Opes Prime Group Limited was an Australian securities lending and stockbroking firm which suffered a dramatic collapse in 2008.
Overview The company was founded in 2003 by Laurie Emini and Julian Smith. Emini, an Albanian emigrant to Australia, had worked for the Australia & New Zealand Banking Group (ANZ) until he was retrenched in 1997, and began share trading from his home. Smith, a British national, had emigrated to Australia in 1993, and ran the securities and investments division of the stock brokerage firm Ord Minnett.Urban, Rebecca: Little-known Opes, spectacular failure , The Australian, 5 April 2008. By 2008, the company had offices in Melbourne, Sydney and Singapore and employed about 80 people.ASIC to investigate Opes Prime, The Age, 28 March 2008.
The company's downfall was revealed on 28 March 2008 when the Australian Securities & Investments Commission (ASIC) announced it was launching an investigation into Opes Prime Stockbroking, and that the company had gone into receivership the previous day, with Deloitte Touche Tohmatsu appointed as receivers by the ANZ Bank immediately after the company had appointed Ferrier Hodgson as administrators.08-61 ASIC launches investigation into Opes Prime , Australian Securities & Investments Commission, 28 March 2008. Retrieved 11 April 2008. Opes Prime's secured debt was believed to be over A$1 billion, with its major secured creditors including the ANZ Bank (owed around $650 million), and Merrill Lynch.
Melbourne underworld figure Mick Gatto made headlines when he travelled to Singapore on behalf of an anonymous group of investors in an attempt to retrieve their money.Leonie Wood, Mark Hawthorne and Vanessa Burrow: Gatto joins the money hunt, The Age, 8 April 2008. Gatto however returned to Melbourne saying that the Singapore Directors and staff were hardly to blame but were rather "victims".
On 15 October 2008, the Opes Prime creditors voted to place the companies of the group into liquidation with the administrator Ferrier Hodgson being appointed as liquidator. Ferrier Hodgson then tenaciously pursued ANZ Bank and Merrill Lynch for restitution in relation to their dealings with the companies immediately prior to and in receivership. This effort was supported by ASIC. The actions of ASIC and Ferrier Hodgson resulted in a settlementMR09-37 Opes Prime: proposed settlement and ANZ enforceable undertaking, Australian Securities & Investments Commission, 6 March 2009. Retrieved 5 March 2011. which included the payment of compensation and enforceable undertakings by ANZ Bank.
These settlements allowed the liquidators to propose a scheme of arrangement which was approved by the court on 4 August 2009.AD 09-135 Opes Prime schemes of arrangement approved , Australian Securities & Investments Commission, 4 August 2009. Retrieved 5 March 2011. The scheme of arrangement has allowed the liquidators to repay creditors some 37c in the dollar of the sums they were owed, but prevents the creditors from taking any further actions against ANZ Bank.
Criminal charges
Laurie Emini, Julian Smith and a third director, Anthony Blumberg, were each charged with four offences in late 2009 in relation to the collapse of the group. In bringing these charges ASIC alleged that shortly before Opes Prime collapsed, the directors signed financial documentation with ANZ Bank to obtain a term loan for Opes Prime Stockbroking Limited (OPSL) and Opes Prime Group Limited (OPGL) and pledged the companies' assets as security to meet the obligations of a third company, Leveraged Capital Pty Ltd. ASIC alleged that in doing so, the directors were intentionally dishonest and failed to exercise their powers and discharge their duties in good faith in the best interests of OPGL and OPSL. It was further alleged that Messrs Emini, Smith and Blumberg dishonestly used their position as directors of OPGL and OPSL with the intention of directly or indirectly gaining an advantage for themselves or for someone else.10-05AD ASIC brings charges against Opes Prime directors , Australian Securities & Investments Commission, 11 January 2010. Retrieved 5 March 2011.
Leveraged Capital Pty Ltd was a company owned by Emini and Smith. It was placed into administration and receivership at the same time as the Opes Prime companies.
A third company at the centre of the saga, Hawkswood Pty Ltd, was owned equally by Emini, Smith and Blumberg. It was ostensibly involved in venture capital financing. It was also placed into administration and receivership at the same time as the Opes Prime companies.
On 28 May 2010 ASIC announced that a further 22 charges had been laid against Laurie Emini, Australian Securities & Investments Commission, 28 May 2010. Retrieved 5 March 2011. for breaching his duties as a director of Opes Prime Stockbroking Ltd and Leveraged Capital Pty Ltd. ASIC alleged that on a number of occasions between July 2006 and February 2008, Emini caused the false recording of securities in the records of OPSL and Leveraged Capital so that securities were recorded as being held by more than one client at the same time. The result of this false recording was that the records of OPSL and Leveraged Capital were not a true reflection of the state of those companies' securities holdings and consequently, their respective financial positions. The value of these securities was in excess of $50 million. ASIC further alleged that in causing the false recordings to be made, Emini was intentionally dishonest and failed to exercise and discharge his duties in good faith in the best interests of OPSL and Leveraged Capital. Ten of the charges brought by ASIC allege that Emini used his position with Opes "dishonestly with the intention of directly gaining an advantage for yourself or someone else".Katherine Jimenez and Laurie Wilson: 22 more charges against Laurie Emini, The Australian, 29 May 2010. Retrieved 5 March 2011.
