Hunting for Opes assets: Kohler

Having destroyed Opes Prime Stockbroking by allegedly falsifying its books to protect six clients from margin calls, the CEO Laurie Emini gave a personal guarantee to the ANZ Bank over all of his personal assets.

No wonder he’s on stress leave.

It’s understood that when ANZ agreed to put up $100 million in extra funds just before Easter, following the discovery by directors Julian Smith and Anthony Blumberg of $200 million worth of failed margin calls, part of the security required by the bank was a personal guarantee from Emini.

That was apparently demanded by ANZ because of the suspicion, even then, that Emini had been engaged in covering up the need for margin calls by these six clients, one of whom is a business associate of Emini, Sydney lawyer Chris Murphy.

ANZ also took a new charge over the assets of Opes Prime. It’s not known yet whether either the company or Laurie Emini has much in the way of assets.

It’s also understood that part of the $100 million in extra funds ended up coming into Opes via the British Virgin Islands.

It is suggested that this refers to Murphy, who had a $145 million margin account with Opes Prime.

The Caribbean tax haven came up in Friday night’s Federal Court hearing when the Australian Securities and Investments Commission applied successfully for an order to prevent Laurie Emini from leaving the country.

Peter Almond QC, acting for ASIC, told Mr Justice Finkelstein that one of the companies involved in the margin call cover-up was “incorporated in the British Virgin Islands and operating in…Singapore”.

When Opes went into receivership on Friday, ANZ was owed a total of $700 million, $600 million of which was covered by the standard securities lending agreement, called the Australian Master Securities Lending Agreement. Merrill Lynch was owed $500 million, also covered by the AMSLA contract.

That agreement gives the lenders full title to the security – shares in listed companies. It’s understood that in the past two days Merrill Lynch has sold all of the shares it held as security, while ANZ has sold a quarter. It is not known how much money has been raised by these sales.

How much will be recovered of the $100 million extra that ANZ lent to Opes before Easter is unclear: that will depend on whether Opes has other assets apart from pledged shares and whether Laurie Emini has managed to build up any significant personal assets. In any case, his house in Templestowe is likely to end up with ANZ.

Meanwhile it’s worth publishing part of the transcript of Friday’s court hearing in full, since it explains clearly what ASIC is alleging.

Richard Vandeloo, senior investigator with ASIC: Based on conversations of the receivers’ staff with employees in the stockbroking company yesterday, I’m advised that Mr Emini, over a three month period between December last year and February this year, instructed various staff to make entries in clients of high net worth to avoid margin calls being made at the end of – the close of trade of a day.

His Honour, Finkelstein J: To avoid margin calls being made on his clients?

RV: On his clients.

FJ: On the broking house’s clients?

RV: Broking house’s clients.

FJ: And what? These showed that – I’m not sure. You’ll have to walk me through this…

RV: All right.

FJ: Because I don’t understand how any entry in the stockbroker’s records can affect the lending institution making margin calls. When the institution holds the shares…

RV: Yes, and the – I expect that the institution did make the calls on the stockbroking company, but the stockbroking company has not made those calls on its clients.

FJ: But isn’t it normally the case that the lender holds the stock?

RV: Yes, that’s correct.

FJ: And the lender has got a formula by which it decides when it will or when it won’t make a call for further cash or security?

RV: That’s right, and my understanding is that one of the methods whereby that call was not made on the clients is that the staff were instructed to change the loan to value ratio within the company’s client portfolio

FJ: I can’t follow why that makes a difference. If I’m a bank…

RV: Yes…

FJ: and if my ratio is 80 per cent, what do I care what the broker does? Once the 80 per cent is reached I send them a notice, and if – I don’t know whether 24 hours or whatever it might be, 48 hours usually at the outside?

RV: Yes.

FJ: And if the money is not topped up, then the bank, through its nominee company or the financial institution itself sells the shares, and there’s no amount of doctoring by a broker that can cause that not to happen?

RV: As I’m advised, your Honour, the other way of topping up the account is by contributing additional stock, and then there becomes…

FJ: Actually providing the security to go back to whatever the margin is?

RV: That’s right. So there’s – it’s one day into an investigation, but there’s also allegations that there may be a round robin of stock to make that cover that position. I can’t produce any evidence other than what I have been told.

FJ: But that’s what the…

RV: That’s what the receivers’ staff think has happened. So that it’s not – so that the falsification of the record that the receivers suspect has happened is the topping up of security to avoid a sale following the call by the lending institution? That’s what I’m advised, that that’s one of the methods of making the call go away.

This story first appeared in www.Businessspectator.com.au.