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Sons of Gwalia was Australia's third-largest gold producer and also controlled more than half the world's production of … Essentially the company used a hedging operation that involved selling gold forward using put options. He did, however, reveal that Ernst & Young "from time to time provided services to the company in addition". This almost always comes up after companies collapse and the auditors complain that too much is expected of them and that they don't have eyes in the back of their heads, you know. For example, as at June 2007, some 5,344 shareholder claims had been made in the Sons of Gwalia administration, claiming a total of $250.5 million.9 The administrators of a deed of … In their report, the administrators say they believe Messrs Ernst & Young may have breached their duty to Sons of Gwalia in six ways: they failed to discover or warn adequately about the conduct of the treasury operations, failed to warn that there were insufficient internal controls over treasury operations, failed to report that the company's books and records were insufficient, failed to detect or warn that trading limits were being exceeded, failed to ensure that gold put and call options were adequately reported in the company's accounts and failed to ensure that the financial statement correctly recorded trading profits and losses in the years ended June 1998 to June 2003. According to the administrators' report, there was an opportunity in August 1999 to "close out the commitments attached to the (options) for a cost of $74 million that would have left Sons of Gwalia in a significant net positive position from the transactions. The opportunity was not taken …" When the gold price rose above $A500 an ounce, which it did soon after, the company's treasury operations got out of control and the company appeared to have been riding a train with no brakes towards a cliff. Sons of Gwalia went into administration on 30 August 2004, following a financial collapse, with debts exceeding $800 million after suffering from falling gold reserves and hedging losses. Sons of Gwalia. In 2009, EY, the former auditors of Sons of Gwalia, agreed to a $125m settlement over their role in the gold miner's collapse in 2004. Sons of Gwalia creditors receive payment. All this helped to make the collapse of Sons of Gwalia last year so spectacular. But perhaps the most astounding thing about the report is that the auditor, Ernst & Young, missed everything. While the report prefaces those claims with the term "may have", they are allegations in the writs issued against the Lalors. "They certainly made themselves out to be the doyens of the industry," one Perth broker said. Sons of Gwalia collapsed in 2004 with debts exceeding $800 million after suffering from falling gold reserves and hedging losses. ASIC, meanwhile, has issued warrants against the pair and after the criticisms levelled at ASIC for going soft on Steve Vizard, it's easy to feel a bit sorry for them. Ernst & Young will undoubtedly have a different version of events that will be put in court, but the administrators are alleging that for five years, year after year, the auditors signed books that had been cooked. Ernst & Young appears to have merely strolled down main street looking at the nice facades; the firm is now being sued by the administrators for breach of duty. In 1900 work on the Sons of Gwalia mine was completed with a 50-head mill, and production soared to more than 90,000oz of gold. 30-AUG-2004: after a financial collapse Sons of Gwalia was insolvent. The mine gave its name to the adjacent town of Gwalia. For the best part of two decades, the Lalors pretty much were the establishment. The little settlement that grew up around the Sons of Gwalia Mine in the late 1890s thrived until the final whistle blew on 28 December 1963, closing the mine and putting 250 men out of work. THE administrators' report into the collapse of Sons of Gwalia is an astounding document, detailing many years of stupidity and deception that will provide a welcome outlet for a securities regulator looking to recover its reputation and display its ferocity after the Steve Vizard fiasco. In April, the company’s directors, led by brothers Peter and Chris Lalor, agreed to a landmark $53 million settlement over their role in the … The cliff took a long time to arrive — August 2004, when the company collapsed owing about $1 billion, exactly five years after the option book could have been closed out for $74 million. Unfortunately for them, the Sons of Gwalia administrators have opened a new chapter. As their Gwalia empire grew over two decades through a series of takeovers and mergers, so too did the stature of the Lalor brothers in the gold industry and the broader community. How sons of Lalor built, then sank, Sons of Gwalia. "At the time the directors considered that the extent of the potential losses threatened the company's existence," the report says. Like their company, the Lalors were steeped in mining history. The situation is similar for Ross-Adjie, Sons of Gwalia director Thomas Lang and auditor Ernst & Young. Other memorable disappearances include Sons of Gwalia, OneTel, Mirabela Nickel, Babcock & Brown. The idea that the deception was too clever and the problems too deeply hidden does not wash because Ferrier Hodgson seems to have found them pretty quickly — and they're just another firm of accountants. Market darling disappears in a year The Sons of Gwalia debate has been raging ever since the High Court confirmed in 2007 that shareholders who were misled by the company could seek to … With a reputation for conservatism, the Lalors only appeared to become confrontational when stockbrokers put a sell recommendation on their stock or the press portrayed Sons of Gwalia in a negative light. The mining company the Lalors founded in 1981 built its fortune reviving one of WA's most famous mines, the old Sons of Gwalia mine near Leonora, north of Kalgoorlie. It is also why the conclusions drawn by the Sons of Gwalia administrators, after almost a year of investigations, are so explosive. 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