Opes Prime
Encyclopedia
Opes Prime Group Limited was an Australia
n securities lending
and stockbroking
firm which suffered a dramatic collapse in 2008.
emigrant to Australia, had worked for the Australia and New Zealand Banking Group (ANZ) until he was retrenched
in 1997, and began share trading from his home in Templestowe
. Smith, a British
national, had emigrated to Australia in 1993, and ran the securities and investments division of stockbroker Ord Minnett. By 2008, the company had offices in Melbourne
, Sydney
and Singapore
and employed about 80 people.
The company's downfall was revealed on 28 March 2008 when the Australian Securities and Investment 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 ANZ Bank
immediately after the company had appointed Ferrier Hodgson
as administrators. Opes Prime's secured debt is believed to be over A$
1 billion, with its major secured creditors including the ANZ Banking Group (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. Mr Gatto however returned to Melbourne saying that the Singapore Directors and staff were hardly to blame but were rather "victims".
The pursuit of funds on behalf of clients was, however, pursued more fruitfully and with less fanfare by others. 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 settlement 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. 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.
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 too was placed into administration and receivership at the same time as the Opes Prime companies.
A fourth company, Riqueza Holdings, also features frequently in commentary on Opes Prime. Riqueza Holdings was a company registered in the British Virgin Islands. The company was owned by Jay Moghe who managed Opes Prime's Singapore office, but was apparently controlled by the three accused. (See below.)
On 28 May 2010 ASIC announced that a further 22 charges had been laid against Laurie Emini 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, Mr 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, Mr 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 Mr Emini used his position with Opes "dishonestly with the intention of directly gaining an advantage for yourself or someone else".
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.
The committal hearing for Smith proceeded after a delay of a week. In presenting its case, the prosecution made the following allegations:
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. Mr Gibson said that in addition to failing to tell ANZ that Mr 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.
On the same day, the court also heard from the erstwhile 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.
On 9 March 2011, evidence presented indicated that $95 million worth of shares belonging to Mr Norm Seckold were being used to "plug a hole" in Chris Murphy's accounts and Mr 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. 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 Mr Seckold, in return for a charge over Opes Prime assets. The interesting background to this proposal was that Mr Norm 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.
On 10 March, the court heard from senior ANZ Bank
executive Mr Ben Steinberg. He indicated that he had been informed about a $100m "hole", but despite regarding the matter as extremely serious, he felt it could be rectified because Mr Murphy was “able to obtain assistance from the Packers in receiving guarantees” as had been revealed in earlier evidence. He also indicated that on the day following the execution of the agreement, Blumberg had called him in some distress to indicate that the shortfall was actually closer to $200m than $100m. The court was also told that the agreement included a change to the securities lending agreement between ANZ Bank
and Opes Prime. This change applied to the "close out" provisions of the securities lending agreement that would apply in the event of a default. The standard provisions would have seen all shareholdings valued at market prices with the party with the higher value paying the other party the difference. This would have resulted in ANZ Bank
owing Opes Prime the margins between their holdings of shares and the value of loans drawn by Opes Prime and its clients. Mr Steinberg indicated that this payment would have been some $240m. ANZ Bank
would have then been left to dispose of the mostly small capitalisation securities on the market for what would likely have been a lower value. The provisions were instead changed to value the shares at the price which could be obtained for them on the market. The risk of loss on disposal was thereby transferred to Opes Prime and its clients.
This evidence reflects comments by Blumberg reported in The Australian
of 5 June 2008. In this article, Blumberg stated, "I understood that the bank wanted to replace the existing close-out arrangements, under which the securities pool held by the bank would be valued according to more judgmental fair value. I was well aware that this variation might cause significant detriment to the companies, in light of the make-up of the securities pool held by ANZ, and therefore we resisted that change during late February and early March.'
Blumberg also commented on the discussions with ANZ Bank
on Easter Friday to which Mr Steinberg referred. Blumberg said he believed money was to be lent to Leveraged Capital and that when he woke up on Good Friday he "had a moment of clarity". "I realised there was no way that $95 million from ANZ would fix the problems Opes was facing." Blumberg said he phoned Mr Steinberg around 10 am. He couldn't remember the exact words used, but believed that they had conversation to the following effect, "In no way are you going to drop $95 million into Opes on Tuesday morning. The problem is much bigger than $95 million. There are double stock counting issues and in addition to the $95 million call there is a $116 million hole. There is no way I am signing a guarantee when the $95 million won't fix a problem. The problem would be $200 million or more and the company may be insolvent.' To which Steinberg apparently said, "You can't back out, it's all signed. We have agreed to advance the money so we cannot stop the process." From the information emerging at the trial, it would appear that this assessment of the problem was accurate. Including the $95m "call" by Mr Norm Seckold for the return of his securities by Leveraged Capital, there would appear to have been a total deficiency of $196m.
