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Inside the Firepower fraud

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The scam that went all the way to the Lodge and beyond – fraudster Tim Johnston's Firepower was the magic pill set to cut fuel consumption and reduce emissions, as well as the nation’s largest sporting sponsor and the company that mislead investors poured millions into – and then lost out on. But how did this con man convince so many?

To find out Peter Switzer on his program SWITZER on Sky News Business Channel speaks with Gerard Ryle, one of Australia' s most decorated investigative reporters and author of a book about the story behind the scam, Firepower.

A simple sport

Ryle says the secret to investigative journalism is simply asking the easy questions – and, as it turns out, you don’t have to be an investigative journalist to do that. Even a sports journalist can do that.

Ryle says that Firepower was the biggest sporting sponsor in the country - “basically sponsoring anything that moved” – and boasted a wealth of overseas contracts for its seemingly miraculous products.

“But the very simple question asked by our sports chief at the time was, well, why can’t I buy this product?”

Yes, the business journalists around the country missed it – a sports guy goes to a Firepower sporting event and spots it. Ryle says Firepower proves an important lesson not to take anything at face value.

“He wouldn’t have even found the pill if it hadn’t of been handed out for free at the event,” says Ryle. “So he comes back, he tries it in his car, he sees it doesn’t work and then asks the most basic question.”

In hindsight, it was obvious.

“Coke advertises a lot, but you can go to a vending machine and you can get a can of Coke.

“This is a company that had no factories, no trucks, no business and no employees anywhere.”

The businessman

The man behind the Firepower brand was Brisbanite Tim Johnston.

Ryle says his background was, at best, dubious; from a Jehovah’s Witness doorknocking in the Shaky Isles to real estate spruiker, “he started getting into these sort of little schemes”.

“He had pills that would cure cancer and he had paint that you’d put on a ship that would get rid of things you wanted to get rid of on ships over time.”

And then, in 1991, Johnston found the little blue pill set to take the world by storm.

“It evolved from there,” says Ryle, adding that the Firepower story is a textbook example of how to commit a fraud – Johnston’s step by step.

“Frauds like this don’t just happen – they evolve over a long period of time and you need to understand the history to understand how people were fooled,” says Ryle.

Help from above

So what was the step that pushed that pill to have enough funds to back a sporting nation? Ryle puts it down to help from the federal government.

“In about 2004, Austrade, the Australian Trade Commission came across this company, decided for whatever reason that this was the next big thing and backed it. And suddenly, he had access to all these embassies around the world, paid for by taxpayers that were introducing him as a successful businessman.

“At one point in 2005, he was being paraded around Australia as an example of how to do business in Russia … they were proclaiming him to be this guy who had billion dollar contracts right across Russia, when in fact he didn’t sell a single pill, he had nothing.

“And yet, there he was with Tim Harcourt, a well-known economist, the Russian Ambassador and a few other dignitaries. Tim Johnston from Firepower was being put up as the example of how to do business.”

Ryle says Johnston was even backed by the then-Minister for Science, Julie Bishop.

“No one stopped to ask the most basic question. And the thing is, when I first came across this, I found it very hard to refute … because people just don’t know the science of fuel-saving devices.

“And what if it was the magic pill that worked? Then you were looking at a product that was going to be worth billions of dollars.”

Window of opportunity

With the promise the company was soon to be listed on the secondary stock market in London, many wanted a piece of the action and were encouraged by Johnston to get in early.

“The company was registered at one point in the Cayman Islands, and then it was the British Virgin Islands … I mean, it was all over the place. There was a sense of secrecy that you were being allowed into a special little club and that if you got in early and kept it quiet, you would eventually make a lot of money.”

But it wasn’t the investors who stood to profit. Ryle estimates the entire fraud, from beginning to end, was worth a rough $100 million.

“He sold somewhere between $60 million worth of shares and then he borrowed money from other investors.”

An impressive sum, given there was no actual company.

“In effect, it was nothing – none of the shares appear to have ever been issued legally. And yet, you have legally registered financial advisers in Australia in every capital city [selling them].

“People were just throwing their houses on this [and] putting their superannuation funds into it on the basis that if you buy these shares for 10, 20, 30 cents, eventually they’ll be worth $7. “

Worse still, Ryle says many investors spent the money they anticipated they’d reap when Firepower eventually listed.

“They thought, I don’t need to worry about my retirement money now, I’m going to be a millionaire in two years.”

Ryle says many told their friends and family, creating a snowballing effect.

Brand power

Ryle says Johnston started his sponsorship spree on the West Coast, with the Western Force Rugby team, before moving east to make his mark on the Sydney Kings and the ill-fated South Sydney Rabbitohs. Along the way, he also aligned the Firepower brand with horse racing, motor sports and surfing.

“He was everywhere.”

Switzer says this positioning tactic is a trademark Ponzi move.

“You’ve just hit it on the head,” says Ryle. “It was a massive Ponzi scheme.

“People thought, well it can’t be a fraud; how could it be a fraud when every time they turned on their TV, they saw the name Firepower?

“The sporting teams supported him because he was their cash cow … prominent people involved in sporting teams in Australia were saying this guy is legitimate, the guy is a multimillionaire.”

Johnston even enjoyed two private dinners at the Lodge with former Prime Minister John Howard under the guise of being asked to advise on climate change and in thanks for his financial support.

“It’s staggering to think that could have happened.”
Ruse around the world

But the ruse didn’t just fail to rouse the Lodge’s suspicions.

“It went around the world,” says Ryle. “Tony Blair was involved; [Johnston] used pictures of Tony Blair saying he had contracts with the British Government; [Johnston] hired former Whitehouse lobbyists so he had a direct connection to the Whitehouse. Most of the staff in Russia were former KGB … and he had a lot of people who had worked at Austrade as his major people. He also had the former Austrade official from Russia working for him as his main man in Russia.”

That CEO, says Ryle, has since been jailed on an unrelated matter.

“It’s really messy and you’ve got to ask yourself whether or not there was more to it – there had to be more to it.”

Look before you leap

It’s also a lesson on due diligence when it comes to business arrangements.

“His contracts with Austrade were with an entity that didn’t exist,” says Ryle. “This is what I found all the time; I would find a company that claimed to be part of this Firepower empire, do a simple company search and find that it didn’t exist. “

And Austrade weren’t alone – the Rabbitohs agreed to a $1 million a year sponsorship deal with a non-existent entity.

“They didn’t check,” says Ryle. “Nothing was legitimate.”

Ryle says Johnston is yet to face charges of any description with the exception of an impending public examination in Perth later this week.

“For the last 18 months, he’s been living large. He must have made some money along the way on this I’d imagine; his lifestyle is pretty opulent. But the only charges that have been laid against him are civil charges and so therefore, he is free – or has been free – to go.”

Johnston has been none to pleased with Ryle’s exposé – inciting two lawsuits against Ryle, and two again The Sydney Morning Herald. Both, says Ryle, were “thrown out of court because he failed to pay his lawyers”.

This tale, says Switzer, is a movie waiting to happen.
Ryle says though, we’re yet to see how it will end.

“So far we haven’t had a resolution of it all yet. He’s never come back to answer the questions.”

Johnston’s last media appearance, says Ryle, was courtesy of The Australian. The last word? He’s in London where he’s “started a new company called Greenpower, which, had the same logo, the same products, and it was going to be listing on the secondary stock market in London – exactly the same scam”.

Hopefully, though, this time around investors will check their paperwork.

Work on your business, not in it. To learn how, book a complimentary business assessment today with a Switzer Business Coach.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

 

Published on: Monday, November 30, 2009

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