Articles : Scams and Scoundrels

Pnina Feldman lowers herself onto the settee, pours cups of hot water, offers a glass bowl of instant coffee and iced biscuits, and begins to talk of her family, her faith in God, her mining exploration company and the people she believes are involved in a conspiracy to destroy it.

This 54-year-old woman, immaculately groomed and expensively dressed in a blue knitted suit and silver-heeled shoes, describes herself as "just a housewife". It sounds incongruous to hear her say: "I get hostile and aggressive and antagonistic because of a couple of low-life people who've pulled the rug out from under my feet in this company who've done it once [and] who won't get a chance to do it again."

We are sitting in the drawing-room of the Feldman home in Bondi, an enormous century-old mansion, which they now share with Diamond Rose NL, the family-controlled exploration company once valued at $150 million by the stockmarket, now moved from its offices into these humbler premises to save on the rent. A sign on the door says "Pnina Feldman, Executive Chairperson."

On a wall at one end of the room hangs a large portrait of her 20 grandchildren and some of her 11 children. At the other, a young assistant busies himself around a long table, cataloguing some of the company's produce not diamonds, but hundreds of rings, necklaces and bracelets set with coloured stones, and carvings of koalas and the Sydney Opera House in a greenish rock.

We have come here to ask about the company's future. Instead, we are treated to a five-hour diatribe on everything from Feldman's shopping habits to divine prophesy and reporters who write "C-R-A-P" about her company. She leaps up to telephone sources for this story, tape-recording their conversations to try and prove that someone is lying; plays a video of a TV interview she did in New York which features exciting Indiana Jones movie footage; threatens to sue, says she is going to call the Bondi police, claims she is being harassed.

Occasionally we manage to steer the conversation back to the point. Diamond Rose just three years ago was the toast of speculators when, accompanied by four daughters and six rabbis, Pnina Feldman launched it on the stock exchange, predicting it would become "one of Australia's top companies before the end of two years".

As its fortunes soared the 20¢ shares hit $1.75 at one stage Pnina Feldman vaulted into the Business Review Weekly Rich List, her personal wealth estimated at $80 million. With her husband, Rabbi Pinchus Feldman, she owns about half the Diamond Rose shares through a private family company, Vageta Pty Ltd.

All that is history. The shares are now languishing around 6¢, and most of the company's trophy investors have jumped ship. Rodney Adler's FAI insurance group, which underwrote the float, unloaded the last of its 4 million shares in March after new owners took over; billionaire investor George Soros sold his stake after a nasty dispute over some options almost finished up in court.

Diamond Rose's accounts released a fortnight ago disclose that it is down to its last $1 million. Unless there is a fresh transfusion of funds it will be broke by Christmas at its current rate of spending. On Friday its 1,700-odd shareholders will vote on a last-ditch plan to save the company by issuing a convertible note, entitling Vageta to 300 million shares and options, in exchange for $4 million. But no-one knows where the $4 million is coming from.

Even Pnina Feldman, the perennial optimist, seems to realise how serious is the company's plight. The annual return reveals she has cut her salary from $393,000 to $295,000 per year.

Q: Dov Libman (an Argentine investor) says that the company is doing so badly that if it doesn't get an infusion of cash "oxygen" was the word he used it is going to go bankrupt.

A: That could be true. That's not negative. That's a fact. Why do you think this placement is being proposed?

Q: How much money do you have left, then?

A: Well, the quarterlies show that. Not much ... (the exploration program) cost a fortune, an absolute fortune. We need money. We are desperate for money.

Part of the problem appears to be the complicated arrangements between Diamond Rose, the public company; Vageta and the Feldmans' 20 other private companies; and the Yeshiva centre, run by Rabbi Pinchus Feldman a complex of synagogue, school and rabbinical college in Sydney's eastern suburbs which is the focus of religious life for Lubavitchers, a strict messianic sect of Judaism.

Diamond Rose actually owns very little, and earns even less it has written off almost all the $10 million it raised from investors at its public float. The leases it has been exploring in the Western Australian desert, are owned by Vageta. Yeshiva (technically the Sydney Talmudical College Association) received $233,000 last year for providing Diamond Rose with "corporate and management services".

In an interview three years ago, Feldman claimed that the centre had been almost bankrupt, losing $3 million a year and with accumulated debts of $22 million to the Commonwealth Bank. She said that she saw the floating of Diamond Rose "... as an opportunity to help him [Rabbi Feldman] ... to have his deficit covered."

