Frawley was part of a cycling group based in Melbourne’s bayside suburbs with Macquarie investment adviser Stefan Whiting, who encouraged his friends and connections in the wealthy area to invest in the fledgling mining company.
Mr James and Frawley became clients of Mr Whiting and another Macquarie adviser, who urged them to buy shares in Cleveland Mining Group.
However, Frawley lost almost $100,000 investing in Cleveland and other speculative stocks, before abruptly ending his association with Mr Whiting. He was pursuing Macquarie for compensation at the time of his sudden death last year.
A Macquarie spokeswoman declined to comment on whether any settlement had been reached with Frawley’s estate, or discuss the resolution with Mr James, but released a short statement to The Sunday Age.
“We say publicly in our dispute resolution statement that when clients raise concerns with us we will listen and try to find common ground. Where appropriate, we will look to resolve matters through mediation, settlement offers or other forms of dispute resolution.”
The spokeswoman said Macquarie stood by its 2017 internal review of allegations regarding Cleveland, which exonerated the bank and its staff of any wrongdoing.
The two executives, Macquarie’s then divisional director Michael Rosenbaum and Mr Whiting, an investment adviser, featured in a previous confidential court settlement after they repeatedly drugged a colleague with valium and laxatives during a business trip to South America. The pair had spiked the drinks of a male colleague as they travelled across Brazil and Chile in 2011 to inspect gold mines owned by Cleveland.
Cleveland was founded in 2009 with an initial market capitalisation of just $20 million and first appointed Macquarie in 2010 to raise $4.64 million in funding for several offshore mining projects.
In 2011, Mr Whiting became directly involved in Cleveland’s acquisition of a Brazilian iron ore mine.
According to preliminary core samples, the mine known as Ferradura was expected to deliver more than 10 billion tonnes of iron ore, with an initial report valuing the tenement at $34 billion. Macquarie and its employees had nothing to do with the report or its blue-sky forecasts.
In the six months after Mr Whiting introduced the Ferradura project to Cleveland, Mr Rosenbaum and another Macquarie adviser made more than 20 trades in Cleveland in the names of companies registered to them or family members.
Cleveland announced to the Australian Stock Exchange in February 2012 it had signed a memorandum of understanding to purchase the Ferradura mine, which caused the company’s share price to almost triple between March and April of that year.
The ASX queried why the stock had surged from 54¢ on March 19 to 76¢ just four days later, but the company was unable to explain the frenzied buying.
Behind the scenes, Mr Rosenbaum regularly asked a Cleveland insider for information from the company’s share register about the identity of sellers. Any available stock was promptly purchased to avoid any downward pressure on the share price.
“Can we see who sold yesterday?” Mr Rosenbaum asked in an email on September 28, 2011. “Yep” was the immediate response.
In another email on November 15, 2011, Mr Rosenbaum tells his source at Cleveland: “40 cents, only three dollars to go.”
Almost a year later, on September 7, 2012, Mr Rosenbaum appeared to be still attempting to prop up the share price. “Cleaned out all selling, onward and up,” he said in an email.
When clients wanted to sell Cleveland stock, Mr Whiting often intervened and urged them to hold, or buy more.
In an email to a former friend, Mr Whiting offered to personally buy the man’s shares if he wanted to sell.
“We have spent the last two weeks in South America with the company and are completely comfortable with the CDG [Cleveland ASX code] story … If you want to sell or know anyone who does, ask them to call me and we will arrange to buy their stock,” Mr Whiting said in a message on October 25, 2012.
As hundreds of Melbourne investors sat on massive paper profits, the plan to get Cleveland to $1.20 unravelled in spectacular fashion.
Cleveland received confirmation that the initial core samples, which indicated bountiful reserves of iron ore at the Ferradura mine, were wrong.
Despite, this Mr Whiting instructed Mr James to continue buying Cleveland stock even as Mr Rosenbaum was instructing preferred clients, including family members, to sell.
Mr James heeded the advice.
As word leaked out that Cleveland had been sold a dud, its stock price crashed and small fortunes vanished.
By December 2012, the share price had plummeted back to around 30¢. The fall continued over the following years, finally closing at 7¢ when the company requested a suspension from the ASX in October 2016.
In February 2018, Mr James told members of the Senate’s Economics Reference Committee that Michael Rosenbaum had made a series of “unbelievable” admissions during a phone call on August 3, 2017.
“I said, ‘look I’ve got to get to the bottom of what happened’. [Mr Rosenbaum] said, ‘yeah I know I’ve done the wrong thing and I know ASIC are going to come after me. I’ve been doing it all my life. Trading off my father’s account illegally. I’ve been running stocks’,” Mr James said in his recollection of the call to the committee.
The committee was told that Mr Rosenbaum dumped stock held by relatives and friends when he found out “Cleveland was a worthless piece of shit”.
Mr James complained to regulator Australian Financial Complaints Authority about Macquarie’s conduct but the watchdog refused to investigate. His company has a separate court case against the regulator over this, and the terms of Macquarie’s $6 million settlement only became public when they were aired during a Supreme Court hearing on August 21 in that matter.
Mr Rosenbaum declined to make any comment when contacted by The Sunday Age. Mr Rosenbaum and Mr Whiting both left Macquarie in 2013.
Mr Whiting’s lawyer, David Grant from Logie-Smith Lanyon Lawyers, said his client denied any wrongdoing and had “no knowledge of the terms of, or reasons for, any confidential settlement made by Macquarie”.
“Allegations by Mr James relating to Mr Whiting were investigated by a Senate committee resulting in no adverse findings against Mr Whiting,” Mr Grant said before threatening legal action against The Sunday Age.
Mr James and his lawyer, Michael Hazell of Macpherson Kelley Lawyers, both declined to discuss the settlement.
Cleveland was delisted from the ASX in October last year – another alleged victim of what stockbrokers refer to as a “pump and dump”, where those pulling the reins make a fortune and ordinary punters get wiped out.
Senior Crime Reporter
Chris Vedelago is an investigations reporter for The Age with a special interest in crime and justice.