Fortescue investigates short-selling link

Fortescue's chief executive, Andrew Forrest, last month launched a vicious attack on short-sellers, calling their actions "almost criminal".

It was unclear how short-sellers could have so much influence as the top 20 shareholders -led by Mr Forrest with 36% - control 91%. But Fortescue yesterday said an investigation had found 10% of its stock was the subject of loans.

BusinessDay believes that almost all the shares on loan - about 9% of Fortescue - belonged to one of Mr Forrest's backers, New York hedge fund Harbinger Capital Partners.

Harbinger owns more than 15% of Fortescue and has considered selling a portion, presumably at the highest price. It therefore had little incentive to lend its stock to short-sellers and was thought to be unaware of the situation until Fortescue notified it yesterday.

The identity of the custodian is unknown, although a register check shows ANZ Nominees holds 8.58% of the stock, worth $1.9 billion, and National Nominees and Citicorp Nominees each hold more than 6%.

If the custodian is found to be ANZ, that could further damage the reputation of its troubled securities lending division, which was caught up in the Opes Prime fiasco.

Last month, ANZ chief executive Mike Smith said his bank would quit the equity financing business but would maintain its securities lending division to allow it to continue to lend shares that were backed by cash.

ANZ last night declined to comment on whether it was the custodian of the Fortescue shares in question.

Fortescue shares closed 32 higher at $7.95. JAMIE FREED, DANNY JOHN