There is a heavy irony in the decision by broking firm Opes Prime to use Reco Financial Services to effect a backdoor listing on the ASX.
Reco used to be an insolvency business. Opes now faces insolvency itself. Receivers and voluntary administrators were appointed late Thursday and froze the business. It is yet to be determined what, if anything, will remain. For the thousands of investors that used their services, probably nothing.
Opes was created five years ago by Julian Smith, a former head of securities lending at Ord Minnett and chairman of the Australian Securities Lending Association, and Laurie Emini, a former head of the securities lending business at ANZ McCaughan.
They later merged their business with that of Anthony Blumberg, a former banking specialist with Deloitte Consulting. When the deal was struck with Reco, the margin lending book was said to have topped $1 billion, and the value of Opes business was put at $100 million.
Smith and Emini were credited with masterminding the business plan behind the now struggling Tricom Securities, and Opes had in fact taken up some of Tricom’s massive securities lending book after Tricom was instructed to reduce it by its lenders.
Just last week, Smith was in print in the mainstream press arguing the merits of securities lending, and the company had been assuring investors of the security of its own business.
It had been expanding rapidly. Recent recruits to the business include the former head of Lehman Bros in Australia Frank Dunphy, a former Austock and Potter Warburg broker Tony Iremonger, Merrill Lynch's Chris Holly and Adelaide Bank's Mark Rice.
Late Thursday, however, the directors appointed John Lindholm of Ferrier Hodgson as voluntary administrator after becoming aware of a cash and stock movement irregularities. ANZ, the main secured creditor, acted quickly, appointing Sal Algeri and Chris Campbell from Deloitte Corporate Reorganisation Group as receivers and managers of Opes Prime Group, Opes Prime Stockbroking, Leveraged Capital and Hawkswood Investments.
Staff at Opes, an active sponsor of the Australian Formula 3 racing circuit and of Indy and V8 Supercars, have spent the day with the grim duty of informing clients about the freezing of their accounts. The nature of the business means the clients rank behind the banks. With ANZ and Merrill Lynch expecting to take only a small haircut, that suggests there will be nothing at all left to the stock lenders.
