ANZ deal the elephant in the room for ASIC
And with those words, the former director and co-founder of Opes Prime breathed a sigh of relief and walked away from the same court where two other founders were jailed over their role in the $630 million collapse of the failed broker.
Laurie Emini and Anthony Blumberg were jailed in 2011 after entering a plea bargain. Part of that deal included giving evidence against Smith, who pleaded not guilty to two charges laid against him.
At the time, the Australian Securities and Investments Commission crowed about the victory, issuing a lengthy press release that the pair were "jailed following an ASIC investigation".
Commission chairman Greg Medcraft noted in the release that the regulator would continue to focus on deterring and dealing with illegal behaviour.
This time around, the press release was short and devoid of any comment, saying: "ASIC today notes the not-guilty verdict in the trial of former Opes Prime Stockbroking Ltd (OPSL) director Julian Smith." It was quick to point out the Commonwealth Director of Public Prosecutions prosecuted the matter.
For ASIC, the verdict is a big blow. As it prepares for a Senate inquiry into its performance, this was a case it didn't want to lose. But the elephant in the room for ASIC was always going to be a deal it struck with ANZ, which played an integral role in the Opes Prime saga. The so-called deal, or enforceable undertakings, involved ANZ and Merrill Lynch writing a $226 million cheque to the Opes Prime liquidators to enable 1200 Opes Prime creditors to receive 37¢ in the dollar. In return, ASIC wiped the slate clean on all pending and future litigation against ANZ and Merrill Lynch.
While the enforceable undertakings that ASIC imposed on ANZ did not preclude ASIC from pursuing criminal investigations, the regulator felt no need to take any further action against the banks.
I wrote at the time that it wasn't a good look for ASIC to enter such an enforceable undertaking before it had completed its criminal investigations into Opes Prime. I would now add that the regulator should steer clear of doing deals for creditors.
Opes Prime was one of the worst cases of the global financial crisis. When it collapsed, it wreaked havoc on the Australian sharemarket as ANZ and other financiers, including Merrill Lynch, began selling down the broker's $1.4 billion securities lending portfolio to recover secured loans.
ANZ spent a few months investigating its securities lending business, which had been responsible for lending facilities to the tune of billions of dollars to the securities lending operators Opes Prime and Tricom. The review concluded: "The gravity of the issues relating to the equity finance business should have been, but was not, properly brought to the attention of the chief executive and the board."
Besides a few heads that rolled, that was the end of story.
Frequently Asked Questions about this Article…
ASIC accepted enforceable undertakings from ANZ (and Merrill Lynch) under which the banks paid $226 million to the Opes Prime liquidators so about 1,200 creditors could receive roughly 37 cents in the dollar.
The deal is controversial because, in exchange for the payment to creditors, ASIC agreed to wipe the slate clean on pending and future litigation against ANZ and Merrill Lynch. That raised concerns the regulator made a settlement before finishing its criminal investigations and that it effectively avoided further action against the banks.
ANZ and Merrill Lynch’s $226 million cheque was used by the liquidators so about 1,200 Opes Prime creditors received around 37 cents in the dollar on their claims, improving recoveries after the broker’s collapse.
Two Opes Prime founders, Laurie Emini and Anthony Blumberg, were jailed in 2011 after plea bargains that included giving evidence against Julian Smith. Julian Smith, another former director and co‑founder, was later found not guilty at trial.
Although the enforceable undertakings did not legally preclude ASIC from pursuing criminal investigations, the regulator ultimately took no further action against ANZ or Merrill Lynch in relation to Opes Prime.
ANZ, along with other financiers including Merrill Lynch, sold down Opes Prime’s roughly $1.4 billion securities lending portfolio to recover secured loans after the broker collapsed. Those sales contributed to significant market disruption during the global financial crisis.
ANZ’s internal review found the equity finance business had serious issues that should have been, but were not, properly escalated to the chief executive and the board, leading to some senior departures but no broader consequences described in the article.
The not‑guilty verdict for Julian Smith was a major setback for ASIC as it prepared for a Senate inquiry into its performance. The case highlighted concerns about ASIC’s decision‑making, particularly the ANZ deal described as the 'elephant in the room.'
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