Loading The centrepoint for the loans drama is Mr Gutnick’s level-one office at 42 Moray Street in Melbourne’s Southbank precinct. It is home to both Merlin Diamonds and AXIS. Since 2001, AXIS has been integral to Mr Gutnick’s financial dealings. Several of his listed mining companies have contracted AXIS to provide administrative, management and geological services. Filings with the Australian Securities Exchange show listed companies such as Merlin Diamonds, Top End Minerals (now called Myanmar Metals) have over several years advanced unsecured loans of at least $18 million to AXIS. Another Gutnick-controlled public company, United States-based Legend International, has loaned AXIS at least $5.6 million.

Unfortunately for the shareholders of the Australian companies, AXIS has proved unwilling or incapable of repaying the bulk of the loans. Most of them have been written off as impairments and are, most likely, unrecoverable. The terms of these AXIS loans have been extremely kind. “No fixed terms for repayment of loans between the parties, no security has been provided and no interest charged,” is how Merlin Diamonds explained the arrangement in its 2015 annual report. ASIC investigators are trying to determine if there is any justification for publicly listed companies closely associated with Mr Gutnick making such generous loans to AXIS, a private entity also linked to the businessman. The next question is why AXIS has not repaid the loans? The conduit

Mr Gutnick was a long-standing director of AXIS until he declared himself bankrupt in July 2016. But it’s still closely tied to him. His eldest son, Mordechai Gutnick, and long-time business associate Peter Lee are present AXIS directors. Another loyal ally, David Tyrwhitt, who has worked with Mr Gutnick for more than 20 years, was an AXIS director until October 2017. Mr Gutnick, his son, Mr Lee and Mr Tyrwhitt, the AXIS directors, have also all appeared as either directors or senior executives at publicly listed companies, including Merlin Diamonds, that have loaned AXIS money over the past six years. So when the ASX began asking questions of Merlin Diamonds about its AXIS loans in October last year, it was reasonable to presume answers would be forthcoming given the crossover in directors and shared office. Merlin diamonds is closely linked to Gutnick.

But, remarkably, Merlin Diamonds told the ASX it “does not have access to the financial information of AXIS”. Unlike the Merlin Diamonds board, or the stock exchange regulator, The Age and SMH have been able to access some of AXIS’s confidential financial information. It shows that AXIS has operated as a conduit for the transfer of huge sums of money from public companies controlled by Mr Gutnick to other businesses strongly linked to his family. One AXIS balance sheet from 2014 shows that the publicly owned Merlin Diamonds, Top End Minerals and Legend International between them had loaned more than $12 million to AXIS. Two more private companies associated with Mr Gutnick had also loaned AXIS $2.3 million

Money in, money out While the loaned money was flowing from the publicly listed companies into AXIS, even more money was going out of the private company. As of 2014, several other Gutnick-linked companies borrowed more than $15 million from AXIS. The AXIS balance sheet records a net loss in 2014 of $1.79 million and a $2.5 million gap between its current assets and liabilities. While it is clear there is plenty of financial detective work for ASIC to do, some investors, while grateful for the regulator's interest, are perplexed as to why it has taken so long for anyone to act. “This has been hidden in plain sight for years. The loans, the conflicts of interest and the lack of repayment are all there in the ASX filings,” said one former Gutnick associate who asked not to be named for fear of receiving a writ from a businessman who has in the past sued his own family members.

Then rich-lister Rabbi Joseph Gutnick in his Melbourne office in 2013. Behind him is a portrait of the Lubavitcher Rebbe, Menachem Mendel Schneerson. Credit:Jesse Marlow Hard times for the chosen one It is difficult to fathom that the man with two mortgages over his St Kilda East house was just five years ago wealthy enough to be included at the tail end of the BRW richest 200 list with an estimated fortune of $255 million. Folklore has it that the starting point for Mr Gutnick’s amassing of riches was a prophecy made in the late 1980s by the New York-based spiritual leader of the ultra-orthodox Lubavitch Hasidic movement. The late Rebbe Menachem Mendel Schneerson foresaw great wealth for Mr Gutnick in the discovery of gold and diamonds in the Australian outback.

