The inside man
Martin Legge spent two decades as a cop in Levin, catching the crims and then, as police prosecutor, taking them to court. Now, he says, he wonders why. "I'm embarrassed that we used to run around chasing guys for $1000 they ripped off Social Welfare," he says. "The big money is heading out the back door through softly regulated industries full of people in suits who should know better."
After leaving the police, Legge worked for a gaming machine trust which gave out poker machine grants. What he saw over the next decade shocked, disgusted and disillusioned him. He tried to brief his local MP, the gaming minister Nathan Guy, on the state of the industry. And then Internal Affairs, the industry watchdog, rang him up. Would he, it asked, become a whistleblower?
Legge and his wife Liz hand-delivered two bulging ringbinders of documents to the department, packed with incriminating emails (some marked "delete this email forever") to and from his colleagues at the Trusts Charitable Foundation. He also gave Internal Affairs a 9200-word statement.
He was interviewed by an investigator who said he was confident of a result. Then he was told it was a "slamdunk". In January 2011, the head of investigations told the Legges the case was "90 per cent complete" and he was contemplating seven serious charges against individuals and the trust.
Legge waited, and waited.
He wrote again to Guy, who rebuffed him, he contacted the auditor-general's office, and pursued Internal Affairs until March 20121, when the department finally told him it was, pretty much, case closed. By then, Legge says wryly, relations were "strained".
Legge's contract with the foundation wasn't renewed, and he has no doubt it was, and perhaps understandably, filthy at him for turning whistleblower. He was told he would never work in the industry again.
That doesn't bother him. What does is that after all those years in the police, he knows when something dodgy has gone on. And he knows when there's enough evidence to prosecute, or at least go to the Gambling Commission.
So why, when he supplied Internal Affairs with material on a string of questionable incidents that could have resulted in multiple prosecutions, has nothing happened?
"They have sold us out," he says simply. When you hear Legge's story, you wonder why anyone in the corporate world would ever blow the whistle again.
Legge left the police 15 years ago, and, ironically, briefly worked for Internal Affairs. Then he, his wife, and two other former gambling inspectors formed a gaming compliance and regulatory company called Modus. Liz and Martin Legge worked from home, a spotless farmhouse in rolling countryside just outside Levin. They soon found work from the Trusts Charitable Foundation, one of the biggest pokie trusts, consumed all their time.
When they took over the day-to-day running of the foundation, the Legges say it was in a mess. In fact it was under review by Internal Affairs because it was failing to meet the statutory threshold of returning 33 per cent (now 37.12 per cent) to the community – that is, of every dollar generated by a pokie machine, one-third had to be returned in grants. The Legges modernised the grants system, and co-operated with Internal Affairs. They suspect the foundation saw them as a nuisance, but a "necessary evil".
Almost from the start, they felt uneasy. They didn't like the drinking and dining excesses of the foundation's trustees, a group of respectable middle-class white men. They were amazed to receive a sheaf of grant applications with handwritten notes on them from one pub landlord, directing what should be accepted, a classic breach of the Gambling Act. They even detected a grant application submitted to fund the salary of one of the trustees. They began to discover what appeared to be a complex web of relationships that dictated why some grants were passed and others declined.
They were also amazed at the huge sums flowing to rugby and racing, when small charities were being turned down for tiny amounts. The Legges weren't decision-makers; their job was to interview grant applicants, meticulously check their paperwork and make recommendations on whether they complied with the rules. Often, those recommendations were ignored.
When Internal Affairs asked questions, they always answered truthfully. One audit report seemed to uncover several serious questions, but when they saw the final version, they were barely mentioned. When they co-operated with investigators, little happened: for example, one grant of $488,000 to the tiny Taeri Pony Club, was sent back several times by Liz Legge for more details, and it became the subject of an April 2011 Otago Daily Times story, sparking an Internal Affairs inquiry. But she says investigators had asked her for details of the grant nearly 12 months before; and she was never interviewed about it.
Many of the issues that concerned the Legges have become the subject of critical stories in this newspaper or the Otago Daily Times – for example the activity of one trustee, Murray Acklin, who was paid $120,000 a year by the foundation to offer pubs free TAB upgrades to host the foundation's pokie machines.
The Legges were also concerned when the trust opened a West Auckland grants office, which duplicated the work they did in Levin at a much greater cost. It was suggested by their Modus business partner – now foundation general manager – Warwick Hodder, that trustees felt "a gun had been held to their heads" to establish the office by the two West Auckland licensing trusts, Portage and Waitakere, which as the foundation's biggest client, had considerable sway.
