Lift liquidator failed to protect investors, says options trader

The 64-year-old used the final day of a three-day Federal Court hearing to argue the liquidator of Lift Capital could have protected his $345 million share and options portfolio from huge losses had it taken several relatively simple steps.

Mr Famularo outlined a hypothetical trading strategy, which he argued would have avoided the $48 million loss incurred when Merrill Lynch sold down his call options on BHP and Telstra shares between April 10 and April 17, 2008.

Merrill Lynch controversially took possession of more than $700 million of investors' stock and options contracts and sold them to recoup its loans to the margin lender.

Merrill Lynch had closed out his trades without any consideration of how it would affect him, Mr Famularo said.

The NSW Supreme Court found last year that the transfer of the stock from Lift to Merrill Lynch was a "breach of trust".

Mr Famularo said he would have counteracted the liability on the sold call options he held in April 2008 by buying new call options, and would have traded to a profit.

The trading strategy was just a process of buying options contracts and would not have required the outlay of further funds or security, he said.

Merrill Lynch's counsel, Tom Bathurst, QC, said that Mr Famularo did not suggest the trading strategy to the administrators at the time and "can't complain now" about the way the shares were sold down.

"It's all a bit late 18 months down the track," Mr Bathurst said.

Ian Jackman, SC, counsel for the Lift liquidator, echoed Mr Bathurst's comments, saying there was "no explanation why [Mr Famularo] didn't put this strategy [to the liquidators] between April 10 and 17".

Mr Bathurst also said that Mr Famularo's hypothetical trading plan may also have hit a hurdle when the Australian Clearing House and his broker demanded a higher level of security for the purchase of new call options.

According to Mr Bathurst, Mr Famularo's trading strategy was not workable because he could not have executed it all on April 10, the day Lift Capital was placed into administration.

The liquidator argues that Mr Famularo owes it $32 million, but Mr Famularo says this calculation is wrong.

He has launched the Federal Court case in an attempt to have his claim for $103 million recognised by McGrathNicol, the liquidator of Lift Capital.

Mr Famularo has been joined in his legal fight by 26 companies.

Through these companies, more than 100 investors placed their life savings with him. If Mr Famularo's case fails, theses investors are likely to lose their investments.