The Australian
article also revealed that Blumberg eventually withdrew his objections and allegations of potential fraud in exchange for ANZ Bank
releasing him from a personal guarantee which they had required him to provide as part of the agreement.
On 11 March the court heard testimony from Opes Prime's erstwhile head of operations. She had carried out a number of transactions at Emini's behest to bolster the margin positions of a number of accounts including Riqueza, those of Chris Murphy and also others. She indicated that the first such transaction occurred on 27 June 2006 when Emini had used $17.4 million worth of Norm Seckold's shares (from Emini's and Smith's company Leveraged Capital) to support the margin position of Riqueza. By early March 2008 this approach saw $95 million of Norm Seckold's holding of Coeur d'Alene Mines being held as collateral by Opes Prime for borrowings by Riqueza and accounts associated with Riqueza. This would suggest that Emini had transferred shares owned by Leveraged Capital to Riqueza to be lodged with Opes Prime as collateral for Riqueza's borrowings. Opes Prime had in turn lodged these shares with ANZ Bank
to support its borrowing position. The problem with this transaction was that although the shares were owned by Leveraged Capital, they were in reality collateral for Norm Seckold's borrowings rather than free assets of Leveraged Capital.
At the conclusion of proceedings Smith was committed to stand trial in the supreme court on 21 March 2011.
Blumberg had also returned to court on 11 March. He pleaded not guilty and indicated that he was willing to proceed directly to trial. He was duly also committed to stand trial in the supreme court on 21 March 2011.
Summary
The questioning of the various witnesses regarding their statements indicates the following:
At the hearing, Emini's counsel indicated that the case against his client had been "resolved" and that an agreed statement of facts was being prepared for a plea hearing. Emini's case was adjourned until 9 May 2011 at which time the indication is that he will plead guilty to amended charges, provide a statement and be sent for sentencing.
Blumberg's counsel and the prosecutor both indicated that fruitful discussions had taken place between them and that there was every likelihood that they too would reach agreement in relation to a plea prior to 9 May 2011. Blumberg's case was also adjourned until 9 May 2011. The indication is that Blumberg too will plead guilty at that date and be sent for sentencing.
Smith's counsel indicated that his client would be going to trial and that a period of 4 to 6 weeks would be required to hear the matter. The prosecuting counsel had indicated that 6 to 8 weeks would be required to hear the evidence which extends to 34 lever-arch files. Smith's counsel felt that less time would be needed because the defence argument would be narrow and would focus on Smith's alleged lack of knowledge of the true financial state of Riqueza. Smith's counsel also indicated that he would negotiate with prosecutors in due course. Justic Coghlan stressed the importance of acting quickly. "In due course means now," Justice Coghlan said. "I don't know what it is Mr Fitzgerald's client [Emini] might say in his statement, but that might be something your client wants to see."
A date of 18 July 2011 was set for Smith's trial with a review on 9 May 2011 to confirm that this date is still practicable within the court's lists.
statements against Mr Smith". The statements would be ready within a month. Blumberg and Emini were ordered to appear on 18 July 2011 at which time they are expected to plead guilty and be sentenced.
Smith's trial was set to commence on 25 July 2011.
Emini pleaded guilty to:
Blumberg pleaded guilty to:
In an agreed statement of facts presented to the hearing, the prosecuting counsel, Dr Gregory Lyon SC, indicated that control was taken of Riqueza in 2006 in order to provide "financial engineering" via the Opes Prime balance sheet in breach of ASX Rules to enable Leveraged Capital to continue to operate despite a reduction in its borrowing limit by ANZ Bank
.
Shares deposited with Leveraged Capital in exchange for loans were also used via this route to cover the margin position for Opes Prime's largest client, Chris Murphy who had a business relationship with Leveraged Capital. This was carried out in accordance with an agreement struck with Mr Murphy that there would be no margin requirements. "You don’t have to worry as we will always cover you if you go into margin anyway,” Emini had said in an email to Mr Murphy.
Dr Lyon called for a sentence at the bottom of the range for Emini, praising the "remarkable" co-operation he had given authorities since the collapse. He went further and stated, "It is submitted by the Commonwealth that he is entitled to the maximum discount". He then called for Emini to serve between 12 and 17 months' jail before being eligible for parole. He also indicated that Blumberg should serve between 6 and 12 month's jail, but stated that the Crown would not oppose a defence submission that he be jailed for less than 6 months.
The case against Julian Smith was adjourned for trial in the Supreme Court of Victoria on 11 April 2012.
