In the Fair Work case on the wrongful dismissal claim of former Zenik chief executive Leighton King, Judge Smith said Zenik's "internal quality assessment was ... no more than a tick-a-box exercise to check that all required documents were provided, not to determine their authenticity".

The frequency of false or inaccurate information obtained to support loan applications also "firmly establishes that Zenik brokers themselves were at least complicit in the giving of that information for the purposes of obtaining loans, and for the brokers, commissions".

While the case did not deal directly with fraud, evidence revealed the prevalence of fraud. An external audit by Ashurst tendered in court showed anomalies in Zenik's loan documents,

"In many cases, bank statements ... showed inconsistent or large transactions which were not questioned or did not correlate with the borrowers' stated fact-find expenses," Ashurst said.

"Examples of inconsistencies included very low living expenses and high transaction values in bank statements ... and omitting other loans ...

"Discussions around interest-only loans were generally not documented in the standard required ...

"Most files reviewed resulted in interest-only loans.


"There was a noticeable trend for expenses equalling HEM (Household Expenditure Measure) or the lender calculator figure."

Ashurst also noted that Zenik brokers spoke mainly in Mandarin and while they were given training in English, Zenik did not verify that the skills were understood or put in practice.

HEM has been heavily criticised by the banking royal commission for underestimating the amount of non-essential spending including entertainment and childcare, and it has been argued that the benchmark allows banks and brokers to write bigger loans.

Mr King sought compensation from PIA for terminating his employment and for failing to disclose the fraud in the company before he took up the job. Judge Smith ordered the payment for the breach of workplace rights and unpaid leave and notices, but did not rule in favour of compensation.

The regulator ASIC told AFR Weekend it was aware of the matter but could not comment.

All big four banks said they have terminated their relationship with Zenik but declined to comment on the loan applications. Macquarie Bank did not respond, while Yellow Brick Road declined to comment.

LF Economics analysts who have long campaigned against poor mortgage lending practices say these "low doc loans" – loans that do not have verifiable income – are sub-prime.


"If these are just foreign buyers who don't have tax relationship with Australia, that is excessive," LF Economics Lindsay David said.

Mr David said while the US's subprime loans – the cause of the crisis in 2007 – were mainly teaser-rate loans, Australia's subprime loans were in the form of "low-doc interest-only loans" such as Zenik loans.

While Zenik loans suffered few arrears, Mr David said that didn't preclude them from being subprime and a greater ramification is how the supply of sub-prime credit market inflated the housing market.

"If verifying income was not such a big issue, why are banks doing it now, and why is it that house prices are tanking at the same time?" Mr David said.

"This goes to show that there's excess debt pumped into the market."

The Zenik matter was mentioned briefly in one submission to the commission, a set of Commonwealth Bank broker governance minutes, but was not raised in this year's hearings.