Merlin Diamonds has been ordered to explain the relationship between its founder, bankrupt mining magnate Joe Gutnick, his son, Mordechai Gutnick, and a mysterious New York fund that owns 11 per cent of the company.
The Takeovers Panel has been probing Merlin following a complaint by small shareholders whose stakes were massively diluted by a series of stock issues in early September.
Mr Gutnick declared himself bankrupt in July owing $275 million after he and another of his companies, Legend International, lost a legal battle with Indian farmer’s co-op IFFCO over a proposed phosphate mine.
The panel yesterday found Mordechai Gutnick was associated with the mystery New York fund, Regals Fund, in breach of company law, and banned Regals from voting its stake in Merlin for a year.
All that was previously known about Regals is that it was run by David Slager, a hedge fund operator and philanthropist who in 2010 donated $US5m to Jewish religious charity Machne Israel.
In paperwork filed when he declared bankruptcy, Mr Gutnick said he owed Machne Israel $13.3m.
By tomorrow, Merlin must provide the panel, the corporate regulator and angry minority shareholders a draft stock exchange announcement that “describes the circumstances around and the existence and nature of Mr Mordechai Gutnick’s association with each of Regals and Mr Joseph Gutnick as found by the panel”.
Merlin must also explain how “those associations” affect Mordechai Gutnick’s voting power and contravene two sections of the Corporations Act: one which prohibits a shareholder from increasing their stake above 20 per cent without making a takeover bid and another which mandates substantial shareholders must disclose their stake to the market.
The panel also found that a memo issued to shareholders ahead of a meeting on September 6 where the issue of notes and options to Chabad Properties was discussed was misleading.
It banned Chabad Properties from exercising notes and options that would increase its stake in Merlin to above 19.9 per cent.
And it ordered Merlin, Mordechai Gutnick and Regals to pay costs of $14,000 to ASIC and $2350 to the minority shareholder who launched the Takeovers Panel action, Tom Reddicliffe.
Before declaring bankruptcy, Mr Gutnick controlled about 12 per cent of Merlin through his Mazil Superannuation Fund and another company of which he was a director, Great Central Gold.
He currently owns just under 10 per cent of Merlin, according to Bloomberg data.
The loss-making Merlin controls the second-largest diamond field in Australia, located in the Northern Territory, which has previously been mined by Ashton Mining and Rio Tinto.
A fortnight ago, Merlin told the market it had run a “short mining campaign” at its Kaye open pit. Mordechai Gutnick could not be reached at Merlin’s Melbourne office.