with me and we were going to pick up pizza from somewhere. Um, yeah, and I was just sort of chatting about Canberra and what he was up to. And yeah, he was sort of, yeah, just making a joke like, oh, haven't slept in days. But I think he was nervous because at the time he was obviously doing something, doing this thing with Lucas, which was quite illegal. Looking back now, certainly I do think that that anxiety at the time, whenever it was, he was visiting me in Sydney sort of early 2014. That was probably related to what they were doing 100%. When I mentioned this to Clinton, he was staggered and he told his friends long before he got caught about the insider trading, about the offending. - Should. - Yeah. Yeah, well, yeah. Chris Blabbing to his mates points to his anxiety and the pressure of keeping a secret. It was one of the few missteps in an otherwise well-divised plan. I find it ultimately hard to believe that they would have got caught under the original terms of the plan. I think had they kept to the original plan, it was pretty bombproof. But Lucas didn't stick to the original plan and by the end of 2013, Joel Murphy from the broker Pepperstone was spending a good part of his days investigating the firm's most successful client. There were plenty of red flags. It was not just Lucas's success rate and the growing size of the trades, which peaked his interest, but that he was only trading just before the release of data from the ABS. And he was doing this at a time when others typically did not trade, as the market was so unpredictable. Lucas's trading was well before, so, you know, 30 seconds, two minutes, you know, four or five minutes before. Just the timing threw us off, just because it was so far away, like, you know, it just a really strange time to be trading. Joel says most of the action in the foreign exchange markets, prior to big news release, comes in the microseconds before the announcement or directly after. So Lucas getting himself set even 30 seconds before the news release is like placing the Melbourne Cup bets in January. So to report some of the insider trading could ruin their career. So if he was just lucky or, you know, he's had a good run, you know, don't really want to have the AFP coming into your place of work and arresting you. So we wanted to be sort of 100% sure. And we thought we'd have the ability as a broker to work it out. So we did a little bit more digging through and managed to put some of it together before we were reported it. Joel would begin his investigation on Facebook. An intelligence gathering tool unrivaled in its ability to make connections. I scanned through Lucas's friends just to see if anyone had, you know, possibly worked in government. He had 300 friends at that time, I think. So it took me a little while to flick through, but there was one person that just had Canberra in their profile where they were and they went to uni with him. So I was like, oh, Canberra is all the government agencies. So that's where Christopher Hill's name came from. From Facebook. From there, it was on to Google. Immediately Christopher's name popped up on a publication that the ABS of release. So like a, almost like a university or a peer-reviewed article that he'd done. After that, it was a matter of picking up the phone to the ABS and asking for Christopher Hill. And I was transferred through to him. I sort of gave a bit of a ruse that I was a university student researching his publication and wanted to ask some questions about it. And he basically volunteered exactly his position to me almost immediately. Told me that he didn't work in that team anymore. He worked in a market-sensitive team that is involved in the news releases of economic data. So we had a conversation probably three or four minutes and after I hung up on that, I think I was almost laughing. I was confident that it was an open and shut case. Despite Joel's confidence, it would not be so simple for Asick and the AFP as they struggle to catch a couple of first-time criminals. Next on the sure thing. Inside of trainings, a very difficult thing to prove absent a confession or a guilty plea. We realised that the AFP is certainly taking this very seriously and that kind of put a lot of pressure on us. So in a way, you kind of feel helpless. You could see what was happening. You could see he was just profiting more and more. But essentially, we had our hands tied and we weren't, we couldn't take action at that stage. So the installation in the amount of money that he was winning was definitely bringing some pressure to bear. Once those funds go offshore, it makes it incredibly difficult for us to then recover. 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 Mummery. Graphics by Michaela Pollock and with thanks to nine news librarians, Georgina Jannings and Marianne Zacknick. 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. If you want to know more, head over to afr.com/the sure thing. There you'll find links to every episode, as well as stories, photos and background information on Australia's largest insider trading case. You'll also find subscriber links for Apple, Spotify and Google podcasts. 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