How two uni mates ended up at the centre of a multimillion-dollar insider trading scandal. By Martin McKenzie-Murray.

Exposing privileged trading

Master no more: Lukas Kamay leaves the Melbourne Magistrates Court last Friday. The 26-year-old former NAB employee has been charged with insider trading.

Last year, Lukas Kamay was invited back to his old high school to address the student assembly. It was the first year Loyola College had asked successful alumni back to inspire the kids. It may be the last. Kamay, then 25, reflected on his putative success in finance. “I knew I would never be the most intelligent person out there,” he told the assembly. “But if I could demonstrate that I had a well-rounded set of skills to a prospective employer, that would help me stand out.” 

We can’t know if this was false modesty, or commendable self-awareness, but it turned out to be shockingly prescient. A month later, in August 2013, Kamay allegedly began illegally trading currency. Using confidential economic data, allegedly leaked to him by a friend, Christopher Hill, 24, who was working at the Australian Bureau of Statistics, he made huge gambles on the currency market. Traditionally embargoed until 11.30am, Kamay allegedly had the hop on the information, using it to bet on fluctuations of the Australian dollar he knew would result when the data was publicly released. 

But the scam was recklessly obvious, proof Kamay was right in the self-assessment he gave his old school in Melbourne’s northern suburbs. Kamay was betting more than he could afford to lose, and placing his bets with striking regularity – always just before the 11.30am announcement of ABS numbers. It was neon-lit strangeness, and his brokering firm, Pepperstone Financial, detected it almost immediately. After personally examining the numbers and dates, Pepperstone brokers knew something wasn’t right and notified the Australian Securities and Investments Commission in September. 

If the swindle was obvious, the sting was ludicrously simple. Pepperstone’s founder, Owen Kerr, Googled “Lukas Kamay” and discovered, via the employment social media site LinkedIn, his friendship with Hill. Suddenly it made sense. As easy as it seemed for Kamay to make money, it was just as easy to detect the scam. Kamay told students he hoped to “share my experiences and pass on a few pieces of advice so that you may leverage off this as you enter the world outside Loyola”. The italics are mine. Two months later, the Australian Federal Police started bugging his phone. 

Masters of the Universe

American author and journalist Tom Wolfe called them “Masters of the Universe” – his bitter shorthand for the young investment bankers of Wall Street – and Lukas Kamay thought that a pretty good thing to be. Wolfe minted the phrase in 1987, a year before Kamay was born, when the fast and loose young oligarchs were on the make at Bear Stearns, Lehman Brothers and Goldman Sachs. By the time Kamay joined Goldman Sachs as an intern in 2009, those first two banks would be dead, victim to the criminal arrogance of the Masters. Last week, five years after Kamay’s brief spell at Sachs, it seemed his career in finance was dead also. He was arrested for insider trading, along with Christopher Hill. 

For a long while, life looked good for Kamay. He was born to a wealthy family in Melbourne, and attended the Catholic school where his older brother was on staff as a fraternity mentor. The school is named after St Ignatius, the founder of the Jesuits, and its motto is “Justice, Mercy, Faith”. At Loyola College, Kamay picked up academic awards in all six years of his enrolment, joined the symphonic band, and became a house captain in his final year. He was a good-looking kid, with a shag of dark hair – yet to be styled, as befits a young Master of the Universe. 

After Kamay graduated in 2006, he enrolled in a double major of commerce and economics at Monash University. He was one of only three Loyola alumni there, and would later say of that time that it was “very much starting from scratch”. He studied units in econometrics, accountancy and finance, and graduated with an honour award for placing in the top 5 per cent of students. Despite his academic success, none of the four academics I spoke to who were teaching at the time remember him. But it was at Monash he would meet Christopher Hill. 

Kamay was in his final year at university when he applied for his internship at Goldman Sachs. It was 2009, when international economies were experiencing the worst convulsions of the global financial crisis, a crisis that had in part been caused by Goldman Sachs’ cynical trading of junk securities, and compounded by the ill-regulated cupidity of the Masters. 

As Kamay later told it, there were a few thousand applicants eager to intern at Goldman Sachs in Melbourne, but only two positions being offered. For these hungry young men and women, Goldman Sachs was not a global pariah – it was a golden springboard. “During the interview I was never asked about my ENTER score (or as it is now called the ATAR); they didn’t even want to discuss my university grades but rather focused on what skills and experiences I could bring to the business,” he told his old school assembly. 

He was successful, but it didn’t last long. Across the ocean, at ground zero on Wall Street, Goldman Sachs was on life support – kept alive by enormous government bailouts. Goldman Sachs was downsizing and would no longer be the world-making giant it had been in its heyday. In Melbourne, at the start of 2010, Goldman was cutting jobs. The interns went. After just four months, Kamay was asked to leave. 

