By Vesna Poljak From Financial Review

The former boss of Aussie Home Loans, Stephen Porges, is being sued by private equity firm Adcock over a soured deal where he is accused of making false links to the Panama Papers scandal to stall a share transfer.

Mr Porges is fighting the allegations, and further claims that the deal was devised as a quid-pro-quo to secure his appointment to the board of DirectMoney, a business floated on the ASX in 2015 with Mr Porges as chairman, and which Adcock was an investor in.

Adcock Private Equity in March filed an action in the NSW Supreme Court against Mr Porges and his wife Serena Porges seeking almost $1 million in damages.

The case centres on a British Virgin Islands-domiciled company, SecureOne Corporation, co-founded by Mr Porges, and claimed to have been billed as “the future of digital commerce”.

In March 2015, Adcock accepted an offer from Mr Porges to acquire 300 shares in SecureOne for $US150,000 and transferred the money to a joint account held by the Porgeses.

Mr Porges soon offered Adcock a further 1000 shares for $US700,000; that agreement was modified to $US560,000 over two tranches, and brought Adcock’s total investment in SecureOne to 1100 shares or $US710,000.

But Mr Porges, in his reply, disputes Adcock’s version of events and says it involved Adcock agreeing to buy shares in return for him becoming the executive chairman of DirectMoney.

Adcock was a backer of DirectMoney and approached Mr Porges in 2014, almost a year before the SecureOne deal, to join the peer-to-peer lender’s board and subsequently become chairman; Adcock denies this.

Agreements and emails

Mr Porges claims he said he would only accept the role if Adcock bought 1300 of his shares in SecureOne, based on implied, verbal and written agreements. He referred to emails detailing a remuneration package, the plaintiff’s instruction to prepare Direct Money for a float “as soon as possible”, and an outline for the share purchase agreement.

Mr Porges also relies on conversations with Adcock founder Brook Adcock and another representative of the firm at the time, Campbell McComb.

Adcock does accept Mr Porges was to become a director, but any discussions with Mr McComb were in Mr McComb’s capacity as a fellow DirectMoney board member. Further, the deal to buy the first 300 shares had no conditions linked to Mr Porges’ appointment, it claims.

Things became complicated in December when the shares were to be transferred into Adcock’s name, according to the claim. The reasons for this are disputed.

As a British Virgin Islands company and based on its own articles of association, the directors of SecureOne have the right to refuse the transfer of shares.

Adcock accepts that Mr Porges submitted a valid transfer, but it never got its shares because the unnamed directors of SecureOne “refused or failed” to record Adcock as the owner.

Adcock argues this inability to formalise its stake qualifies as alternately an “event of frustration”, and it is entitled to get its money back off Mr Porges; or, as a failure of consideration, enabling Adcock to rescind the deal.

Mr Porges replied that not only does he not accept the deal had been frustrated, but Adcock told him the transfer of shares should not be lodged for registration. This instruction came directly from Mr Adcock in a conversation that happened in early April.

The defendants offered to keep trying to register the shares, or a “free carry” over interests registered in Mr Porges’ name, but Adcock did not pursue either option.

Alleged misrepresentation

Adcock further alleges that Mr Porges misrepresented SecureOne’s prospects and his involvement with the business.

Mr Porges denies this, and asserts that he was just a “conduit” who relied on information conveyed by SecureOne and another firm, Nectar Partners.

Specifically, Adcock claims that Mr Porges pitched SecureOne as trading profitably, having a viable business plan, being a likely IPO or trade sale candidate, and a profitable investment for the plaintiff. Mr Porges also “positioned himself as a reluctant seller”, Adcock claims.

What Adcock later discovered, it alleges, was that SecureOne and its 11 major shareholders were defending a $US10.8 million claim in the Eastern Caribbean Supreme Court brought by a company named Play LA, which alleged SecureOne breached a separate share purchase agreement in 2012.

The legal costs that SecureOne was liable for made executing its business plan difficult, and “the viability of SecureOne as a going concern was subject to material doubt”, it is claimed.

Mr Porges contests these allegations and says he was only aware of the Play LA action in late 2014, received no further information about it, and did not believe it had any material impact on SecureOne’s viability or indeed the deal with Adcock.

Adcock says it would never have bought its shares if it knew of SecureOne’s legal situation. It further alleges Mr Porges was not a reluctant seller even though he said the only reason he wanted to sell more shares was to keep his wife happy, which Mr Porges denies.

Panama Papers link

But in April 2016, as Adcock’s response reveals, Mr Porges is alleged to have told Mr Adcock that SecureOne and its major shareholders were caught up in the Panama Papers leak as clients of the Panamanian firm Mossack Fonseca.

It would be “embarrassing” for Adcock to be linked to SecureOne “in the circumstances” and the plaintiff should delay registering its shares, he is alleged to have represented.

In fact, Adcock claims, SecureOne was not and never had been a Mossack Fonseca client, and was not at risk of being named in the leak. But Adcock relied on this information and accepted it as a reason to delay registration.

In legal correspondence between December 2016 and January 2017, Adcock sought registration of the shares, and Mr Porges is alleged to have doubted the ability to do so. He further requested the agreements be terminated, it is claimed, so the shares wouldn’t have to be registered.

Adcock believes SecureOne risks becoming a bankrupt shell company. It also claims there was a historic deal between Mr Porges and SecureOne where the business owed him $5 million, plus consulting fees, if it attracted a certain level of outside investment, but this remained unpaid when Adcock first invested.

Mr Porges expressly denies any accusation of misleading or deceptive conduct, but says if this is found to be the case, whilst maintaining his explicit denial, there are “concurrent wrongdoers”, and Adcock should have conducted proper due diligence. In this respect, Adcock argues Mr Porges “does not have clean hands”.

Mrs Porges has nothing to do with the allegations, Mr Porges adds, and Mrs Porges is relying on Mr Porges’ response. The matter appears headed for a hearing. Comment was sought from legal representatives of both parties. Mr Porges ceased to be a director of DirectMoney in 2016 and Mr McComb in 2015.

IMAGE:Stephen Porges is fighting allegations levelled against him by Adcock Private Equity.Janie Barrett