In passing sentence Justice Beach made a number of comments in relation to the charges and the actions of the two accused. He indicated that, "Whilst the collapse of Opes Prime is part of the background of the circumstances to your offending it must be remembered that each of you falls to be sentenced for the offending to which you have pleaded guilty rather than for some broad and uncharged allegation that you each engaged in fraudulent conduct which caused Opes Prime to collapse." He indicated that the settlement with ANZ and Merrill Lynch made it 'difficult to quantify any loss to [Opes Prime's] creditors as a result of the criminal conduct of each of you." He further stated that, "Sentences which require each of you to spend actual time in custody are necessary, having regard to the seriousness of the offending of each of you, and the necessity to deter others from like offending."
In relation to the specific charges against Emini that he improperly transferred assets between companies he controlled, Justice Beach found the transfers were dishonest. "In a nutshell the transfers were seen by you as a short term solution enabling the business to continue trading whilst long term resolutions could be found for these problems. That said, making these transfers was dishonest in circumstances where you were personally conflicted as you were a director and beneficial interest holder in OPSL [Opes Prime Stockbroking Limited] and you were also a director of another company which benefited from these transfers."
In respect of Blumberg who was charged in respect of the agreement entered into with ANZ Bank for the provision of a $95 million loan, the court found that Blumberg knew there was a good chance that Opes Prime was insolvent and wouldn't be able to repay the money. Justice Beach commented, "Ultimately I accept that you knowingly engaged in this improper and dishonest transaction for the purpose of attempting to keep OPSL, a company in which you had a substantial interest, in business."
In mitigation, Justice Beach noted in respect of Emini that, "Your disclosures not only assisted the Crown's case against you but also against Mr Blumberg and another accused who is yet to stand trial." He found that Emini's co-operation with the Australian Securities and Investments Commission, including providing a 64- page statement and a 125-page folder of important emails, had been "at the highest level". He also indicated that Blumberg's co-operation had helped Opes Prime's liquidators recover $226 million from the broker's financiers, ANZ and Merrill Lynch, which was distributed to victims. He further indicated that both men suffered from depression, had unblemished records prior to the offending for which they were charged and were unlikely to offend again.
He concluded with, "Having said all that the only sentence that is appropriate in the circumstances of these offences is imprisonment. The offences were as I have said serious."
Justice Beach sentenced Emini to two years in jail and Blumberg to one year. If they are of good behaviour, Emini will be released after one year on a one year good behaviour bond and Blumberg will be released after six months on a six month good behaviour bond. Blumberg's sentence was backdated to 18 July 2011 when he was placed on remand after declining to apply for bail.
Following the sentencing of Emini and Blumberg, directions were given for them, Opes Prime client Chris Murphy and Leveraged Capital client Norm Seckold to appear in the supreme court on 15 August 2011 to give preliminary evidence in the case against Julian Smith which is set down for hearing on 11 April 2012.
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
n securities lending
Securities lending
In finance, securities lending or stock lending refers to the lending of securities by one party to another. The terms of the loan will be governed by a "Securities Lending Agreement", which requires that the borrower provides the lender with collateral, in the form of cash, government securities,...
and stockbroking
Stock broker
A stock broker or stockbroker is a regulated professional broker who buys and sells shares and other securities through market makers or Agency Only Firms on behalf of investors...
firm which suffered a dramatic collapse in 2008.
Overview
The company was founded in 2003 by Laurie Emini and Julian Smith. Emini, an AlbanianAlbanians
Albanians are a nation and ethnic group native to Albania and neighbouring countries. They speak the Albanian language. More than half of all Albanians live in Albania and Kosovo...
emigrant to Australia, had worked for the Australia and New Zealand Banking Group (ANZ) until he was retrenched
Retrenchment
Retrenchment is an act of cutting down or reduction, particularly of public expenditure.-Political usage:The word is familiar in this, its most general sense, from the motto of the Gladstonian Liberal party in British politics, "Peace, Retrenchment and Reform."The manifesto for 1906 Liberal...
in 1997, and began share trading from his home in Templestowe
Templestowe, Victoria
"Templestowe" redirects here. For the Victorian Legislative Council Province, please see Templestowe Province.Templestowe is a suburb in Melbourne, Victoria, Australia, 17 km north-east from Melbourne's central business district. Its Local Government Area is the City of Manningham...
. Smith, a British
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
national, had emigrated to Australia in 1993, and ran the securities and investments division of stockbroker Ord Minnett. By 2008, the company had offices in Melbourne
Melbourne
Melbourne is the capital and most populous city in the state of Victoria, and the second most populous city in Australia. The Melbourne City Centre is the hub of the greater metropolitan area and the Census statistical division—of which "Melbourne" is the common name. As of June 2009, the greater...
