gattos way or the highway

  1. 20 Posts.
    It's Gatto's way or the highway
    Email Print Normal font Large font AdvertisementElizabeth Knight
    April 9, 2008
    Page 1 of 2
    I'm guessing that the blokes who allegedly cooked the books at the failed stockbroking firm Opes Prime would be uncomfortable with investigations by the Australian Securities and Investments Commission, a bit concerned about various legal actions by clients, and very attentive to the actions of administrators.

    But having underworld identity Mick Gatto chasing them would make them bloody scared.

    He provides a new twist to corporate recovery - and probably one that those responsible for the "irregularities" in Opes would not have contemplated.

    As history has shown over many years, taking money from unsuspecting retail investors has been easy. They haven't the resources to fight back and can rely only on regulators. In most cases they end up losing large parts of their investments.

    But vigilante Gatto told newspapers: "These Opes Prime clients can take their chances and lose all their money to lawyers and to the receivers, or they can take their chances with me to extract a return on their behalf … the proof is in the pudding with me … I solve problems … it's my way or the highway."

    And let's not beat around the bush. It's pretty clear that Gatto's clients operate in the same circles as Gatto himself. From the day this previously unknown broking firm got into trouble, the chat swirling around is that, amongst other investors, its client base may have also contained underworld and criminal elements.

    While Gatto headed off yesterday to the British Virgin Islands, via Singapore, to chase the money trail, the more conventional corporate recovery specialists from Ferrier Hodgson were holding a meeting with creditors (mostly clients) telling them that the base-case recovery would be 30c in the dollar.

    It is not clear whether ANZ will get all the $95 million-plus it pumped into the company in March to stave off collapse. The chances of it getting back the $919 million it lent Opes against a portfolio of shares is much better.

    It's the clients - some of which have hired Gatto - that could be left out in the cold. The waters are very muddied because the nature of these client/broker relationships is complicated.

    A client would borrow from Opes to buy stock. The stock ownership would pass to Opes, which would in turn borrow from the bank (in this case ANZ and Merrill Lynch), which would then get ownership of shares.

    But the portfolio of stocks was bundled. Some clients still had plenty of buffer left between the value of the stock and the amount they borrowed. Others, like the well-known Sydney lawyer Chris Murphy, were underwater and should have been called to top up their loans.

    Allegations have been made in Federal Court that in order to save some select clients from receiving a margin call, operatives within Opes simply used the surplus from the loans of some clients to offset the deficit in other clients' loans.

    This was made possible by the fact that the loan book and the shares that were used as security were pooled. Murphy has said that he does not know what has happened to his shares.

    It is not clear how Gatto or anyone else would be able to extract the funds even if he can locate them.

    From the documents supplied by the administrator yesterday it appears that there are two big problem areas. There are "problem accounts" that owe the broker $128 million, and a company called Riqueza BVI (based in the British Virgin Islands) that is a net debtor to the tune of $101 million.

    Riqueza, in turn, is owed $185 million by two companies, Leveraged Capital and Hawkswood Investments, and these companies are owned by the same three principals of Opes. Two of these principals, Julian Smith and Laurie Emini, have had their passports removed by order of the courts.

    Meanwhile, the unfolding Opes drama stole the limelight from the troubled Sydney stockbroker Tricom, which yesterday found a bunch of investors to mount a financial rescue.

    Front and centre was the investment bank Babcock & Brown, which was a creditor to the tune of $35 million. It will put up an additional $5 million while ANZ, Tricom's other major creditor, will stump up between $7.5 million and $10 million.

    The management has put $5 million in the hat and clients have put in $10 million - which the firm hopes is enough to lubricate the stock loan book sufficiently to finish the job of running it off.

    If it all goes according to plan, the firm will become a vanilla-flavoured broker. ANZ and Babcock & Brown have an option to convert their loans to shares in the broker.

    It isn't the perfect ending to this saga. For now at least it seems that Tricom will live to fight another day. It hasn't got the Opes "irregularity" issues but its reputation is a mess. No doubt its loyal client base will continue to deal with Tricom, but there will be many in the institutional market that won't.
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