Bankrupt former mining magnate Joseph Gutnick has defended the honour of his spiritual leader, the late Menachem Mendel Schneerson, and the value of work done for one of his companies by his wife in a day of often torrid testimony before the Federal Court.
Mr Gutnick, who declared bankruptcy in July last year with debts totalling $275 million against just $16,087 in the bank, was grilled yesterday on topics including a mysterious loan from a charity connected to Schneerson, the last rebbe or leader of the Orthodox Jewish Chabad movement, family trusts, ownership of the Gutnick family home and his longstanding friendship with convicted tax fraudster and New York rabbi Nachum Sternberg.
Under questioning from Philip Crutchfield QC, who was representing one of Mr Gutnick’s major creditors, the former rich-lister angrily rejected suggestions a $US10m loan he claims to have received in 1988 from a New York Jewish charity linked to Schneerson was not real.
Mr Gutnick said it was “outrageous” to question the integrity of the Chabad movement.
He said he would not answer any more questions casting doubt on the validity of the movement.
“You want to make something sensationalised again,” he said when Mr Crutchfield put it to him that one purported transfer of $5m did not occur.
“Outrageous claim.”
The Chabad charity, Machne Israel, is owed $13m, according to a statement of affairs filed by Mr Gutnick when he declared himself bankrupt.
However, the court heard that, shortly before Mr Gutnick declared bankruptcy, Machne Israel claimed to be owed $US42.7m.
Mr Gutnick also defended the $285,000 a year earned by his wife, Stera, for working part-time at his company Merlin Diamonds.
He said media reports of Ms Gutnick’s court testimony on Monday suggesting she worked only two or three hours a day were “disgusting”.
“She was in the office at least three or four hours a day,” he told the court.
He said his wife was herself a “precious gem” and performed many tasks at the company, including attending meetings alongside him.
“She’s worth more than $200,000, she’s worth millions,” he said.
Mr Gutnick was unable to explain why the family’s home in Melbourne’s St Kilda East was transferred to a trust, for no payment, in February 1988, shortly after his fortune had been ravaged (for the first time) by the 1987 stockmarket crash.
He said that since the 1980s he had been “very close friends” and done business with Mr Sternberg, who “had his trials and tribulations in life”.
In 1988, Mr Sternberg was sentenced to 18 months in prison and fined $US1m for his role in a $US136m invoicing scam that defrauded the US Internal Revenue Service.
Mr Gutnick said Mr Sternberg was entitled to a fee from him or his companies for introducing investors, but denied he owed his friend as much as the $55m he has claimed to be owed.
Asked why he provided Mr Sternberg with five signed but otherwise blank promissory notes, Mr Gutnick said: “I trusted him.”
Mr Crutchfield was representing the Indian Farmers Fertiliser Co-operative, to which Mr Gutnick owes $54m a debt that triggered his plunge into bankruptcy.
Of the $275m in debts declared by Mr Gutnick, much was owed to his family.
His wife was owed $30.7m while another $101m was owed to two trusts, the Hoydu Family Trust and the Edensor Consultants Trust.
JOSEPH Gutnick has faced off with lawyers in a stunning courtroom showdown in which he attacked the media, jumped to the defence of his wife and religion and refused to answer questions.
The bankrupt mining magnate flagged defamation proceedings against media organisations over reporting of the ongoing public inquiry into his bankruptcy which he dubbed as “disgraceful”.
He angrily vowed to stop answering any questions about his wife or revered Jewish leader Rabbi Menachem Mendel Schneerson who Mr Gutnick says loaned him $10 million before he died.
Much of today’s hearing centred around the loan with questions raised about how and when it was paid.
Mr Gutnick said the line of questioning was insulting to the memory of Rabbi Schneerson, the global leader of the Chabad-Lubavitch movement.
“I don’t care, you don’t want to recognise the Rebbe (Rabbi Schneerson) gave me the money or not, that’s a problem you have. I know the Rebbe gave me the money,” he said.
“I’ll do whatever I can to prove it. You can put me away in prison for 25 years … that money came to my account.”
Mr Gutnick said under the terms of the loan, he was not required to pay back the $10 million until he was ready, and has so far repaid just $1 million.
But he said he had given more than $100 million to the global Chabad movement since that time.
Mr Gutnick slammed reports that his wife, Stera, was paid $285,000 a year working for the family-controlled business, Merlin Diamonds, doing jewellery design and marketing.
He said reports about her salary were “disgusting”, belittled her, made a mockery of her and caused her embarrassment within Melbourne’s tight-knit ultra-orthodox Jewish community.
He said it was insinuated Mrs Gutnick did little work in exchange for her high salary but those claims were baseless and unfair. “She’s worth a lot more than $200,000, she’s worth millions,” he said.
“She’s herself a very precious gem. A diamond.”
Mr Gutnick said his wife had given up a career as one of Victoria’s best teachers and sacrificed time with her family, including a sick parent, to work for the family business after he filed for bankruptcy in July.
“She gave that all up. I was able to influence her because of what I thought and others thought she would be able to contribute to the company,” Mr Gutnick said.
He said she participated in meetings both here and overseas, spent up to three hours a day in the office, and studied jewellery design.
Mr Gutnick filed for bankruptcy, owing creditors more than $275.5 million. He told his trustees he had only $16,087 in cash.
Today, he hit out at previous reports he had amassed hundreds of millions of dollars.
“Paper wealth is relative,” he said. “Don’t believe what’s written in newspapers.”