Tempers flare over moon-sized Sonray crater

Georges and fellow Ferrier Hodgson partner John Lindholm had drawn the short straw in trying to explain to almost 300 people why a large slice of their superannuation and investment funds had gone missing.

Neither Sonray's sole director, Russell Johnson, nor his co-founder of the business, Scott Murray, had elected to front their angry clients to offer an explanation.

That might explain why the two insolvency specialists made no bones about the fact that directors and executives of the company were, as they say, "helping authorities with their inquiries".

Georges said he and his team were working "to identify the perpetrators of the problem" that has left a $46 million hole (and counting) in what should have been about $76 million in more than 4000 investors' accounts.

Inexplicably, Sonray's management appears to have skilfully created that moon-sized crater in Other People's Money out of what was originally a $6 million loss, allegedly incurred by a rogue senior trader in early 2008.

How a loss of that size, which was allegedly closed in trading terms, could go on to be eight times the size two years later is a huge missing piece of the Sonray jigsaw puzzle not helped apparently by the fact the company has not had a financial controller for about six months and has a set of accounts so flimsy that the administrators are not certain who is a client or creditor.

Just as Georges is checking Sonray's insurance policy to see if it can reclaim $46 million, the company's auditor, HLB Mann Judd, might want to check its own indemnity insurance. Georges said it signed off on Sonray's accounts for the past few years with no qualifications. He has asked for copies of its audit papers.

Perhaps, more incredibly, Sonray appears never to have told the corporate watchdog, or any other supervisory authority, about what Georges said was unauthorised trading using $10 million belonging to 40 to 60 Sonray clients. The trader apparently maintains he did have client approval.

About 60 per cent of that money was repaid to "those that asked for it", which suggests that if you did not squeal, you did not get paid.

The trader, according to the administrators, is still active in the industry. If the administrators know his identity, and are meeting with him next week why has the trader not been even temporarily benched by the Australian Securities and Investments Commission while the watchdog gets to the bottom of this?

It is believed that ASIC has been monitoring Sonray for the better part of this year although it is not clear if that was because of a specific interest in Sonray or in derivatives traders generally.

Georges said he was talking with ASIC within an hour of being appointed, and that he has copied not just Sonray's accounts but also the files on every computer and company BlackBerry and given ASIC a copy.

As best the administrators have been able to work out, from conversations with current and former Sonray staff, the $6 million paid to those out-of-pocket clients was actually taken from the pooled accounts of the broker's other clients.

That would seem to be strike two for Sonray. Technically, those funds were "segregated" accounts effectively trust accounts, according to the administrators' lawyer,

which means Sonray had

no right to use the funds to shore up its own financial position.

The administrators also suggested yesterday that use of client money went further. It appears to have been used in Sonray's general account where day-to-day business costs such as wages are paid.

Some of it may even have gone to the development costs of Sonray's computerised trading platform, on which it spent millions and which was to come into operation this month.

If that is right, then Sonray technically does not own all the right to sell that asset its clients also have a stake.