Katherine Jimenez and Michael Sainsbury | April 15, 2008
LEADING business commentator Max Walsh and the grandfather of self-funded superannuation, Daryl Dixon, have become entangled in the $600 million collapse of Sydney stockbroking and stock lending firm Lift Capital.
Dixon Advisory managing director Alan Dixon yesterday told The Australian its lawyers had hit Lift administrators McGrath-Nicol and backers Merrill Lynch with legal letters last Friday, seeking a "standstill" agreement over shares the firm believes belong to its clients. "We will probably seek an injunction tomorrow (today) in the Supreme Court," he said. "We believe we have a very strong case to recover all of our clients' affected assets."
Lift was pushed into administration last week after its clients failed to meet margin calls and Merrill Lynch, which is owed $600 million by Lift, withdrew its financial support.
Despite the letters, Merrill Lynch continued the sell-down of shares worth about $700 million held by Lift and its clients. A bank spokeswoman would not say how much had been dumped.
Last week, Lift administrator Tony McGrath said Merrill Lynch was keen to sell Lift's share portfolio within a week.
It is claimed that up until 24 hours before Lift went into administration, the firm was giving guarantees about its viability.
"I think that the key thing is that part of the decisions we made were based on assurances of the directors of Lift Capital," Alan Dixon said. "I believe that some of the assertions may now have been incorrect."
Dixon Advisory was founded by executive chairman Daryl Dixon, and Mr Walsh - a former editor of The Bulletin magazine - is the deputy chairman. Dixons yesterday stressed that the Lift problem affected less than 1per cent of its client base.
Lift is the third stock-lending and stockbroking firm in just two months to hit trouble, following Tricom and Opes Prime.
Yesterday, the ANZ bank announced it would conduct a review of the controversial practice of securities lending as chief executive Mike Smith conceded Opes Prime should have been recognised as "unbankable" before its collapse. Opes became the first stockbroking firm to collapse in 13 years when ANZ appointed accounting firm Deloitte as receivers on March 28.
The review - led by Mr Smith with assistance from company director and former corporate doctor David Crawford - will also examine any improper dealings by bank employees.
Four ANZ staff in the securities lending area have been suspended amid suggestions that Opes extended low or interest-free loans and other stock-trading benefits.
It has also emerged that senior Treasury officials told the Rudd Government that the practice of stock lending - widely seen as increasing the volatility of the Australian stock market - would "die on the vine" only six weeks before the $2billion collapse of Opes and Lift.
Treasury's executive director of the markets group, Jim Murphy, told a senate estimates committee on February 20 that regulating stock lending would be worthless.
Mr McGrath could not say last night whether the letter from Dixon Advisory had any legal standing, but Alan Dixon remained confident in his case. He said, in the case of Dixon Advisory, there were two differently exposed sets of clients.
One set of clients had discharged their loans before Lift went into administration, so they believed they had title to their assets.
The other set of clients had outstanding loans to Lift, and could be in for a tougher legal battle.
Mr Dixon said some of its clients had been "unwinding" their positions with Lift for the past couple of weeks.
He said Dixon Advisory made contact with Berndale Securities - owned by Merrill Lynch - early last week because it had "reason to believe that Berndale were refusing to process Lift's request to transfer stock back to our clients' accounts".
Berndale is the settling arm for a number of broking firms, including Lift. "Returns of stock had been delayed in the days before administration," Mr Dixon said.
"Many of our clients have got extremely strong proof that they were asking for discharge stock for many weeks."
One source claimed that prior to the Lift collapse, there had been market speculation that St George Bank was looking at buying the Sydney broking firm.
It is understood Dixons had been advising its clients to invest with Lift for about two years.
The Australian understands that Dixons has received a raft of similar letters from other financial planning groups, while as many as 80 financial advisers have been caught up in the Lift collapse.
Dixons has a combined superannuation asset base in excess of $2.5 billion and claims to be in the top five companies in terms of the number of self-managed super funds under administration.
Daryl and Alan Dixon wrote regularly for several media publications including The Canberra Times, the Sun-Herald, Smart Investor and The Advertiser.
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