Opes Prime director Smith dismissed risk alert
Mr Smith has pleaded not guilty to two charges of dishonestly breaching his duties as director of companies in the Opes Prime group. Each charge carries a maximum jail term of five years.
Opes Prime, which had more than 650 clients, collapsed in March 2008 owing creditors about $630 million.
The Victorian Supreme Court on Thursday heard that a report by the Opes Prime risk committee identified five key risks to the company, including its reliance on lender ANZ, with which it had a $220 million credit limit, and the influence of key customers Messrs Seckold and Murphy.
In response, Mr Smith accused the committee of a "serious error of judgment" and offered it "an education about the business".
Pointing to his decades of experience, he said the report misunderstood securities lending and borrowing, and had failed to consult with him.
The risk committee report said: "The risk exists that for various different reasons that ANZ could vary the terms of finance or withdraw finance at short notice and thus in the absence of other funding, Opes would need to recall funds from its clients."
It recommended Opes Prime reduce Mr Murphy's facility, worth up to $200 million, scrap his ability to borrow 100 per cent of the value of his stock, and force him to diversify out of Challenger stock.
The committee warned Opes would be "significantly impacted" if Mr Seckold sought back his shares, worth $45 million, which another company associated with Mr Smith and fellow Opes Prime director Laurie Emini, Leveraged Capital, had been using as a buffer.
The Australian Securities and Investments Commission alleges that as Opes Prime teetered on the brink of collapse in March 2008, Mr Smith wrongly pledged assets belonging to two Opes Prime companies in order to secure a loan of $95 million from the ANZ to Leveraged Capital.
Prosecutor Greg Lyon, SC, said Mr Smith "more than just dismissed the issues raised on behalf of the risk committee, he dismissed them and smacks them down as being misinformed and uneducated".
The trial is expected to run for up to 10 weeks.
Frequently Asked Questions about this Article…
Opes Prime collapsed in March 2008 and, according to the article, the broker owed creditors about $630 million. The firm had more than 650 clients at the time of its collapse.
Julian Smith is a director in the Opes Prime group. He has pleaded not guilty to two charges alleging he dishonestly breached his duties as a company director. Each charge carries a maximum jail term of five years, and the trial is expected to run for up to 10 weeks.
The risk committee identified five key risks, including Opes Prime’s heavy reliance on lender ANZ (with a $220 million credit limit) and the influence of key customers Norm Seckold and Chris Murphy. The committee warned ANZ could vary or withdraw finance at short notice, which might force Opes to recall funds from clients.
According to the article, Mr Smith angrily dismissed the committee’s warnings, accusing them of a 'serious error of judgment' and saying the report misunderstood securities lending and borrowing. He said he would 'offer an education about the business' and criticised the committee for not consulting with him.
The committee recommended reducing Chris Murphy’s facility (worth up to $200 million), removing his ability to borrow 100% of the value of his stock, and forcing him to diversify out of Challenger stock.
The committee warned Opes Prime would be 'significantly impacted' if Norm Seckold sought back his shares (worth $45 million). Those shares had been used as a buffer by Leveraged Capital, a company associated with Julian Smith and fellow director Laurie Emini.
The Australian Securities and Investments Commission (ASIC) alleges that as Opes Prime teetered on the brink of collapse in March 2008, Mr Smith wrongly pledged assets belonging to two Opes Prime companies to secure a $95 million loan from ANZ to Leveraged Capital.
The article highlights practical risks investors should watch for: a broker’s heavy reliance on a single bank or financing line (ANZ’s $220 million credit limit was cited), concentrated exposure to a few large clients, and the danger that lenders can change or withdraw finance quickly. Those factors can force a broker to recall client funds or liquidate positions, so everyday investors should consider diversification, understand their broker’s credit arrangements where possible, and be aware of concentrated stock or margin positions.
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