The Rebbe’s endorsement of Mr Gutnick’s Australian mining ventures carried enormous weight among ultra-orthodox investors who ploughed money into Gutnick-led ventures. Some won and some lost. Such is the mining game. By the end of the 1990s, Mr Gutnick was at the peak of his powers. The saviour of his beloved Melbourne Demons, Mr Gutnick and his family travelled by private jet and Rolls-Royce and Bentley cars. They had bodyguards and friends in high places in Australia, the United States and Israel. No more so than Israeli Prime Minister Benjamin “Bibi” Netanyahu. When Mr Gutnick helped bankroll Mr Netanyahu’s 1996 election campaign, he made an influential friend for life. Gutnick with Israeli Prime Minister Benjamin Netanyahu in 2001. Credit:Joe Armao After experiencing great highs and depressing lows over the next 20 years, everything finally fell apart for Mr Gutnick in 2016 when a $103 million deal between his Legend International company and the Indian Farmers Fertiliser Cooperative came unstuck, resulting in expensive litigation and the businessman’s decision to declare bankruptcy.

Loading He was discharged from this last June, but was only able to pay back one cent in the dollar of his $305 million debts. His business standing in Melbourne’s ultra-orthodox community is, not surprisingly, diminished. “He got the fortune the Rebbe predicted and then blew it up in smoke,” says a former business associate from Melbourne’s orthodox Jewish community. “People are wary of putting any more money into his orbit.” Melbourne’s courtrooms, a familiar place for Mr Gutnick, are where his reputation has taken a battering in recent years. In 2013, the Victorian Supreme Court ordered him to repay $1 million to fellow Jewish businessman, Roy Tashi, with Justice Ross Robson finding Mr Gutnick had engaged in “misleading and deceptive conduct”.

More recent bankruptcy examinations in the Federal Court exposed eyebrow-raising details: Mr Gutnick only had $16,000 in his bank account; he was $30 million in hock to his wife, Stera; and he owed another $33 million to long-term friend Nochum Sternberg, who was convicted in 1987 in a US-tax evasion scam. Despite these setbacks, Mr Gutnick still has some clout. Prime Minister Netanyahu’s wife, Sara Netanyahu, is understood to have spent time with the Gutnicks while visiting Melbourne in January. He retains, in Israel at least, a reputation as a political kingmaker. The Jerusalem Post newspaper last year ran a prominent story on Mr Gutnick’s endorsement of Justice Minister Ayelet Shaked as his old friend’s successor. 'Bled dry' In August 2017, a Gutnick company formerly known as Top End Minerals started afresh as Myanmar Metals. It had a new board, new executives and an option over the promising Bawdwin mineral deposit in Myanmar.

The Gutnick years, though, left it with just $17,955 in the bank and another heavy burden as well – a big loan to Gutnick-linked private company AXIS. As of July 2016, a bit over a year before the name change, and a week before Mr Gutnick was forced to quit the Top End Minerals board due to his declaration of bankruptcy, the company had advanced AXIS $3.875 million. It later wrote off the amount as a doubtful debt. This bad transaction still did not deter Top End Minerals from giving AXIS more money. In November 2016, the remaining Top End Minerals directors, Mr Lee, Mr Tyrwhitt and Mordechai Gutnick, raised another $2.7 million from investors to pay for exploration activities and provide working capital. Almost all this money, some $2.63 million, was either paid or loaned to AXIS before June 2017. “That company was bled dry,” says a mining industry source who once worked closely with Mr Gutnick.

The final straw for the old Gutnick-affiliated board came in mid-2017 when it was offered the option for a majority stake in the Bawdwin deposit. But because of the advances to AXIS, Top End Minerals had no money to secure the asset, even though it had raised $2.6 million just eight months earlier. “There was a night of the long knives after this. There had to be to save the company,” said a source with detailed knowledge of events. Shareholders elected a new board, which quickly arranged financing to secure the option over the Bawdwin deposit. Myanmar’s new chairman, John Lamb, was blunt when he updated the market on the old board’s generosity towards AXIS: “The new board is of that view that TND (Top End Minerals) funds totalling $5.089 million have been advanced to a proprietary company [AXIS] controlled by a former director of TND, on an unsecured basis without shareholder approval or commercial purpose.” ASIC is understood to also have an interest in the loans from Top End Minerals to AXIS.

Neither Merlin Diamonds nor Mr Gutnick responded to questions. Merlin Diamonds has explained to the ASX in written answers that it required AXIS to be well-resourced because it provided it with administrative and geological expertise it did not have in-house. It said the AXIS loans had always been disclosed and the company’s independent directors had considered them made on an “arm’s length” basis, thereby avoiding the requirement to seek shareholder approval. A week ago, Merlin Diamonds announced that it had indicated to the ASX it was prepared to terminate its service agreement with AXIS and “determine an appropriate arrangement to address the debt” owed by AXIS. Trading in Merlin Diamonds shares remains suspended. Know more? contact rbaker@theage.com.au