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    Opes Client A's missing millions


    Michael West: Lift goes under

    April 11, 2008 - 7:29PM
    Page 1 of 2
    There's an old City saying that the stockmarket goes up by the stairs and down by the lift. The metaphor turned reality on Friday as the implosion of margin lender Lift Capital smacked an even larger client base than has Opes Prime.

    The attention of clients and their lawyers will soon turn to referrals, that is, the liability of financial planners and brokers who advised their clients to borrow from Lift, and sign over their shares in the process.

    Before we get to the latest on Lift though, there are some rather stunning developments breaking in the Opes saga.

    It appears that mining entrepreneur Norm Seccold set in train the demise of the prime broker on March 10 when he called for his $100 million of stock back - and Opes couldn't deliver.

    Where is it? Seccold hasn't got a clue. The director of Bolnisi Gold, King's Minerals, Cockatoo and Planet Gas had become nervous in early March as Tricom was toppling and tried to get out of Opes.

    He still has $15 million of stock missing. It seems Seccold is the mysterious "Client A'' mentioned in Melbourne Federal Court documents whose assets were transfered to the British Virgin Islands company.

    As the Federal Court was told, it may boil down that Opes principal Laurie Emini was using Seccold's stock to prop up others Opes accounts.

    As the involvement of Opes's banker ANZ deepens by the day, so do the bank's chances of being joined in the assorted legal proceedings.

    Norm Seccold will have an action of his own; he is no creditor, he had no lending agreement, his shares have simply vanished.

    This Seccold/BVI revelation makes the circus surrounding Melbourne underworld figure Mick Gatto look even more bizarre as Gatto is certainly not acting for Seccold.

    Meanwhile, Lift went into voluntary administration yesterday. It appears from the PDS documents that clients may have, as was the case with Opes, transferred title on their stock.

    In turn, it appears Lift may have had the right to repledge that stock, probably to Merrill Lynch who is Lift's banker.

    Details remain scant, though Lift loans are in the vicinity of $600 million on a stock portfolio of $800 million.

    It's fair to say that the general quality of the stock portfolio may be higher than that of Opes, or at least the portion of illiquid holdings ANZ still has left to sell.

    Word is there is some exposure to the likes of MFS and Allco which would diminish the value of the portolio.

    Still, the tenor of the release from administrator McGrath Nichol suggests most of the Merrill Lynch loan will be recovered via the Lift share sales thereby leaving a bit more for Lift clients. It's early days.

    The way these lenders such as Opes and Lift operated is this:

    They dealt mostly with stockbrokers and financial planners who advised retail clients to go to a lender to get a loan to buy more shares.

    There may well have been rebates involved from some transactions.

    As the Opes crisis deepened over past few weeks those broking clients no longer wanted to take the counterparty risk of settling transactions with Lift.

    Further, as Lift clients took their business elsewhere the quality of the portfolio over which Merrill has its charge deteriorated.

    As the pooling of stock under the securities lending arrangements meant BHP was pooled with a speculative miner, when BHP stock was extracted from the loan book, the loan book immediately become riskier.

    This is what happened to Lift amid the flight to quality.

    It left the Lift business model in the lurch. Others such as Chimaera may be in similar straits.

    Although the issue of title has not been canvassed by Lift's administrators as yet, at least one investment adviser who used Lift is telling clients that their title is secure.

    We quote from a note to clients from Dixon Advisory.

    "Attention Required Lift Capital Update and Clarification

    The Dixon Advisory Investment Committee is aware that there may be an article in the press tomorrow likening Lift Capital's lending practices to collapsed margin lender, Opes Prime.

    There are distinct and significant differences between the model operated by Lift Capital, and those used by Opes Prime and Tricom. Your agreement with Lift Capital is not a stock lending agreement; it is a secured lending agreement. This means that you are the beneficial owner of all securities held in your Lift account. While Lift Capital retains some rights to hedge its exposure to its margin borrowers, any attempt to deal in your securities will be subject to your rights as beneficial owners of shares held in your account.

    The nature of your agreement with Lift Capital provides protection in the event that Lift Capital encounters financial difficulties. Having said that, any such financial difficulties may, in the short term, impact on your ability to deal with your securities.''

    No doubt Dixon's clients will be asking what the devil they were doing in Lift in the first place.

    The recriminations will be widespread.

    This is how one company source put it: ``I can tell you that there are numerous brokers and banks that `referred' their client and `recommended' to their clients that they hand over their share scrips to Opes so that they can draw down licks of cash and finally get access to all that `paper money'.

    "(Dozens of company) directors were convinced to join the Opes Margin scheme by other brokers.

    "Investec, UBS and Macquarie were very, very active in referring their clients to Opes. 'Give your scrip to Opes, draw down on the money and I'll invest it for you.' Perfect for UBS and others. They avoided the risk and just got to play with more money.

    "Some Opes clients are now starting to ask questions of their brokers that initiated their debt facilities with Opes.''

    On the regulatory front, the Opes saga is demonstrating that ASX has not got the monopoly on poor market governance in the region, nor the sole exposure to Opes funding on shares.

    One source points out that JTS.SP a small cap company that was subject to a management buy-out in Singapore priced at S22.5 cents.

    The CEO's investment holding company made the offer via "Asia Pacific Links''. As he is believed to have owned 46.5% of the shares so the deal was close to a given.

    On the April 1, there were 166 million shares traded at 22c. As the deal was weeks from completion the arbitrage funds were happy to pick as many shares of this "free money'' as possible.

    Unbeknown to the market however, the CEO had some financing through Opes Prime, and Merrill Lynch had taken possession of his shares and sold them into the market without telling anyone, or the stock exchange what they were doing.

    When they lodged the records and revealed the MBO could not proceed due to the fact the CEO no longer held any shares, the stock plunged 75%. Merrill was out though.

    Opes and Merrill have cost the arb funds about US$40 million
 
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