Opes Prime: Collapse Down Under

Melbourne Australia Stockbroker Opes Prime Has Collapsed.

Australia has seen some of the big corporations and financial houses going down like draining water over the past couple of month. Some good examples were RAMS, AllCo, ABC Learning Centres, Challenger etc. And this time, it’s Melbourne’s popular finance house Opes Prime turn as it’s become the latest victim in Australia being hurt by the subprime turmoil (although recent news has suggested that it was probably insider trading and account manipulation that contribute to the collapse more than anything else). The news are out and ANZ is owed about $650 million and Merrill Lynch about $400 million.

The Australian is reporting Opes 'share manipulation' probe.

The collapse of stockbroking firm Opes Prime has widened into a full-scale investigation of false accounting and manipulation of six key accounts worth $200 million to help clients to avoid margin calls.

It is alleged that Opes staff moved shares between the accounts of clients with margin loans in a "round robin" fashion.

By moving shares, or by changing loan-to-valuation ratios, accounts could be made to look healthier, avoiding margin calls that could have forced the clients to dump shares or inject extra cash.

A senior Australian Securities and Investments Commission investigator, Richard Vandeloo. told the Federal Court on Friday that between December and February, Opes chief executive Laurie Emini had instructed various Opes Prime staff to "make entries" in the accounts of high-net-worth clients so they could avoid margin calls.

But under Opes's business model, the shares many thought they owned were pledged to the firm's lenders as collateral for loans to the broker.

This means clients have been forced to watch helplessly as ANZ and Merrill have sold the stock to recover their loans to Opes.

"So domino-like, once things started to fall over, they could lose their shares even though they could continue to meet their obligations," he said. "There are questions about whether the full nature of those obligations were disclosed to them."

Treasurer Wayne Swan Says Opes Prime collapse unlikely to badly hurt market.

Federal Treasurer Wayne Swan says the collapse of stockbroking firm Opes Prime is unlikely to have wider implications for the Australian stock market. Opes Prime went into receivership last week, leaving investors facing millions of dollars worth of losses.

Mr Swan says Australia is not immune from the United States' subprime crisis but the Australian economy does not have anywhere near the problems the United States does.
But he says the Opes collapse is a serious issue.

"It's being investigated by ASIC at the moment," he said. "I don't intend to comment any further, but I'm assured by the regulator that it will not necessarily have wider market implications."

Margin Investors Lose Everything

ABC Science is reporting Investor loses everything after Opes Prime collapse.

David Reganspurger took out a margin loan for a $100,000 with Opes Prime last year, using his $300,000 share portfolio as a loan guarantee.

He has since paid off the margin loan, but was told last week, when the company collapsed, that he no longer owns his shares.

It is alleged Opes Prime was pooling clients' share portfolios and when the market crashed, it would dip into that pool to bail out its big clients.

David Reganspurger spoke to Brigid Glanville.

DAVID REGANSPURGER: I had a margin loan at the time of the collapse of about $100,000. We had a $400,000, $420,000 share portfolio, but I was making sure that I was only ever borrowing about ... a 25 or 30 per cent LVR ratio to the entire portfolio to make sure that we were very well clear of even the market collapsing. We were still very clear that we were never going to get a margin call or [be] in any danger of losing our stock in that regard.

Brigid Glanville: And what were you told, what's happened to your shares when Opes Prime collapsed late last week?

DR: Well I initially rang and spoke to someone at Deloitte, who I think they're the receivers, and I asked the question, 'Look, can we just pay off our margin loan and therefore then get our share portfolio back?' We could source the money from friends and family if need be and just unlock our account.

And I received a call later that day, from, I think a Merrill Lynch broker up in Sydney. Basically it was very polite but also very short in that 'well look David, you don't own the shares any more, ANZ do, and we've been advised to sell the shares so you don't have an opportunity to buy these shares back, or pay off your margin loan, because they're not your shares any more, they're ANZ's'.

BG: So going through the paperwork, or even at the time, were you told that when you took out the margin loan that Opes Prime would be pooling your equity along with everyone else's and you would no longer own those shares?