In 2008 and 2009, Internal Affairs agents investigated the West Auckland set-up, Acklin's activities, and grants to a group of pool clubs, and said in some cases there was sufficient evidence for prosecutions.
One investigator, David Bermingham, emailed the Legges in June 2009, saying: "Hi Marty and Liz, just to reassure you things are happening, and we're not hanging you guys out to dry. I know it is slow, and believe me, I am finding this more frustrating than you guys. There is a huge push and backing regarding TTCF and the non-renewal of their gaming licence, based on the evidence I have adduced and on previous audits ... very basic stuff, always there for someone to find, mind you it does help to have honest people in the background ... so far all still on board, fingers crossed it stays that way."
But the Crown prosecutor eventually declined to press charges, instead the office was closed but no action taken to recoup the $1.2m spent on it. The pool club inquiry was dropped. Acklin was taken to the Gambling Commission, which told the foundation to stop paying him and serve a six-day suspension (its pokie machines were switched off).
By now, Legge suspects the foundation distrusted him and suspected he was helping Internal Affairs. He received an email from Hodder saying: "Would DIA be on [their] backs quite as much as they are if certain people from the Department hadn't been in contact with you?" By early 2010, Legge says it was apparent their contract with the foundation was unlikely to be renewed. In September, the foundation told them their tender was too expensive and they were going in-house. Hodder jumped ship and joined the foundation and Modus closed.
Bermingham had continued to lobby the now disillusioned Legges and now they had nothing to lose by helping the department.
"I don't want it to look like I am a bitter and angry person because I missed out on a contract," says Legge, who now works as a private consultant. Liz Legge adds: "We had long since decided that we were quite uncomfortable. The hardest thing was when someone rang up saying `we asked for $2000 for kindy equipment and you gave $240,000 to racing clubs'.
"That was hard. But a lot of applicants wouldn't complain because they were scared it would hurt their chances next time. So they would ring for feedback and say, `I'm not complaining, I realise there isn't enough money to go around.' That was the soul-destroying part. We knew it wasn't an industry we wanted to grow old in, coming home, knowing what was going on, and having to field those calls."
The Legges agreed to talk under the Protected Disclosure Act, which permits employees to disclose information in the public interest of serious wrongdoing they wish to have investigated.
And so in October 2010, as the Legges finished work for the foundation, two investigators, Bermingham and Greg Clark, visited and spent four days scouring their files. At Bermingham's urging, the Legges wrote him that long statement shortly after, a detailed document that alleges serious wrongdoings. Legge supplied statements from his wife and an employee, then took them to Internal Affairs' Christchurch office, where Bermingham was based.
Bermingham still works for the department, so wouldn't answer questions, except when asked about Legge's integrity: "I feel a little bit responsible, I guess, because I asked him [for information]," Bermingham said. "Everyone trusted the Legges. The compliance inspectors all had respect for Marty and his integrity; it was never in question. He always assisted inquiries. I found him extremely honest and reliable."
Shortly afterwards, another investigator and former cop, John Gualter, was sent to re-interview Martin Legge and "clarify" his statement. After an 80-page interview, he told them the case was a "slamdunk". Gualter soon quit Internal Affairs, because says Legge, he was frustrated at the tardiness in pursuing his case and others. Gualter told the Star-Times he actually left for another job, but admits the work "definitely had its frustrations ... it was a big old department and everything is fraught with their own individual difficulties; I am pleased I don't work there any more".
Gualter says he saw only Martin Legge's side of the story before handing the file on to yet another Internal Affairs man, Dave Sayers, but said there "seemed to be some genuine concerns there".
The file then apparently passed to yet another investigator, Geoff Lawry, and Legge, becoming frustrated, began writing to the auditor-general's office about the lack of progress. Guy, of course, had already rebuffed him, and under the Privacy Act, Legge obtained a heavily redacted briefing note sent to the minister by an adviser saying the Legges were "not uninterested" in the outcome (because they had lost their contract with the foundation) but seemed credible.
Legge says he learned the foundation trustees had declined to be interviewed. He says chairman Malcolm McElrea and Hodder, now the trust's general manager were, but only after being given a formal immunity from prosecution; Internal Affairs denies this but admits the others weren't interviewed. Again under the Privacy Act, Legge obtained the part of McElrea's interview that pertained to him; McElrea accused Legge of blackmailing him but offered no detail. The foundation's lawyers, Izard Weston, would later write to Legge to say "our client reserves its options" in regard to his "breaches of confidence". Another lawyer told the Legges they would never work in gaming again.
In January 2011, four months after the inquiry began, Internal Affairs gambling boss Mike Hill organised a meeting with the Legges at the department's headquarters in Wellington. He didn't turn up himself, but sent three senior managers, led by the now-promoted national investigations manager, Sayers. Legge says he began by asking: "What the hell is going on? We have put our balls on the line for you guys, you harassed us for that information."
