Revealed: the Challenger trades that sank Chris Murphy

In Murphy's real-life drama he was being financially decimated by hedge funds short-selling Challenger Financial  the stock in which, using leverage, he had taken a 5 per cent holding. Ultimately, he discovered it was his own shareholding that had been lent to shortsellers by ANZ to push down the Challenger share price. His own holding had been used against him.

In a 100-page version of events written and legally sworn by Murphy, the story of Challenger is one which he argues demonstrates that he was unaware that legal ownership of his share portfolio rested with ANZ and not Opes.

Murphy has a lot riding on convincing the Ferrier Hodgson liquidator, John Lindholm, that he is not an Opes Prime debtor and therefore liable to a debt of about $100 million associated with the funding of portfolios he operated.

Lindholm told the Herald yesterday he was only weeks away from beginning the process of recovering hundreds of millions of dollars from Opes debtors.

Murphy's statement, sighted by the Herald, refers to numerous emails, documents and conversations to support his argument that he was not operating an ordinary margin lending account. Rather, he was a non-recourse borrower given money mostly via a joint venture with Opes to trade the market.

This is the Murphy version  and one to which the Herald can neither attest nor dispute.

But the Challenger story that lies within the sworn statement makes fascinating reading.

It started in April 2007, when Murphy was feeling stressed about his portfolio and decided to sever his ties with Opes and protect his investments. He hired a chartered accountant, Tony Tighe, to manage this process and began to sell down some Challenger shares.

He believed ANZ was only ever a custodian of the Challenger stock and not the legal owner. Murphy also believed that the stock could not be encumbered.

By August Challenger shares were falling heavily. The stock had fallen 20 per cent in four trading days that month, and the Opes director, Laurie Emini, was under pressure covering Murphy's position.

At this time Murphy says he was approached by a buyer for the Challenger shares, who was referred to him by the then chief executive, Mike Tilley. The offer, made through Deutsche Bank, was passed on to Emini, who said he would not sell the stock.

Murphy said he had been confused about the collapse in Challenger stock and did not know whose stock had been used to short it and no reason to think it was his. In September Tighe advised Murphy to sell someChallenger stock, and 1.8 million were sold from aMurphy account,Cardiac Jolt, for $11 million. The stock kept falling.

In January last year Murphy forwarded an email sent to him by Tilley onto Emini. The Tilley email said: I have never seen more difficult conditions in 35 years of

operating in financial markets, things in the USA are very bad, they have no idea how bad they are. I expect the US stock market to fall another 15-20 per cent.

On January 21 Murphy went to see Tilley at Challenger and told him the portfolio was in the hands of the financiers (being Opes),who were feeling the pinch and asked if Tilley could help. He had no interest in supporting Opes but was reassuring about Challengers prospects. Murphy assured Tilley that the Opes parcel was not going to be sold and therefore would not swamp the market. Murphy said he received written advice that the margin account was in deficit but was not asked to cover it.

In February Murphy was aware that Challenger was again being shorted and that negative rumours were circulating about its health.

I mounted a campaign against shorting by ringing big holders of Challenger stock . . . asking them to contact their brokers and demand that the stock not be lent for shortselling purposes.

I had conducted exhaustive inquiries among Challenger shareholders trying to track down the source of the shorting.

In February Tilley emailed Murphy to say: Out of interest, have your shares been lent to thirdparties? If they have and they were withdrawn from loan that would cause a huge problem for the short sellers and they would have to cover for as many as 15 million shares in a short period.

Murphy replied that he assumed not and would be extremely upset if they had been on sold. He later emailed Tilley, saying he did not think Opes would be responsible,

and added: If I find my stakeholder has been shorting my stock Ill be pulling out the long baton.

On Tuesday April 1, April Fools Day, Murphy received an email from Tilley that Murphys statement said physically shocked me.

Chris,we have received a report that Opes were the largest single stock lender in Challenger from November until last Wednesday.They were using your stock to sell you down the river to hedge funds!!Regards Mike. The perpetrator really was in the

house.