There was a significant delay in bringing the three accused to trial because of the length of time prosecutors believed that a committal hearing would require - some three to four weeks. The committal hearing was set for 28 February 2011, but some further developments in the case occurred on 2 February 2011. On that day, Emini was declared bankrupt owing some $6.8 million to Opes Prime as well as sizeable sums to others including his lawyers. At the same time, Smith was granted legal aid with his defence to be funded by taxpayers.Ben Buttler: Opes Prime founder bankrupt, The Age, 3 February 2011. Retrieved 14 March 2011.
Committal proceedings
As it turned out, the long committal hearing did not eventuate. On the first day of the hearing, Emini indicated that he would not contest the committal and was therefore committed to stand trial on 21 March 2011.Opes Prime chief to stand trial on ASIC charges , Australian Securities & Investments Commission, 28 February 2011. Retrieved 14 March 2011. His counsel, Peter Fitzgerald also told the court, "My client's pleading not guilty, but as indicated ... there will be a plea to an appropriately worded indictment".Ben Buttler: Guilty plea flagged over Opes Prime collapse, The Age, 1 March 2011. Retrieved 14 March 2011. Blumberg also did not proceed to committal. He sought an adjournment which was granted. Outside court Blumberg's solicitor, Graeme Efron, said his client was "in discussions with the Crown" but "no inference can be drawn that my client will plead guilty".
The committal hearing for Smith proceeded after a delay of a week. In presenting its case, the prosecution made the following allegations: The largest single client of failed stock lender Opes Prime was given special treatment and allowed to continue trading despite a $116 million shortfall in his accounts. Emini tried to hide the $116 million shortfall in the accounts of Sydney lawyer-turned-investor Chris Murphy. He allegedly tried to cover up the shortfalls by manipulating stock to avoid margin calls being made on Murphy and other key clients. To this end, the amount of stock available to Opes Prime and Leveraged Capital, was allegedly double-counted at least 13 times. Smith had hidden the true nature of the "Murphy problem" from the ANZ bank. "He was aware Murphy could not repay and it's alleged he gave the ANZ bank the impression that Murphy could repay," Mark Gibson, the prosecuting counsel, said. "The opposite was the state of affairs and it's alleged he knew very well about that." Smith also allegedly hid from the bank the true financial position of Opes Prime and Leveraged Capital. He applied for and was given a $95 million loan from ANZ but it was allegedly insufficient to solve the $300 million problem caused by shortfalls in its key accounts.Melissa Laria: Opes client given special treatment: court, Sydney Morning Herald, 7 March 2011. Retrieved 14 March 2011.
Mr Gibson indicated that Smith had informed the ANZ Bank that Opes Prime accounts had been "manipulated", but alleged that he did not disclose the true nature of the "Murphy" problem. Gibson said that in addition to failing to tell ANZ that Murphy owed Opes Prime as much as $116 million, Smith also concealed problems, including a $102 million shortfall in accounts held by Riqueza Holdings, a company controlled by Emini, Smith and Blumberg.Ben Buttler: Hole in finances 'hidden from ANZ', Sydney Morning Herald, 8 March 2011. Retrieved 14 March 2011.
On the same day, the court also heard from the chief operating officer of Opes Prime who indicated that Smith gave an "aggressive" response when confronted with the Murphy issue at Opes Prime's Melbourne office in February 2008. Smith is further alleged to have said, "I am telling you the position is covered and there are no problems with it. Put a stop to this shit now and get on with your job."
The following day, 8 March 2011, Opes Prime's erstwhile Chief Financial Officer made further revelations. He indicated that, "It is now my belief that the arrangement entered into with the ANZ provided absolutely no benefit at all to Opes Prime and was to the total detriment of its clients, creditors and employees." He also recounted that he had been present when Smith had received the phone call from ANZ Bank. "Smith was so relieved at the news he broke down sobbing," he said.Ben Buttler: $95m deal 'no benefit', Sydney Morning Herald, 10 March 2011. Retrieved 14 March 2011.
On 9 March 2011, evidence presented indicated that $95 million worth of shares belonging to Norm Seckold were being used to "plug a hole" in Chris Murphy's accounts and Seckold had requested the return of his shares. A lawyer who had advised Opes Prime indicated that the shortfall in the Murphy accounts was some $196 million rather than the $116 million that had previously been mentioned. He also indicated that at that stage he believed removing Mr. Seckold's shares from Opes Prime could leave the company insolvent.Jason Murphy: Opes case: '$196 million hole', Australian Financial Review, 10 March 2011. Retrieved 14 March 2011. After ANZ Bank was informed of the problem it presented a plan to the Opes Prime directors which gave Opes Prime $95 million in order to release the shares of Seckold, in return for a charge over Opes Prime assets. The interesting background to this proposal was that Seckold was not in fact a client of Opes Prime. He was actually a client of Leveraged Capital and it was from that company that he had sought a return of his securities and not from Opes Prime.