A Gold Coast based mortgage fund employee had been operating a customer redraw scam for seven years before she was finally discovered in July 2014.
Tupeia Dando took the draws from account holders – who had no idea of the fraud – of her employer, Pioneer Mortgage Services headquartered at Varsity Lakes.
The funds were diverted into an account of her husband.
She started off modestly with just eight transactions – all under $10k – over 2006 and 2007 but at one stage made 20 unauthorised draws a year.
Her modus operandi was to restrict her draws to just one account – which had been paid down to a nominal amount – and then move on to another customer after two or three years presumably using the subsequent accounts to service the former.
When her Ponzi-like scheme was discovered in 2014 – after a disgruntled customer make contact with another Pioneer employee while she was taking a holiday – it was revealed that the whole of her deception had been directed to just three borrower accounts.
The stolen funds were never recovered.
Not long before discovery of the fraud – in September 2012 – lender Columbus Capital took over ANZ’s loan book of Pioneer originated mortgages dating from 1994, the “Origin loan portfolio” by paying ANZ the face value of the outstanding balances at that time.
A dispute between them arose after Columbus promptly notified customers that it would henceforth charge a $399 annual loan fee as a result of which several Pioneer customers re-financed with another lender.
After Pioneer obtained an interim injunction against Columbus prohibiting its collection of the annual fee – Columbus did some investigation of its own and discovered that Pioneer’s system for reconciling drawdown requests was less than robust when it came to sums below $10k.
Columbus counter sued Pioneer alleging among other things that it had failed to implement appropriate audit and reconciliation measures that would have detected the irregularities and prevented the longstanding employee fraud.
The quarterly audit simply checked that the paperwork contained in the “redraw file” had been correctly completed. There was no system to checking the paper details against computer records or redraws for which there was no paperwork at all.
Audit expert Warren Williams concluded such omission “was a failure in Pioneer’s systems and there needed to be at least random checks of redraws made at regular intervals.”
Justice Jayne Jagot sitting in the Federal Court was satisfied that had appropriate systems been in place the frauds would have been detected quickly and the failure to implement such systems was a breach of the 1994 “Mortgage Origination and Management Deed” Pioneer had originally signed up with what is now Rabobank Australia.
Columbus was thus entitled to terminate the agreement but the court record does not reveal its decision and whether it will cut off Pioneer’s trail of commissions on the loans it has originated. Given that Columbus has withheld management fees from Pioneer since April 2015, termination would appear to be the most likely outcome.
Pioneer also became obliged to repay to Columbus all the proceeds of Dando’s fraud by purchasing from it, the three depleted mortgages.
In addition to negligence, Justice Jagot thought Pioneer was also responsible for its employees action on the basis of vicarious liability and misleading and deceptive conduct because her acts were engaged in in the course of the company’s business.
Pioneer’s claim that notification to customers of the $399 fee was a breach of the agreement and “likely to mislead or deceive” borrowers, was dismissed with the court deciding Columbus did not have to disclose to borrowers its policy of waving the fee for those who registered sufficient protest.
Pioneer’s appeal was dismissed in a judgment delivered on 9/06/2016.