Sayers told him, Legge says, that he could "be seen to have an axe to grind" if he hadn't had the documents to prove his assertions. That angered the Legges, who pointed to their long history of co-operation. They say Sayers told them the investigation was 90 per cent complete, close to conclusion, and could lead to seven serious charges.
Over the next year they were told very little. So on January 25, 2012, they asked Sayers for another update. He told them Lawry was on leave, but he would respond soon. In March, he finally wrote, essentially dismissing most of Legge's key concerns and, in two cases, around Acklin's behaviour and $5m of grants given to the Otago Rugby Union, said investigations continued, although allegations around those two incidents were now as much as six years old.
Internal Affairs gambling compliance director Debbie Despard told the Star-Times that while the "complaint raised concerns", the evidence didn't support action that would "sustain an appeal to the Gambling Commission". The department says the investigation was "robust".
Why wouldn't the department act? "You have to wonder whether there has been some political directive [to go easy] that there is such big revenue in gambling," says Liz Legge. "We have seen and heard so many bad rorts and Internal Affairs seems to sweep them under the carpet."
The department's reluctance to mount prosecutions could be understandable, but it has failed to use other tools available to it. Its success at the Gambling Commission, which in March 2010 heavily criticised the foundation for extravagant expense claims and for Acklin's behaviour, did not inspire it to take any other issues before the commission. Twice in the past two years, the foundation has had to apply for a new or modified licence, and the department must be "satisfied" that it is complying with all regulations before granting it. Both applications were granted.
It appears the department is afraid of failure.
Some in the industry describe the department as a "blowfly. They buzz around and are annoying but eventually they go away". The pokie trusts are helped by the ability to bankroll massive legal bills from their pokie funds to fight every decision Internal Affairs makes until, often, it backs down. One lawyer, Jarrod True of Harkness Henry, has become a one-man cottage industry for the trusts, fighting such decisions. Martin Cheer, chief executive of one of the biggest pokie trusts, Pub Charity, says the department at times lacked political backing and has over time shown a "deficit of skill and standard of knowledge of law: they are not up to the situations they find themselves in ... so year after year, the bad guys, more often than not, get off."
Francis Wevers, formerly chief executive of the industry body the Charity Gaming Association, submitted a report to the government this year pleading for it to change the system, saying the trusts "fail to deliver the expectations of parliament of a non-corrupt sector" and is riddled with "endemic non-compliance".
Wevers said that for six years, Internal Affairs tried to "develop a voluntary compliance culture – and failed". In 2010, that appeared to change, when the new gaming minister, Guy, delivered a speech to the CGA in which he said he didn't want Internal Affairs to be "unnecessarily heavy-handed" but warned "they will be persistent when they get a sniff of anything dodgy". Guy said: "The government needs you to pull your socks up and prove you can all comply with the law."
But Wevers said the impact of that speech was "quickly eroded", and the most recent Internal Affairs newsletter Gambits, flags a return to the old approach of trying to cajole and persuade the industry to reform, with senior official Maarten Quivooy talking about "ongoing and regular engagement" with the industry.
That dismays Graeme Ramsey, chief executive of the Problem Gambling Foundation, which has long been exasperated at the industry's indiscretions. "Internal Affairs' intentions to `educate and persuade' the sector did not work," he says. "In my opinion, Francis Wevers' analysis of the sector is an accurate summation of what we see from where we sit. All the enforcement actions seem to have done to date is drive activities further underground."
While the Star-Times has, over the past eight years, unveiled a string of questionable arrangements around pokie machines involving a number of gaming trusts, the department has brought only a few major prosecutions. Two, significantly, of a bar owner with name suppression, and two men accused of taking kickbacks from grants destined for the Auckland Helicopter Trust, failed, and no jail time was handed down in the one big success, the prosecution of a group of former league and rugby identities headed by ex-Kiwis prop Brent Todd, who served home detention at his mate Matthew Ridge's house.
And, says Legge, the department targets only the little man. From all the trusts, only two trustees have ever been prosecuted.
Legge was the first whistleblower the department ever found. He says he was warned it would do nothing, "would sell me down the road", but felt compelled to speak out anyway. Internal Affairs says it would "encourage" any whistleblower to step forward.
It would be too complex to delve into detail of the documents in Legge's files, but the material verifies several Star-Times' stories. Leafing through that file again at the rimu table in his kitchen, Legge says he'd blow the whistle again in a heartbeat. "What do they say? For evil to prevail, all good men have to do is nothing."
Sunday Star Times