DR: Absolutely not. We've had a good look at our original application and all the associated paperwork since then, and we can't find anything that says that Opes are going to borrow against these shares.

There's a reference to the fact that you're signing the shares across to ANZ, but there's no reference that they're going to borrow against those shares. And I guess in the same way, when you buy a house, the bank owns the house and you have equity in the house, so it was no big deal that OK, Opes are going to own these shares. It was no big deal because we're going borrow against them. That makes sense. But had I known that they were going to borrow against those shares themselves. I mean, that's a risk element that I'm not privy to.

BG: So what have you got left?

DR: I've got nothing. We have about $,5000 in the bank and that is it. Everything's gone.

In a story about the same man, the Herald Sun is reporting Man loses all in Opes Prime collapse.

DAVID Regenspurger is the personal face of the Opes Prime collapse. He turns 40 in a few weeks, has a wife and two children under five, and in the past week watched his net worth sink from more than $400,000 to $5000.

Opes chief executive Laurie Emini -- the man at the centre of the collapse triggered by fraud -- surrendered his Australian and Macedonian passports yesterday after requests from ASIC.

The ban is of little comfort to Mr Regenspurger, whose situation was revealed in a letter to stockbroker Marcus Padley. "I had spent the last two hours rocking my crying wife to sleep," reads the letter.

The energy consultant sold his house almost a year ago and temporarily invested the proceeds in the stockmarket with plans to upgrade to a bigger house for his growing family.

Thinking he was playing it safe he invested $320,000 in big-name companies such as BHP Billiton and National Australia Bank.

He also took out a $100,000 margin loan through online trading house Trader Dealer, which was linked to Opes Prime. Unlike other margin lenders Opes Prime claims legal and beneficial interest to the shares. If a typical margin lender goes into administration the client can get their shares back by paying out the margin loan. But not, it seems, with Opes Prime.

Ironically, he was days away from moving his money to another firm when Opes collapsed.

Merrill Lynch Has No remaining Exposure

SmartMoney is reporting Merrill Lynch Says No Exposure To Australia's Opes Prime

Merrill Lynch & Co. Inc. (MER) said Friday that it no longer has any exposure to Opes Prime Group Ltd. after selling a basket of stocks received from the failed Australian stockbroker as security for a loan.

Opes Prime was put into receivership last week owing A$1 billion to lenders.

It owed Australia & New Zealand Banking Group Ltd. (ANZ)A$650 million and Merrill Lynch a further A$350 million, receiver Deloitte said last week. Merrill Lynch and ANZ took control of Opes Prime's shares last week and started selling them off to recoup the loan amounts.

How to Keep your Investments Safe

Herb Greenberg was writing about margin accounts in How to Keep your Investments Safe.

The original post contained several pieces of misinformation so please read the recent addendum at the end before you panic. Had the Opes Prime situation occurred in the U.S., SIPC would have covered the first $500,000 of it. Some brokers, Interactive Brokers (IB) is one of them, carry insurance above and beyond SIPC.

Here is the Securities Account Protection Statement from Interactive Brokers.

Customer securities accounts at Interactive Brokers are protected up to $30 million (including up to $1 million for cash). The market value of your stocks, options, warrants, debt, and cash -- denominated in all currencies -- is covered by this insurance. Futures, options on futures, and single stock futures are not covered, but available cash will be swept from your futures account to your securities account periodically to take advantage of insurance coverage as much as possible. As with all securities firms, this insurance provides protection against failure of a broker-dealer, not against loss of market value of securities.

This protection is provided by the Securities Investor Protection Corporation (SIPC) and Lloyd’s of London insurers. SIPC provides the first $500,000 per customer (including up to $100,000 for cash). For customers who have received the full SIPC protection, the Lloyd’s policy provides up to an additional $29.5 million (including $900,000 for cash), subject to an aggregate limit of $150 million.

High net worth individuals may wish to ask what levels of protection they have on their accounts.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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