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'I was in no position to do anything'

Lance Rosenberg is back in business as the true Tricom story begins to unfold, writes Ben Butler.
By · 21 Sep 2010
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21 Sep 2010
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Lance Rosenberg is back in business as the true Tricom story begins to unfold, writes Ben Butler.

After 3? days of chaos Lance Rosenberg was ready to hand in the keys to Tricom, the stockbroking company he had founded 14 years earlier.

It was the early evening of Sunday, March 30, 2008, and Tricom was on the brink of collapse.

The group had a $43 million exposure to the broker and stock lender Opes Prime, which had failed three days earlier in suspicious circumstances.

Rosenberg blamed Tricom's bank, ANZ, for his company's woes.

In an email to the senior ANZ banker Peter Holland sent at 6.21pm on Sunday evening he said: "As you are probably aware, the Opes event has stretched our ability to give assurances to creditors that they have a reasonable basis for being repaid.

"Whilst we believed that there was a small surplus available before Friday, the prospect of an additional $15-$18 million hole may result

in this turning into a deficiency if

not funded."

Tricom was already in trouble after failing to settle tens of millions in trades in January following a margin call - an event that shocked other market participants and saw it placed on a form of probation by the stock exchange.

Also nervous was the ANZ, which installed David Winterbottom from the insolvency expert KordaMentha at Tricom to oversee the wind-down of Tricom's margin loan book.

In an effort to appease the bank, Tricom shifted some of its loans over to Opes, also an ANZ customer.

But during due diligence for the proposed sharemarket float of Opes Prime it had started to dawn on ANZ that Opes was a basket case. Lance Rosenberg had not been told, and he was angry.

"In my opinion ANZ has contributed to this issue as a result of representations made by [ANZ manager] Steve Taylor relating to 'due diligence' performed on Opes and evidence that ANZ has been aware of solvency issues for some weeks," he wrote in his Sunday night email to Holland.

ANZ had put pressure on Tricom to move loans to Opes, he said.

His email was "bordering on insolence", Rosenberg later told a secret examination held by the Australian Securities and Investments Commission.

Holland, who has since left ANZ, held Tricom's fate in his hands as head of corporate portfolio management - responsible for extracting as much as possible from loans that have gone sour.

"I mean, I was in bad bank," Rosenberg told the secret ASIC hearing, held two months later.

"I was in no position to do anything but that's [how] serious this was."

If Tricom's capital deficiency had persisted on Monday the company would have been insolvent, Rosenberg said.

"I would have recommended to the directors that we are no longer capable of trading, we cannot meet our debts as they fall due, and I would have given them [ANZ] the keys."

ANZ's credit committee ended an anxious wait for Rosenberg on Monday night, approving a bridging loan.

But while the bailout saved Tricom, Rosenberg's woes were just beginning.

On the day after Opes Prime went into administration, Rosenberg tried to recall stock tied up with the failed broker by executing a special transfer, with Tricom on both sides of the deal.

That trade led to a two-year subterranean legal struggle with ASIC, conducted either in secret or under the codename XQZT.

Details of the stoush, and just what happened at Tricom on that frantic weekend in 2008, can now be reported because earlier this month the Administrative Appeals Tribunal set aside ASIC's four-year ban of Rosenberg and lifted the confidentiality orders.

Tricom began modestly enough in August 1994 as a futures broker employing five people. It then "grew into an organisation of 240 employees offering a full suite of financial services", Rosenberg told the tribunal.

By January 2008, it had ballooned into a mid-size broker with a securities lending book of $2.8 billion.

While the subprime crisis had been bubbling along in the US for almost a year, the big collapses - Bear Stearns and Lehman Brothers - were still months away.

But tremors could be felt. On January 29 and 30, Tricom caused uproar when it failed to settle tens of millions of dollars in stock after a margin call on a client.

Tricom was an ASX full market participant and they always settle. This was an almost unprecedented failure.

ANZ promptly told Tricom to get out of the securities lending business and put KordaMentha's David Winterbottom into the company to oversee the process and provide daily reports of the bank's exposure.

In February Tricom laid off $43 million of its loan portfolio with Opes Prime, handing over title to a bundle of shares as security.

At the same time Tricom was working on an escape plan in the shape of a recapitalisation deal with another company that later failed under a gargantuan debt load, the investment fund and asset manager Babcock & Brown.

According to Rosenberg, the plan would have cleared most of Tricom's debt and slashed its $43 million exposure to Opes Prime to about $8.7 million. He claims the deal was set to go through in mid-March, but was "delayed at the insistence of ANZ".

But by Thursday, March 27, it was too late. About 4.30pm Rosenberg took a call from Phil Green, the then chief executive of Babcock & Brown, who told him Opes Prime was in financial trouble.

Rosenberg hit the phones, making "a series of calls to Tricom's advisors and financiers to try and find out more information about Opes's position", he said. By 6pm he had hold of his contact at ANZ, Craig Vaughan, who "said words

to the effect that administrators may have been appointed to

the company".

The administration raised the possibility that ANZ, with Opes Prime's other banker Merrill Lynch, might start dumping stock - which they later did.

Half an hour following his call to the bank, Rosenberg and other Tricom staff held a crisis meeting attended by, among others, Winterbottom and two Babcock executives.

And he kept working the phones and email, trying to reach Opes executives to tell them Tricom wanted its stock back. Nobody answered - not even the chief executive, Lirim "Laurie" Emini, who now faces fraud-related charges over Opes's collapse.

Two strategies emerged from the crisis meeting: either ask the ANZ and Merrill Lynch to finance the transfer of the securities back from the Opes account to the Tricom account or execute special crossings on the ASX, in effect demanding the return of the stock. But the banks would not come to the party.

So the next morning, after more frantic, unanswered calls to Opes Prime, plan B was put into action.

First, Rosenberg spoke to the ASX compliance officers Fiona Hooymans and Bill Woods. Neither offered an opinion on whether the special crossing was legitimate.

In sale orders put through before the market opened, one Tricom entity, Tricom Equities, agreed to sell the shares to another, Tricom Holdings, at a substantial discount to market price.

ASIC later told the Administrative Appeals Tribunal that it was a "contrived transaction done in-house" that created a misleading impression of trading in the market because Tricom was on both sides of the deal and was not acting on behalf of its clients.

By Monday night, with the ANZ throwing Tricom a lifeline, the special crossings were not needed. But the ASX's Hooymans was "hounding" him, Rosenberg told ASIC.

In an email at 7.57pm she gave Tricom a deadline of 7am to explain who was behind the 12 special crossings, worth $41.5 million.

The next morning Tricom's head of compliance, Lance Suntup, sent a formal response admitting Rosenberg placed the buy and sell orders.

ASX passed the investigation on to ASIC, which interviewed Winterbottom, Vaughan and Holland at secret examinations held under Section 19 of the ASIC Act, which removes the right to silence.

Rosenberg was interviewed twice and on July 31, 2009, ASIC banned him from managing a company for four years.

But now, with the Administrative Appeals Tribunal ruling in his favour, it is as if the ban never happened.

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