from the australian re opes

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    Murphy punted with 5pc equity

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    Adele Ferguson | April 11, 2008

    FLAMBOYANT Sydney lawyer Chris Murphy has been thrust into the centre of the collapse of stockbroking firm Opes Prime with the revelation that unprecedented levels of credit were used to keep his failed $200 million share portfolio afloat.

    Share portfolio statements obtained by The Australian show that Opes kept alive Mr Murphy's broking account with margin lending of 95 per cent after massive falls in the value of the portfolio by July last year.

    The decision contaminated the rest of the broker, and may have contributed to its collapse into receivership last month amid claims of financial irregularities.

    Mr Murphy, an ardent trader, has boasted in the past on the HotCopper online day traders' chat site about his successful share market exploits.

    But The Australian revealed this month that Mr Murphy, reputed to have been a high-rolling gambling associate of the late Kerry Packer, was the highest-profile victim of the share market shake-out when his massive share market portfolio was wiped out with the collapse.

    The portfolio statements obtained by former underworld boss Mick Gatto and associate John Khoury, and provided to The Australian, reveal Mr Murphy, through two of his companies, Sarah Brown and Cardiac Jolt, was hit with margin calls after losing almost all the equity in his $200million share portfolio even as the share market was near a peak in July.

    The documents show that Mr Murphy was allowed to borrow 95per cent of the value of his share portfolio, which included blue-chip stocks, such as a $13million stake in Telstra and a $45million stake in the James Packer-backed Challenger Financial Group, as well as smaller companies such as Ebet, Heartware and Australian Pharmaceutical Industries.

    The preferential treatment was also extended to other clients, including Jay Moghe, the sole director and shareholder of the mysterious British Virgin Islands company Riqueza, through which Opes director Laurie Emini conducted many of his trades. Some clients were allowed to borrow 100 per cent of the value of their share portfolio, even if they used the money to invest in second-tier stocks such as Babcock & Brown's listed spin-offs.

    Such high loan-to-valuation ratios on margin loans are extremely rare; the usual level is about 65 per cent on blue-chip stocks and much less on mid-capitalised stocks. With just 5per cent equity, Mr Murphy was also exposed to falls in the portfolio, which would led to margin calls telling him to inject cash to top up the equity component of the loan.

    The documents reveal that he received two margin calls between July 1 and July 13 last year - one for $950,681 and another for more than $10 million.

    The Federal Court has heard that the Australian Securities and Investments Commission, which is investigating the Opes collapse, believes the stockbroker shifted shares between client accounts to shield them, and the company, from margin calls.

    ANZ and investment bank Merrill Lynch, which bankrolled Opes's margin lending business, had ultimate security over clients' shares. They have begun to liquidate the $1.3 billion portfolio to recover their money in a process expected to leave clients with just 30c in the dollar.

    But documents show he was receiving margin calls on a portfolio run out of Cardiac Jolt and on other shares held through Sarah Brown, a company he owned in a joint venture with Hawkswood Investment. Hawkswood is owned by three directors of Opes: Mr Emini, Julian Smith and Anthony Blumberg.

    Asked last night about the content of his portfolio statements, including borrowings of 95per cent of his share market stake, Mr Murphy declined to comment.

    It remains unclear why Opes made a decision to keep Mr Murphy and other similar client accounts alive, apparently by using money from other people's trading accounts to mask a massive deficit and avoid margin calls.

    Opes kept Mr Murphy's account running in July, even though this was before the broker had to appear healthy as part of its plan to list on the Australian Securities Exchange with a market value of $100million. It was during this time that ANZ and Merrill Lynch were increasing their level of security in the business.

    Mr Moghe, who met Mr Gatto in Singapore last night, was given similar preferential treatment to Mr Murphy with the margin loan on his $124 million share portfolio. Mr Moghe had significant holdings in small companies, including Kings Minerals.

    Portfolio statements released to The Australian reveal that Mr Moghe had available margins of $106million in one account, and a margin call of $23.7 million in another account. Like Mr Murphy, he denies any knowledge of his account being topped up by Opes to avoid margin calls.

    Mr Murphy made his name in the late 1980s and 90s as a criminal lawyer. While his firm still carries his name, he is now an active share trader. From the state of his trading accounts in July last year, he was having significant problems with margin calls.
    From "The Australian", a story about Murphy's dealings with Opes. There are some incomprehensible things in this story. Like how he was almost broke when the market was at its peak in July 2007 ??? Well that makes sense, NOT. Perhaps they don't know the front end of July from the back end of July.

    The above is my comment. Here's the story:

    Last month, he sold 15million Challenger shares through Cardiac Jolt at an average price of $1.70, well down on the company's $6.55 peak in October last year. At the time, Mr Murphy denied receiving a margin call.

    On March 5, speculation started to emerge that Opes was in trouble. Some people, including Tom Karas of State Securities, acted and moved their Opes accounts into a nominee company at Opes, called Green Frog.

    By March 17, Mr Emini had taken sick leave and the next day Mr Blumberg and Mr Smith met ANZ officers to ask for an emergency loan of $95 million.

    Ten days later the administrators were called in, followed by receivers appointed by ANZ.
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