, Sydney
Sydney
Sydney is the most populous city in Australia and the state capital of New South Wales. Sydney is located on Australia's south-east coast of the Tasman Sea. As of June 2010, the greater metropolitan area had an approximate population of 4.6 million people...
and Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
and employed about 80 people.
The company's downfall was revealed on 28 March 2008 when the Australian Securities and Investment Commission (ASIC) announced it was launching an investigation into Opes Prime Stockbroking, and that the company had gone into receivership
Receivership
In law, receivership is the situation in which an institution or enterprise is being held by a receiver, a person "placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights." The receivership remedy is an equitable remedy that emerged in...
the previous day, with Deloitte Touche Tohmatsu
Deloitte Touche Tohmatsu
Deloitte Touche Tohmatsu Limited , commonly referred to as Deloitte, is one of the Big Four accountancy firms along with PricewaterhouseCoopers , Ernst & Young, and KPMG....
appointed as receivers
Receivership
In law, receivership is the situation in which an institution or enterprise is being held by a receiver, a person "placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights." The receivership remedy is an equitable remedy that emerged in...
by ANZ Bank
ANZ Bank
The Australia and New Zealand Banking Group Limited , commonly called ANZ, is the fourth largest bank in Australia, after the Commonwealth Bank, Westpac Banking Corporation and the National Australia Bank. Australian operations make up the largest part of ANZ's business, with commercial and retail...
immediately after the company had appointed Ferrier Hodgson
Ferrier Hodgson
Ferrier Hodgson is a group of Accounting firms specialising in Insolvency in the Australian and Asia Pacific region, with offices in all major capital cities in Australia, Singapore, Malaysia, Indonesia, and Japan...
as administrators. Opes Prime's secured debt is believed to be over A$
Australian dollar
The Australian dollar is the currency of the Commonwealth of Australia, including Christmas Island, Cocos Islands, and Norfolk Island, as well as the independent Pacific Island states of Kiribati, Nauru and Tuvalu...
1 billion, with its major secured creditors including the ANZ Banking Group (owed around $650 million), and Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
.
Melbourne underworld figure Mick Gatto
Domenic Gatto
Domenic "Mick" Gatto is an Italian-Australian criminal and is known for his involvement in the Melbourne underworld.Gatto is a 'professional mediator' within the building industry in Melbourne...
made headlines when he travelled to Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
on behalf of an anonymous group of investors in an attempt to retrieve their money. Mr Gatto however returned to Melbourne saying that the Singapore Directors and staff were hardly to blame but were rather "victims".
The pursuit of funds on behalf of clients was, however, pursued more fruitfully and with less fanfare by others. On 15 October 2008, the Opes Prime creditors voted to place the companies of the group into liquidation with the administrator Ferrier Hodgson
Ferrier Hodgson
Ferrier Hodgson is a group of Accounting firms specialising in Insolvency in the Australian and Asia Pacific region, with offices in all major capital cities in Australia, Singapore, Malaysia, Indonesia, and Japan...
being appointed as liquidator. Ferrier Hodgson
Ferrier Hodgson
Ferrier Hodgson is a group of Accounting firms specialising in Insolvency in the Australian and Asia Pacific region, with offices in all major capital cities in Australia, Singapore, Malaysia, Indonesia, and Japan...
then tenaciously pursued ANZ Bank and Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
for restitution in relation to their dealings with the companies immediately prior to and in receivership. This effort was supported by ASIC
Australian Securities and Investments Commission
The Australian Securities & Investments Commission is an independent Australian government body that acts as Australia's corporate regulator...
. The actions of ASIC
Australian Securities and Investments Commission
The Australian Securities & Investments Commission is an independent Australian government body that acts as Australia's corporate regulator...
and Ferrier Hodgson
Ferrier Hodgson
Ferrier Hodgson is a group of Accounting firms specialising in Insolvency in the Australian and Asia Pacific region, with offices in all major capital cities in Australia, Singapore, Malaysia, Indonesia, and Japan...
resulted in a settlement which included the payment of compensation and enforceable undertakings by ANZ Bank.
These settlements allowed the liquidators to propose a Scheme of Arrangement
Scheme of arrangement
A scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors...
which was approved by the court on 4 August 2009. The Scheme of Arrangement
Scheme of arrangement
A scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors...
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.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 too was placed into administration and receivership at the same time as the Opes Prime companies.
A fourth company, Riqueza Holdings, also features frequently in commentary on Opes Prime. Riqueza Holdings was a company registered in the British Virgin Islands. The company was owned by Jay Moghe who managed Opes Prime's Singapore office, but was apparently controlled by the three accused. (See below.)