For the young Master, it was a defining moment in his life. It was his first setback. “I vividly remember that day. They called me up to the boardroom, sat me down and gave me the bad news, then directed me straight out of the building. My desk would be packed up and sent to me via courier. I think this would have to be the lowest point of my very short career, standing out the front of 101 Collins Street with less than a year’s experience and feeling as if all that hard work I had put in was for nothing. I mention this to you today because at some point during your life you will experience something similar to this, whereby you are knocked down or fail to achieve something you really want.” 

These words were meant to inspire the Loyola students. Read now, they are seriously dispiriting. The students were listening to a drab formula – boy gets knocked down but gets back up – but the example hardly generates drama or elicits sympathy. Kamay’s life until then had been so blessed that his example of soul-crushing failure – the flattering counterpoint to his later success – was being asked to leave an internship six months early at one of the most despised corporations in the world. In Kamay’s telling, though, there is no world – there’s only his unalloyed will, an old boy heroically grabbing the corporate world by the balls. Nothing else seems to matter, or exist. 

And so in September 2011, he became an associate director at National Australia Bank, where he worked for a while on the foreign currency exchange desk. He was still working there last week when police arrested him. 

How it worked

Here’s how the alleged scam worked. Kamay set up a trading account with Pepperstone. An individual account can be set up quickly online, and you need only a minimum of $200 to found it. In August, Kamay dipped his toe in the water, betting a small amount based on the figures leaked to him from Canberra. But his confidence, and his bets, grew. Soon he was betting tens of thousands of dollars. His largest daily profit was allegedly $2.5 million, and within 10 months he had made $7 million. His alleged inside source made just $50,000 or $60,000. 

Professor of finance at Melbourne University Rob Brown explains the scheme this way: “The important thing for the insider trader to do before the announcement is to compare what the market expects the announcement will be with what the insider knows the announcement will be. Suppose an insider knows retail sales have grown more strongly than the market believes. So the insider knows the economy is growing more strongly than the market believes. The insider knows that the probability of the RBA raising interest rates in the future is higher than the market believes. Interest rates affect the exchange rate. Higher interest rates attract foreign investors. These investors will need to sell their foreign currency to buy Australian currency. This higher demand for the Australian dollar should increase its price.” 

Social media exposure

Few in this story are talking. I got hold of one of Hill’s colleagues at the ABS, and after introducing myself felt some hushed tones of anger and fear. Public servants have been taught to fear the media and the woman I spoke to had been trained well. After steadying herself, she politely thanked me for offering her the opportunity to speak and gently referred me to the media team. Before this, though, she asked with bemusement how I knew she knew Hill. She seemed annoyed. “Social media,” I replied, but didn’t add: “You know, the same way that Pepperstone discovered a link between Kamay and your employer/workmate?”

A former colleague of Kamay’s at National Australia Bank, who did not wish to be named, remembered playing golf with him on weekends. “But that’s it, I can’t speak about what he did. I know nothing about it.” Again: “How did you find me?” Again, I remind Gen Y of the permanence and visibility of their online relationships. In this young man’s case he had endorsed Kamay for half-a-dozen skills – derivatives, asset management – on LinkedIn, the same site Pepperstone used to confirm the conspiracy. Here, it seemed, was a generation so effortlessly comfortable with leaving their prints all over the web that they’d forgotten they’d done so. 

Christopher Hill’s Facebook page is still up. His profile pic is a selfie of him and a mate, both in mock maniacal poses – their eyes and mouths comically expanded. It’s been taken from the top of a skyscraper, the camera tilted to create the impression that they’re about to fall. Right now, Christopher Hill is falling mightily. In addition to facing charges of corruption, Hill faces additional charges of abusing public office, meaning his sentence could possibly be worse than Kamay’s. The contrast between the severity of the charges and the money he was allegedly paid for the information – a figure less than his yearly salary – is startling. Again through Facebook, I found an old university mate of Hill’s. He hadn’t heard the news. “Wow. Wow. Wow … That’s insane. I didn’t know that. He was just a tiny dude back at uni. Harmless.”

A matter of time

A former bureaucrat I spoke to, a former Treasury official, said he was surprised this hadn’t happened before. Each year, thousands of bright young things enter graduate programs in the Australian Public Service. Many have access to sensitive information. Most are publicly minded and academically distinguished, but the bureaucrat thought it was still just a matter of time before someone used privilege for profit. This is the ABS’s task right now: to restore its reputation, knowing it’s only as secure and effective as the most suggestible person working there. 

There is a strong sense of propriety among public servants, and in Canberra the majority are also well remunerated. But department heads will now be wondering how many of their staff have ever scanned a page of statistics and mused how they might – to use Kamay’s own generous advice – “leverage” them.

This article was first published in the print edition of The Saturday Paper on May 17, 2014 as "Exposing privileged trading". Subscribe here.

Martin McKenzie-Murray
is The Saturday Paper’s chief correspondent.