Opes Prime lent clients' shares twice and collapsed owing A$1 billion

Opes Prime was a Melbourne securities lender and stockbroker founded in 2003 by Laurie Emini and Julian Smith. Its business was stock financing: clients borrowed against the value of their share portfolios, and the loans were funded by two big lenders, ANZ and Merrill Lynch. The model looked simple and profitable, and by early 2008 the firm ran offices in Melbourne, Sydney and Singapore with about 80 staff. The flaw was what it did with clients' shares while the loans were outstanding — it used the same securities to cover margin shortfalls in other clients' accounts.

The accounting that made this possible was fictional in places. Court evidence later showed securities were recorded as held by more than one client at the same time on at least 13 occasions, with values exceeding $50 million, and client shares were moved through Riqueza Holdings, a BVI-registered vehicle controlled by the directors, to cover the margin calls of the firm's biggest client, Chris Murphy — whose accounts had a hole of about $116 million. When Australian shares fell sharply in early 2008, the lenders asked for their money back, and the double-counted collateral could not pay.

On 27 March 2008 Opes Prime went into administration, with Ferrier Hodgson appointed administrators and Deloitte appointed receivers for ANZ. Secured debt was believed to exceed $1 billion, of which about $650 million was owed to ANZ. The directors had also signed a $95 million loan with ANZ that amended the master securities lending agreement, removing ANZ's obligation to repay about $240 million in surplus value — a deal the sentencing judge later described as '$95 million of Monopoly money' returned for '$240 million in real dollars'. ASIC launched an investigation the next day.

The fallout ran for years. Creditors received just 37 cents in the dollar under a scheme approved in August 2009, and liquidators recovered $226 million from ANZ and Merrill Lynch; clients were left about $680 million out of pocket. Emini and fellow director Anthony Blumberg pleaded guilty in July 2011 to dishonesty charges — Emini got two years, Blumberg one — and both agreed to give evidence against Julian Smith, who was acquitted in September 2013. By early 2011 Emini was himself bankrupt, owing Opes Prime $6.38 million and holding $193.99 in his bank account.