On 28 May 2010 ASIC announced that a further 22 charges had been laid against Laurie Emini 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, Mr 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, Mr 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 Mr Emini used his position with Opes "dishonestly with the intention of directly gaining an advantage for yourself or someone else".
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.
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. 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". Blumberg also did not proceed to committal. He sought an adjournment which was granted. Outside court Mr 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 Mr 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," Mr 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.
Mr Gibson indicated that Smith had informed the ANZ Bank
ANZ Bank
The Australia and New Zealand Banking Group Limited , commonly called ANZ, is the fourth largest bank in Australia, after the Commonwealth Bank, Westpac Banking Corporation and the National Australia Bank. Australian operations make up the largest part of ANZ's business, with commercial and retail...
that Opes Prime accounts had been "manipulated", but alleged that he did not disclose the true nature of the "Murphy" problem. Mr Gibson said that in addition to failing to tell ANZ that Mr 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.
On the same day, the court also heard from the erstwhile 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
ANZ Bank
The Australia and New Zealand Banking Group Limited , commonly called ANZ, is the fourth largest bank in Australia, after the Commonwealth Bank, Westpac Banking Corporation and the National Australia Bank. Australian operations make up the largest part of ANZ's business, with commercial and retail...
. "Smith was so relieved at the news he broke down sobbing," he said.
On 9 March 2011, evidence presented indicated that $95 million worth of shares belonging to Mr Norm Seckold were being used to "plug a hole" in Chris Murphy's accounts and Mr 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. After ANZ Bank
ANZ Bank
The Australia and New Zealand Banking Group Limited , commonly called ANZ, is the fourth largest bank in Australia, after the Commonwealth Bank, Westpac Banking Corporation and the National Australia Bank. Australian operations make up the largest part of ANZ's business, with commercial and retail...
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 Mr Seckold, in return for a charge over Opes Prime assets. The interesting background to this proposal was that Mr Norm 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.
On 10 March, the court heard from senior ANZ Bank
ANZ Bank
The Australia and New Zealand Banking Group Limited , commonly called ANZ, is the fourth largest bank in Australia, after the Commonwealth Bank, Westpac Banking Corporation and the National Australia Bank. Australian operations make up the largest part of ANZ's business, with commercial and retail...
executive Mr Ben Steinberg. He indicated that he had been informed about a $100m "hole", but despite regarding the matter as extremely serious, he felt it could be rectified because Mr Murphy was “able to obtain assistance from the Packers in receiving guarantees” as had been revealed in earlier evidence. He also indicated that on the day following the execution of the agreement, Blumberg had called him in some distress to indicate that the shortfall was actually closer to $200m than $100m. The court was also told that the agreement included a change to the securities lending agreement between ANZ Bank
ANZ Bank
The Australia and New Zealand Banking Group Limited , commonly called ANZ, is the fourth largest bank in Australia, after the Commonwealth Bank, Westpac Banking Corporation and the National Australia Bank. Australian operations make up the largest part of ANZ's business, with commercial and retail...
and Opes Prime. This change applied to the "close out" provisions of the securities lending agreement that would apply in the event of a default. The standard provisions would have seen all shareholdings valued at market prices with the party with the higher value paying the other party the difference. This would have resulted in ANZ Bank
ANZ Bank
The Australia and New Zealand Banking Group Limited , commonly called ANZ, is the fourth largest bank in Australia, after the Commonwealth Bank, Westpac Banking Corporation and the National Australia Bank. Australian operations make up the largest part of ANZ's business, with commercial and retail...
owing Opes Prime the margins between their holdings of shares and the value of loans drawn by Opes Prime and its clients. Mr Steinberg indicated that this payment would have been some $240m. ANZ Bank
ANZ Bank
The Australia and New Zealand Banking Group Limited , commonly called ANZ, is the fourth largest bank in Australia, after the Commonwealth Bank, Westpac Banking Corporation and the National Australia Bank. Australian operations make up the largest part of ANZ's business, with commercial and retail...
would have then been left to dispose of the mostly small capitalisation securities on the market for what would likely have been a lower value. The provisions were instead changed to value the shares at the price which could be obtained for them on the market. The risk of loss on disposal was thereby transferred to Opes Prime and its clients.
This evidence reflects comments by Blumberg reported in The Australian
The Australian
The Australian is a broadsheet newspaper published in Australia from Monday to Saturday each week since 14 July 1964. The editor in chief is Chris Mitchell, the editor is Clive Mathieson and the 'editor-at-large' is Paul Kelly....
of 5 June 2008. In this article, Blumberg stated, "I understood that the bank wanted to replace the existing close-out arrangements, under which the securities pool held by the bank would be valued according to more judgmental fair value. I was well aware that this variation might cause significant detriment to the companies, in light of the make-up of the securities pool held by ANZ, and therefore we resisted that change during late February and early March.'
Blumberg also commented on the discussions with ANZ Bank
ANZ Bank
The Australia and New Zealand Banking Group Limited , commonly called ANZ, is the fourth largest bank in Australia, after the Commonwealth Bank, Westpac Banking Corporation and the National Australia Bank. Australian operations make up the largest part of ANZ's business, with commercial and retail...
on Easter Friday to which Mr Steinberg referred. Blumberg said he believed money was to be lent to Leveraged Capital and that when he woke up on Good Friday he "had a moment of clarity". "I realised there was no way that $95 million from ANZ would fix the problems Opes was facing." Blumberg said he phoned Mr Steinberg around 10 am. He couldn't remember the exact words used, but believed that they had conversation to the following effect, "In no way are you going to drop $95 million into Opes on Tuesday morning. The problem is much bigger than $95 million. There are double stock counting issues and in addition to the $95 million call there is a $116 million hole. There is no way I am signing a guarantee when the $95 million won't fix a problem. The problem would be $200 million or more and the company may be insolvent.' To which Steinberg apparently said, "You can't back out, it's all signed. We have agreed to advance the money so we cannot stop the process." From the information emerging at the trial, it would appear that this assessment of the problem was accurate. Including the $95m "call" by Mr Norm Seckold for the return of his securities by Leveraged Capital, there would appear to have been a total deficiency of $196m.
The Australian
The Australian
The Australian is a broadsheet newspaper published in Australia from Monday to Saturday each week since 14 July 1964. The editor in chief is Chris Mitchell, the editor is Clive Mathieson and the 'editor-at-large' is Paul Kelly....
article also revealed that Blumberg eventually withdrew his objections and allegations of potential fraud in exchange for ANZ Bank
ANZ Bank
The Australia and New Zealand Banking Group Limited , commonly called ANZ, is the fourth largest bank in Australia, after the Commonwealth Bank, Westpac Banking Corporation and the National Australia Bank. Australian operations make up the largest part of ANZ's business, with commercial and retail...
releasing him from a personal guarantee which they had required him to provide as part of the agreement.
On 11 March the court heard testimony from Opes Prime's erstwhile head of operations. She had carried out a number of transactions at Emini's behest to bolster the margin positions of a number of accounts including Riqueza, those of Chris Murphy and also others. She indicated that the first such transaction occurred on 27 June 2006 when Emini had used $17.4 million worth of Norm Seckold's shares (from Emini's and Smith's company Leveraged Capital) to support the margin position of Riqueza. By early March 2008 this approach saw $95 million of Norm Seckold's holding of Coeur d'Alene Mines being held as collateral by Opes Prime for borrowings by Riqueza and accounts associated with Riqueza. This would suggest that Emini had transferred shares owned by Leveraged Capital to Riqueza to be lodged with Opes Prime as collateral for Riqueza's borrowings. Opes Prime had in turn lodged these shares with ANZ Bank
ANZ Bank
The Australia and New Zealand Banking Group Limited , commonly called ANZ, is the fourth largest bank in Australia, after the Commonwealth Bank, Westpac Banking Corporation and the National Australia Bank. Australian operations make up the largest part of ANZ's business, with commercial and retail...
to support its borrowing position. The problem with this transaction was that although the shares were owned by Leveraged Capital, they were in reality collateral for Norm Seckold's borrowings rather than free assets of Leveraged Capital.
At the conclusion of proceedings Smith was committed to stand trial in the supreme court on 21 March 2011.
Blumberg had also returned to court on 11 March. He pleaded not guilty and indicated that he was willing to proceed directly to trial. He was duly also committed to stand trial in the supreme court on 21 March 2011.
Summary
The questioning of the various witnesses regarding their statements indicates the following:
- Whilst directors of Opes Prime, Smith and Emini owned and operated Leveraged Capital and Smith, Emini and Blumberg owned and operated Hawkswood.
- Smith, Emini and Blumberg controlled the Singapore domiciled and British Virgin Island registered company Riqueza despite the company not being owned by them.
- Riqueza had an account with Opes Prime for the purposes of securities lending and equity financing.
- Riqueza provided a conduit for moving shares and money between Opes Prime and the two companies Leveraged Capital and Hawkswood.
- Leveraged Capital assets were used to provide collateral to the Riqueza account. (The specific assets mentioned in evidence were the Coeur d'Alene Mines shares which Norm Seckold had lodged with Leveraged Capital as security for his borrowings from Leveraged Capital.) The first time this occurred was in June 2006.
- The use of assets in this way occurred on a number of other occasions between June 2006 and March 2008. Leveraged Capital and Hawkswood assets were also used, via Riqueza, to provide collateral to the accounts of Chris Murphy an Opes Prime client with whom Emini and Smith had a business relationship.
- When Norm Seckold sought the return of his shares from Leveraged Capital, they had been passed to Riqueza for it to use as collateral for itself and other Opes Prime accounts in a cross margin group.
- The shares were in turn being used by Opes Prime to provide collateral for its financing position with ANZ Bank. Riqueza was unable to provide replacement collateral to Opes Prime so Opes Prime was unable to redeem the shares from ANZ Bank. As a result, Riqueza could not return the shares to Leveraged Capital and it could not return them to Norm Seckold.
- ASIC alleges that Smith, Emini and Blumberg sought to resolve this impasse by means of an agreement with ANZ Bank.
- At this time the ANZ Bank was in the position that if there had been a default by Opes Prime, it (ANZ Bank) would have had to settle its account with Opes Prime at then current market prices and this would have resulted in a surplus in favour of Opes Prime of some $240 million.
- The agreement reached required Opes Prime to grant ANZ Bank a charge over its assets and an amendment to their mutual securities lending agreement which would remove ANZ Bank's obligation to repay the $240 million in surplus value to Opes Prime and its clients.
- In return for these benefits, ANZ Bank released Norm Seckold's shares so that they could be returned to Leveraged Capital and then to him.
- The value of the agreement was $95 million whereas the potential shortfall in Opes Prime's accounts was as high as $200 million.
21 March 2011
A directions hearing took place before Justice Paul Coghlan in Court 11 of The Supreme Court of Victoria in the matters of R v Lirim Emini, R v Anthony Charles Blumberg and R v Julian Alexander Smith.At the hearing, Emini's counsel indicated that the case against his client had been "resolved" and that an agreed statement of facts was being prepared for a plea hearing. Emini's case was adjourned until 9 May 2011 at which time the indication is that he will plead guilty to amended charges, provide a statement and be sent for sentencing.
Blumberg's counsel and the prosecutor both indicated that fruitful discussions had taken place between them and that there was every likelihood that they too would reach agreement in relation to a plea prior to 9 May 2011. Blumberg's case was also adjourned until 9 May 2011. The indication is that Blumberg too will plead guilty at that date and be sent for sentencing.
Smith's counsel indicated that his client would be going to trial and that a period of 4 to 6 weeks would be required to hear the matter. The prosecuting counsel had indicated that 6 to 8 weeks would be required to hear the evidence which extends to 34 lever-arch files. Smith's counsel felt that less time would be needed because the defence argument would be narrow and would focus on Smith's alleged lack of knowledge of the true financial state of Riqueza. Smith's counsel also indicated that he would negotiate with prosecutors in due course. Justic Coghlan stressed the importance of acting quickly. "In due course means now," Justice Coghlan said. "I don't know what it is Mr Fitzgerald's client [Emini] might say in his statement, but that might be something your client wants to see."
A date of 18 July 2011 was set for Smith's trial with a review on 9 May 2011 to confirm that this date is still practicable within the court's lists.
9 May 2011
A further directions hearing took place before Justice Coghlan. The prosecutor, Mark Gibson, indicated that the case against Blumberg had also been "resolved" and that, "It is the intention of Mr Emini and Mr Blumberg, as I understand it, to make inculpatoryInculpatory evidence
Inculpatory evidence is a legal term used to describe evidence that shows, or tends to show, a person's involvement in an act, or evidence that can establish guilt. In criminal law, the prosecution has a duty to provide all evidence to the defense, whether it favours the prosecution's case, or the...
statements against Mr Smith". The statements would be ready within a month. Blumberg and Emini were ordered to appear on 18 July 2011 at which time they are expected to plead guilty and be sentenced.
Smith's trial was set to commence on 25 July 2011.
18 July 2011
Laurie Emini and Anthony Blumberg appeared before Justice David Beach in Court 1 of the Supreme Court of Victoria. As expected from representations to the directions hearings, they pleaded guilty to amended charges.Emini pleaded guilty to:
- Two charges of dishonestly using his position as a director of Leveraged Capital Pty Ltd with the intention of gaining an advantage for Riqueza Holdings Limited or himself contrary to s.184(2)(a) Corporations Act 2001;
- One charge of recklessly failing to exercise his powers and discharge his duties as a director of Opes Prime Stockbroking Limited (OPSL) contrary to s.184(1)(a) Corporations Act 2001.
Blumberg pleaded guilty to:
- One charge of using his position dishonestly with the intention of gaining an advantage for himself or someone else contrary to s.184(2)(a) Corporations Act 2001.
