Rupert Murdoch's son and heir apparent, Lachlan, was called to account yesterday for his part in one of Australia's worst corporate disasters of recent times, the collapse last year with 5bn Australian dollars (£1.74bn) debts of the discount telephone company One.Tel.
Mr Murdoch, the chairman of News Ltd, the Australian subsidiary of News Corp, admitted to a liquidator's inquiry that he did not research the background of One.Tel executives before investing in the company in February 1999. One of One.Tel's co-founders, Jodee Rich, had previously run a software company that folded.
News Corp lost more than A$500m when One.Tel went into liquidation in May 2001. James Packer, scion of another famous dynasty, also got his fingers burnt. Mr Packer, son of Kerry and chairman of the Australian media empire Publishing & Broadcasting Ltd, lost a similar sum in One.Tel.
Both men, who were given seats on the board, could be sued for their roles in the telecommunications company's collapse. The UK arm of One.Tel is now a separate company owned by Centrica.
Yesterday Mr Murdoch, the last witness to appear before the year-long inquiry, defended bonuses totalling A$15m that were paid to Mr Rich and his joint managing director, Brad Keeling, between July 1999 and March 2000. They also received A$62m of shares between them.
The bonuses were successively triggered when One.Tel reached a market capitalisation value of A$1bn and then A$2.4bn. Mr Murdoch was asked by Michael Slattery, QC, counsel for the liquidators: "Did that not indicate to you that they were greedy?" He replied: "No."
Mr Murdoch said he considered the bonuses "reasonable" although, he told the inquiry, he thought it had been agreed during pre-investment negotiations that the second valuation "trigger" would be raised to A$3bn.
He did not question the payout of bonuses at the lower rate, he said, because he "assumed that my memory of the 15th of February [negotiations] was inaccurate".
Mr Murdoch testified that he invested in One.Tel at the suggestion of Mr Packer, who told him during a dinner at his house in January 1999 that it represented a good opportunity to make money in a booming telecommunications market.
Mr Packer, an old schoolfriend of Mr Rich, arranged a meeting between the two men and a subscription agreement was signed a few weeks later.
Asked if he had personally made inquiries about Mr Rich's business background, Mr Murdoch said he had not. He said Mr Packer had told him that the software company, Imagineering, went bankrupt because it grew too quickly. "He did not connect that to Mr Rich's stewardship," he said.
Mr Murdoch was also asked about a change in accounting practices at One.Tel which kept certain costs off the books, including money spent recruiting customers in Britain, and thus improved the 1999 profit results.
He said the two managing directors did not explain to him why the change was made, nor did he try to find out. "I assumed the audit committee and auditors would have made the decision in line with general accounting practices," he said.
Join our new commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies