Opes Prime Collapse
Opes Prime collapsed in March 2008. Here is a short article about what happened and how it collapsed. Opes Prime was formed as a specialist securities lending and margin lending broker- it started its operations in 2003 by Laurie Emini and Julian Smith. Anz and Merrill Lynch were Opes Prime’s bankers.The clients borrowed money from Opes and used that money to buy shares. The shares were held by Opes as a safety till the borrowed amount was paid off. Opes then gave the stock to ANZ and borrowed money from it (for a much lower rate). ANZ held all the stock as safety until Opes was ready to pay off – So as such ANZ was not dealing with any of Opes’s clients – only with Opes.Opes did not use all the stock as a security to borrow from ANZ, it also lent some of it to short sellers – basically traders who make money by punting that the stock’s price will fall.Lauri Emini had a few favoured clients – six to be exact. Opes Prime was lending huge sums of money to these favored people. These people were using this money to buy stocks – to increase the value of the portfolio of these favoured people, Opes was also transferring stock from other clients into their portfolio. These Favored people portfolios/loans were all in the range of 100s of millions of dollars.Alarm bells started going off in early March 2008. And by mid 2008 Opes Prime collapsed. Clients lost all their money – and the bankers (ANZ and Merrill Lynch) are the secured creditors, so they started selling all the stock that was left with them as security, so that they can recover their own money. The clients, people like you and me are the unsecured creditors and they were left with nothing. The banks are no legally allowed to sell those shares but they did anyway.
A law suit was filed by clients against bankers. In July 2009 a settlement was reached and they got around 37 cents in a dollar. At the time of writing this article, no action has been taken against the directors. But hopefully we will hear some news from ASIC on this front.
The author, Sandy Naidu, is a personal finance blogger. On her website, she did an in-depth review on reasons behind opes prime collapse. She recently also wrote about the results of the opes prime collapse law suit.