The immediate crisis was resolved, with the bank rescheduling its debt, and mortgages on the Yeshiva properties being taken over by companies associated with the centre's wealthy supporters, including Pnina Feldman's brother, the gold-mining magnate Joseph Gutnick, developer Harry Triguboff, and property investor Richard Scheinberg.

However, in spite of this and several gala fund-raisers attended by a glittering cast, including Treasurer Peter Costello the centre continues to lose money. Two years ago, say the Feldmans, more Good Samaritans came to the rescue in the shape of a group of Lubavitcher investors from Argentina.

These people, operating through a British Virgin Islands-based company called Mountainside Holdings Ltd, agreed to pump $4 million into Vageta in exchange for 10 per cent of the WA leases plus another 10 per cent if Vageta did not meet a repayment schedule. However, there is some dispute as to what the money was to be used for.

Libman says he was under the impression it was to finance exploration of the leases. The Feldmans, however, are quite certain all the investors understood the money was for "charitable purposes" $3 million of the $4 million, according to Pnina Feldman, was onlent by Vageta to the Yeshiva centre to help pay off its debts.

Dov Libman was not the only one to misunderstand an arrangement with Mrs Feldman. Two of the intermediaries who originally brought the mining leases to her believe they are entitled to a bigger piece of the pie and a third is threatening to sue for 18 per cent of the company, to which he believes he is entitled.

The leases are in the so-called Rocklea Dome area, an extinct volcanic crater in the Pilbara, 230 kilometres south-east of Karratha. The area has been explored intensively for more than a century and, according to Aboriginal prospector Rod Bellotti, "is littered with old drill-holes like a pin-cushion".

However, one thing those old-time prospectors must have missed was a large deposit of an unusual type of quartz.

According to Diamond Rose's corporate video, a geologist tripped over a piece of it one day and "in disgust, he relieved himself over the rock" washing away dust and grit to reveal a lustrous green stone.

Rod Bellotti laughs at this. He says that he told Pnina Feldman, in front of her lawyers: "Lady, to us this is prase. It's an ornamental gemstone worth maybe $2.50 to $5 a kilo. We don't want you to accuse us of false pretences. We want you to be quite clear what you are agreeing to buy ... after you've bought it, we don't care what you call it. You can call it moonstone if you want to."

However, Pnina Feldman became convinced that the rock Bellotti had found was one of the 12 sacred stones which according to the Old Testament were set in the hoshen, the breastplate worn by the High Priest of Jerusalem 3,000 years ago. She called it "pittado" and promised in her prospectus that this rock could make the company "Australia's premier gemstone producer and exporter".

Bellotti was paid $90,000 for the sale of the leases, but says he has received nothing from a promised 10 per cent royalty. Feldman explains that, although "several hundred thousand-dollars" worth of pittado had been sold in a US cable TV home shopping promotion, the cost of getting it to market had been about $2 million, so there were no profits to share.

Another Aboriginal identity, a former clergyman from Adelaide named Bob Brown, is even more indignant at the way he has been treated. He has threatened not only to sue the Feldmans but to stage Aboriginal demonstrations "outside synagogues and Jewish schools" to recover $10,000 he says he was promised for acting as an intermediary in the acquisition of the leases. Pnina Feldman says he has been offered $9,000, which he rejected.

If anything, Jerome Chester's complaint is even more serious, because he is family. He is Pnina Feldman's cousin and lives just a couple of doors down the street from her. Chester, a jeweller, says that he was the first one to tell Feldman about the mining leases, and in exchange was promised, but never delivered, 18 per cent of the company. He is suing in the Supreme Court for the shares and $2.7 million.

Feldman dismisses his allegations as "ridiculous," points out that Chester is a former bankrupt, and in a counter-claim against Chester and Merrill Lynch (Australia) Nominees claims that they have somehow obtained 10 million shares in Diamond Rose which belong to Vageta. Who now actually controls the shares, which represent 7 per cent of the issued capital of the company, is a mystery.

And that's not the end of the trouble. A former Diamond Rose employee, Benjamin Shagrin, is shaping up in the Industrial Relations Court next week with a claim that he was unfairly dismissed last year. Feldman retorts that the writ was lodged only when she sued for the return of $15,000 she lent Shagrin to buy shares in Diamond Rose.