In an agreed statement of facts presented to the hearing, the prosecuting counsel, Dr Gregory Lyon SC, indicated that control was taken of Riqueza in 2006 in order to provide "financial engineering" via the Opes Prime balance sheet in breach of ASX Rules to enable Leveraged Capital to continue to operate despite a reduction in its borrowing limit by ANZ Bank
ANZ Bank
The Australia and New Zealand Banking Group Limited , commonly called ANZ, is the fourth largest bank in Australia, after the Commonwealth Bank, Westpac Banking Corporation and the National Australia Bank. Australian operations make up the largest part of ANZ's business, with commercial and retail...
.
Shares deposited with Leveraged Capital in exchange for loans were also used via this route to cover the margin position for Opes Prime's largest client, Chris Murphy who had a business relationship with Leveraged Capital. This was carried out in accordance with an agreement struck with Mr Murphy that there would be no margin requirements. "You don’t have to worry as we will always cover you if you go into margin anyway,” Emini had said in an email to Mr Murphy.
Dr Lyon called for a sentence at the bottom of the range for Emini, praising the "remarkable" co-operation he had given authorities since the collapse. He went further and stated, "It is submitted by the Commonwealth that he is entitled to the maximum discount". He then called for Emini to serve between 12 and 17 months' jail before being eligible for parole. He also indicated that Blumberg should serve between 6 and 12 month's jail, but stated that the Crown would not oppose a defence submission that he be jailed for less than 6 months.
The case against Julian Smith was adjourned for trial in the Supreme Court of Victoria on 11 April 2012.
27 July 2011
Laurie Emini and Anthony Blumberg appeared before Justice David Beach for sentencing on the charges to which they had pleaded guilty on 18 July 2011.In passing sentence Justice Beach made a number of comments in relation to the charges and the actions of the two accused. He indicated that, "Whilst the collapse of Opes Prime is part of the background of the circumstances to your offending it must be remembered that each of you falls to be sentenced for the offending to which you have pleaded guilty rather than for some broad and uncharged allegation that you each engaged in fraudulent conduct which caused Opes Prime to collapse." He indicated that the settlement with ANZ and Merrill Lynch made it 'difficult to quantify any loss to [Opes Prime's] creditors as a result of the criminal conduct of each of you." He further stated that, "Sentences which require each of you to spend actual time in custody are necessary, having regard to the seriousness of the offending of each of you, and the necessity to deter others from like offending."
In relation to the specific charges against Emini that he improperly transferred assets between companies he controlled, Justice Beach found the transfers were dishonest. "In a nutshell the transfers were seen by you as a short term solution enabling the business to continue trading whilst long term resolutions could be found for these problems. That said, making these transfers was dishonest in circumstances where you were personally conflicted as you were a director and beneficial interest holder in OPSL [Opes Prime Stockbroking Limited] and you were also a director of another company which benefited from these transfers."
In respect of Blumberg who was charged in respect of the agreement entered into with ANZ Bank for the provision of a $95 million loan, the court found that Blumberg knew there was a good chance that Opes Prime was insolvent and wouldn't be able to repay the money. Justice Beach commented, "Ultimately I accept that you knowingly engaged in this improper and dishonest transaction for the purpose of attempting to keep OPSL, a company in which you had a substantial interest, in business."
In mitigation, Justice Beach noted in respect of Emini that, "Your disclosures not only assisted the Crown's case against you but also against Mr Blumberg and another accused who is yet to stand trial." He found that Emini's co-operation with the Australian Securities and Investments Commission, including providing a 64- page statement and a 125-page folder of important emails, had been "at the highest level". He also indicated that Blumberg's co-operation had helped Opes Prime's liquidators recover $226 million from the broker's financiers, ANZ and Merrill Lynch, which was distributed to victims. He further indicated that both men suffered from depression, had unblemished records prior to the offending for which they were charged and were unlikely to offend again.
He concluded with, "Having said all that the only sentence that is appropriate in the circumstances of these offences is imprisonment. The offences were as I have said serious."
Justice Beach sentenced Emini to two years in jail and Blumberg to one year. If they are of good behaviour, Emini will be released after one year on a one year good behaviour bond and Blumberg will be released after six months on a six month good behaviour bond. Blumberg's sentence was backdated to 18 July 2011 when he was placed on remand after declining to apply for bail.
Following the sentencing of Emini and Blumberg, directions were given for them, Opes Prime client Chris Murphy and Leveraged Capital client Norm Seckold to appear in the supreme court on 15 August 2011 to give preliminary evidence in the case against Julian Smith which is set down for hearing on 11 April 2012.