Update from CEO on AFP charges over the attempted fraud in 2003

Since the Australian Federal Police (AFP) issued its media release (see our update from yesterday ), media coverage about the court case has been refreshingly inconsistent, creating some confusion for a number of members who have contacted us.

So, I would like to share some of the questions we have received from members over the past day and provide some facts which I hope you will find useful.

The TV program I saw last night said this fraud had only now come to light? Why didn't the Board inform members earlier?

We reported the fraud to members in June 2004 and, at that time, it was also the subject of two to three days of media coverage following a report on Channel Nine's Sunday program. In October 2004, we again reported to members in their annual member statement pack .

Why aren't you being interviewed on the media?

Our responsibility is to our members. At the time the fraud occurred, our first priority, and that of our custodian JPMorgan, was to protect members' funds. We did this. Today, as no members' money has been lost, this is now a matter for the AFP and the courts; it would be inappropriate for us or our custodian JPMorgan to provide any details or comment on the court case in which we are not involved.

I missed half of the news story - what has happened? Where can I get more information?

You can get background information at our June 2004 update , and an update we provided yesterday.

I caught the story on radio this morning - were there any staff involved?

No.

The interview I saw last night made it sound like the fraud was easily done - don't you have security systems in place? Have better safeguards been put in place to prevent this happening again? And can you assure us it won't happen again?

The Australia Federal Police states in their media release that the attempted fraud was very sophisticated - it has taken 18 months to investigate.

Yes we do have security systems in place, and they are extremely stringent. You'll understand that for obvious reasons I am not prepared to give details. Suffice to say that it was the security checks between the CSS and our custodian JPMorgan which enabled detection of the fraud. Despite the fact that the attempted fraud confirmed our security checks were working, we reviewed the entire security process and tightened it even further.

We employ every means we can to manage fraud, but I am not sure any financial manager would be foolish enough to say it will never happen to us, or it will never happen again. Fraud is a fact of life in sophisticated financial markets.

The story I read said there was still money being recovered, and then went on to say that no money was lost. I don't understand how this is possible?

No members' money was lost.

As reported last year, JPMorgan, our custodian, was subjected to the attempted fraud, in relation to our account.

JPMorgan moved quickly to freeze the funds affected by the attempted fraud ensuring no monies left the system. JPMorgan has recovered all its funds with the exception of a small amount still frozen within the system in Hong Kong.

17 August 2005