Payback Time For Joe

Sydney Morning Herald

Saturday May 10, 2003

David Elias

A loan from mining magnate Joe Gutnick to a Sydney synagogue and school has sparked a family feud of biblical proportions, David Elias writes.

THE Diamond Rose Collection was a smash hit like no other before or since. New York was captivated by a biblical story of the 12 gemstones that adorned the breastplate of Aaron, the high priest in the temple of Jerusalem 3000 years ago.

Pnina Feldman told a cable TV shopping channel with a viewing audience of millions that the breastplate would be reconstructed for the coming messianic era. It was her mission to find all 12 gemstones.

In the meantime, a small quantity of red jasper, white chalcedony and the mysterious jade-like ``pittado" was available and, at the rate of 500 calls a minute, viewers shelled out a record $500,000 in 20 minutes.

Overnight ``Diamond Rose" Feldman, the wife of a Sydney rabbi, mother of 11 and a grandmother, had become a legend of Australian mining. She had mined a new market enabling her to make a claim to the shareholders of the Diamond Rose company that pittado reserves in their West Australian leases were worth $350 billion.

While the Melbourne mining magnate Joe ``Diamond Joe" Gutnick may well have admired his elder sister's entrepreneurial flair, the story of Aaron's breastplate and how she came to discover 119,000 tonnes of pittado got right up his nose.

He felt that she had adapted to herself Gutnick's story that his spiritual mentor, the late Lubavitch Rebbe Menachem Mendel Schneerson, had said he would make massive finds of diamonds and gold in the wilderness of WA. She had lit the flames of a family feud that has rocked the Orthodox Lubavitch community across the world.

The spat between the siblings is over a $5 million loan from Gutnick to the Yeshiva College, a synagogue and school for rabbinical scholars in Sydney's eastern suburbs where Feldman's husband, Rabbi Pinchus Feldman, is the spiritual head.

A dispute like this would usually remain within the Jewish religious court Beth Din but, because of Gutnick's insistence that the debt be repaid with $8.5 million interest, it has spilled out into the gentile world of the NSW Supreme Court.

In the public gallery emotions were running high when Gutnick, 50, entered the witness box on Wednesday. The man who was once hailed as his faith's great benefactor was repeatedly cursed in Yiddish. In the eyes of the scholarly Lubavitchers, Gutnick had broken Jewish law by charging interest on a loan.

This morning, as they do every Saturday, Australia's Jewish community will file into synagogues. A keen observer of Jewish affairs says the prayer books will be open but all of the talk will be concentrated on these more earthly events of the week.

He says it has more than scandalised the Orthodox community in Australia. Because of Gutnick's profile in New York and Israel, where he is linked respectively to the Rebbe and to former prime minister Bibi Netanyahu, news of the fight was bound to travel.

It has reputedly shattered their father, the elderly and highly respected Rabbi Chaim Gutnick, who is president of the Rabbinical Council of Victoria.

Gutnick's motives in calling in the loan with interest are not political or philosophical. The mining interests that built his personal wealth to a reputed $245 million in 1999 have disintegrated and it is widely rumoured that he needs the money to pay his debts.

Great Central Mines, his major gold interest, had racked up debts of $850 million when it was bought by Robert de Crespigny's Normandy Mining in 2000 and now forms part of the Newmont Australia group. As part of the arrangements with de Crespigny to get himself out of the mess, Gutnick's family company took on a $100 million loan payable over five years. Then Centaur Mining and Exploration, his other big cash-producing public company, went into liquidation last year with a shortfall to secured creditors of $708 million and a further $76 million owed to unsecured creditors.

This has left him with four shaky exploration companies, Gutnick Resources NL, Johnson's Well Mining NL, Astro Mining NL and Quantum Resources NL, collectively worth about $12 million in the sharemarket but carrying accumulated losses of $220 million that get bigger every quarter.

Gutnick's main hope is in Canada's North-West Territories where he paid $C13 million ($14.5 million) for a controlling stake as chairman and chief executive of the diamond explorer Tahera Corporation. But after an early rise the share price has fallen back and the investment is treading water.

All of which brings him back to the $13.5 million owed by Yeshiva College and his row with his sister and a brother-in-law for whom Gutnick has a demonstrable dislike. While many details came out in court this week, the history is best described in David Bernstein's 2000 biography of Gutnick, Diamonds and Demons.

It says the Rebbe sent Rabbi Feldman out from the US 30 years ago to set up the Yeshiva Centre in Bondi Junction. As it expanded to two synagogues, a kindergarten, primary and high schools for 700 students, it ran up a $22 million debt to the Commonwealth Bank, which brought it to the brink. The bank wrote the debt down to $10 million, which was then half covered by other wealthy benefactors, with Gutnick lending the remainder.

In court this week Gutnick said he funded the loan through the Commonwealth Bank using $20 million worth of Great Central shares as security. He said he had always expected to be repaid. When it was put to him that he wanted to control the Yeshiva he said: ``Absolutely not. I was at loggerheads and critical of the running of the Yeshiva."

The Lubavitchers, one source says, are scholarly but unworldly. They have large families and few prospects and rely on wealthy benefactors such as Gutnick to keep their institutions afloat. Unfortunately for the Yeshiva, most of Sydney's Jewish wealth is concentrated in the non-Orthodox community, which has its own charities. Gutnick, meanwhile, has always urged the Lubavitchers to be more businesslike.

According to Bernstein, when Pnina Feldman asked her brother if he could help with another $1 million a year to cover some of the operating shortfall, he said: ``I've given my money, and that's what I can do, and if you don't want to have debts, don't spend."

The biography says it was soon after this that Gutnick's sister decided to go into the mining business and in 1997 she went to the market to raise $10 million to float Diamond Rose. In the prospectus she said it would be the firm's goal to find the 12 gemstones of the high priest's breastplate.

The Book of Exodus describes the stones and how they should be set in four rows of three and bear the names of the 12 tribes of Israel.

A rabbi who spoke anonymously said his Hebrew text described the middle stone of the first row as ``Pitdah". Chapter 28, verses 17 to 21 of the King James Bible calls it a topaz.

However, the pittado gemstone sold to the New York viewers in 1998 was described by Diamond Rose's exploration manager, Peter Temby, as ``a type of chalcedony with green chrome mica colouration".

He said it was a fairly common kind of quartz not hitherto sold as a gemstone.

Bernstein's biography says it was an uncomfortable experience for Gutnick and he was unwilling to discuss it in detail in the interests of family harmony. He wouldn't have begrudged his sister's success or seen her as a rival but would have resented the fact that she appeared to be riding on his coat-tails.

In the years since, the Diamond Rose company has kicked on and reportedly contributed $4 million to Yeshiva. It is involved in nine major projects in Australia and this month bought the Guanaco gold, silver and copper mine in Chile with proven gold resources of more than 1.5 million ounces. Its financial reports to December show accumulated losses of $27 million but it has net assets of $2 million and has gone to the market for another $2 million for itself and for $3 million to $5 million for an offshoot, Kimberley Rose, that it hopes to float soon.

Feldman has claimed that Gutnick's action to recover the money with interest amounts to a personal vendetta against her and her husband for going into the mining business. But even feuding siblings can sometimes find room to co-operate.

In a remarkable twist this week Gutnick told the court that he had borrowed $200,000 from his sister last year and she had also helped him arrange a mortgage over one of his Melbourne properties.

She had even offered him the services of her son to help with the mortgage arrangements.

© 2003 Sydney Morning Herald

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