The hedge fund bear raid that led to the demise of opes prime.....
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Challenger Financial Services is another company that has complained to ASIC about heavy shorting of the company's securities, accompanied by adverse false rumours.
Challenger's share price fell sharply last week amid speculation that large shareholders may be forced by margin calls to sell shares in the company. On Monday, colourful Sydney criminal lawyer Chris Murphy disclosed that he had sold 15 million shares for $25 million, but denied he had been subject to a margin call.
Challenger has sought to dampen the speculation by stating that it had several years ago banned directors, senior executives and staff from taking out margin loans over Challenger securities. Several weeks ago, rumours circulated that Challenger had a large amount of debt due and payable, but it turned out that Challenger had never had any dealings with the purported bank lender. Challenger's share price fell about 10 per cent as a result of that episode.
Late last month, when Challenger was preparing to release its half-year results, a rumour circulated that the company was in dispute with its auditors over the carrying value of assets on the balance sheet.
However, Challenger's audit committee at the time had already been given a clean draft audit opinion. The audit is not finalised until the accounts are approved by the board and signed. The accounts were duly signed and there was no change to the audit opinion.
That rumour also coincided with a material fall in Challenger's share price.
There are suggestions that in both those instances the rumours were spread by an overseas-based hedge fund that was said to have a material short position in Challenger. Moreover, it had no corporate entity, no assets and no employees in Australia.
One major investment bank has done some analysis to try to ascertain the extent of shorting of major Australian financial stocks in the local market.
On the bank's reckoning, since January 1, 407 million shares in ANZ Bank, or 21 per cent of the capital, have been short sold.
For Babcock & Brown, the figures are 186 million shares (63 per cent), Challenger 186 million shares (31 per cent), Suncorp 190 million shares (20 per cent), QBE 252 million shares (28 per cent), Macquarie Group 152 million shares (55 per cent), Westpac 378 million shares (20 per cent), NAB 385 million shares (23 per cent) and St George 128 million shares (23 per cent).
There's no way of knowing how many of those shares have been covered and what is the outstanding level of shorts, but there must be strong suspicion that in at least a number of those stocks the outstanding short position is more than 10 per cent of the capital. If so, that would contravene the Corporations Act.