And Amanda Zappia, daughter of the late Sir William Keys, who resigned after serving as a director of Diamond Rose because he was "concerned about the lack of transparency", says her father never received the million options he was promised. Feldman says shareholders will be asked at the company's annual general meeting to approve issuing some options to his estate, though she disputes the number promised.

Finally, in November, Maurice Showa Manasseh, a director of Nissim Securities a sub-underwriter of the Diamond Rose float and Leslie Raymond Austin go on trial on 21 counts of share manipulation. The Australian Securities' and Investments' Commission alleges that shortly after the float of Diamond Rose they sold 800,000 shares to "persons and entities associated with themselves" to create a false appearance of active trading in the stock.

With these claims and counter-claims swirling in the background, Diamond Rose has been unable to do much to live up to its promise of becoming Australia's premier gemstone company. But, here again, there is a vigorous dispute about who is at fault for this.

Two years ago Pnina Feldman flew to Orlando, Florida, to appear on a nationwide home shopping program organised by the long-established and reputable New York jewellery company, Clyde Duneier. After she told her tale about pittado and the high priest's breastplate, the phones rang off the hook and she claims she sold $200,000 worth of jewellery in a matter of minutes.

So why, if the new gemstone was so popular (in spite of not being recognised by any gemstone registration body, nor being referred to in any geological, as opposed to religious, text) did the marketing program not continue as planned, with more TV promotions in the US, Japan and England?

Marc Duneier is the principal of the company, which does $US30 million ($56 million) a year worth of business with department stores and the home shopping channel. He says he was optimistic about pittado.

"I don't think the stone itself is intrinsically worth anything at all. It's just another form of cheap quartz stone," he said. "But if it was marketed in the right way it could be very successful ... we could have sold $US5 million a year of this stone alone."

However, when last year he planned a second promotion, Duneier says that Feldman became erratic and difficult to work with: "She did not deliver the samples on time. She changed the prices at the last minute. It was crazy." A week before the program was to go to air, Duneier's did not have the stones. The firm was forced to cancel the show and all future dealings with Diamond Rose and melt down $US500,000 worth of settings for the stones.

Once again, Feldman disputes this version of events. She says Duneier's "mismanaged" the order and the pittado had been delivered according to an agreed time-frame. She also claims Duneier's are still in possession of a parcel of gems which Diamond Rose is seeking to have returned.

In spite of this, Pnina Feldman has not given up on the future of pittado. In fact, she has identified two more stones from the hoshen, previously unknown to gemologists, which the curious may inspect in two small showcases in Double Bay's Ritz-Carlton hotel. They are oden, a reddish rock, and purple nofech, "deemed by vibrational healers to stimulate and enhance general artistry to connect with the cosmos".

To show her confidence in the mystical gemstones, Feldman is opening a shop in Bondi and starting an Internet marketing business. However, this will not be a Diamond Rose venture. The Feldmans have put the business in the name of another of their private companies, Australian Gemstone Mining Pty Ltd.

Diamond Rose is meanwhile refocusing its energy on searching for diamonds. Earlier this year its shares briefly blipped upwards when the company announced that it had a "world class diamond exploration project" on some leases at Upper Beta Creek in the Kimberley.

However, Maureen Muggeridge, the consultant geologist on the project, cautions against reading too much into what she called "some very bullish announcements". A fortnight ago, delayed by floodwaters and a machinery breakdown, the company had not even begun the drilling program which will be needed to confirm whether or not it has any "kimberlite pipes", geological structures which sometimes contain diamonds.

"It is still very much at the exploration stage," said Ms Muggeridge. "We have made it clear that we have not proved that we have kimberlite deposits. We have 21 `interesting anomalies.' The signs are very promising, but it is too early to say."

And Pnina Feldman herself, on the eve of a crucial extraordinary general meeting of the company, concedes that another $30 million will be needed to even get to "pre-feasibility" on any diamond deposits there may or may not be out there in the West Australian desert. How will she get the money when she acknowledges "I think my credibility is down the drain"?

"First, let me tell you something and I know this sounds totally weird," she says. "I believe that God's on my side, right. And I believe that my company will survive and be successful, OK, otherwise I wouldn't be in it.

"How I'm going to get funds into the company, I don't know, but I promise you that I will, one way or another. In the meantime ... I'm prepared to put my last dollar in. I've got belief in my company, and faith in the company.

"You write negative about me, and, believe me, you won't have too many friends left," she warns "Don't go scrounging around, talking to lowlife about other people's business."