Opes Prime

A directions hearing took place before Justice Paul Coghlan in Court 11 of The Supreme Court of Victoria in the matters of R v Lirim Emini, R v Anthony Charles Blumberg and R v Julian Alexander Smith.

At the hearing, Emini's counsel indicated that the case against his client had been "resolved" and that an agreed statement of facts was being prepared for a plea hearing. Emini's case was adjourned until 9 May 2011 at which time the indication is that he will plead guilty to amended charges, provide a statement and be sent for sentencing.[23]

Blumberg's counsel and the prosecutor both indicated that fruitful discussions had taken place between them and that there was every likelihood that they too would reach agreement in relation to a plea prior to 9 May 2011. Blumberg's case was also adjourned until 9 May 2011. The indication is that Blumberg too will plead guilty at that date and be sent for sentencing.[24]

Smith's counsel indicated that his client would be going to trial and that a period of 4 to 6 weeks would be required to hear the matter. The prosecuting counsel had indicated that 6 to 8 weeks would be required to hear the evidence which extends to 34 lever-arch files. Smith's counsel felt that less time would be needed because the defence argument would be narrow and would focus on Smith's alleged lack of knowledge of the true financial state of Riqueza. Smith's counsel also indicated that he would negotiate with prosecutors in due course. Justic Coghlan stressed the importance of acting quickly. "In due course means now," Justice Coghlan said. "I don't know what it is Mr Fitzgerald's client [Emini] might say in his statement, but that might be something your client wants to see."[25]

A date of 18 July 2011 was set for Smith's trial with a review on 9 May 2011 to confirm that this date is still practicable within the court's lists.

A further directions hearing took place before Justice Coghlan. The prosecutor, Mark Gibson, indicated that the case against Blumberg had also been "resolved" and that, "It is the intention of Mr Emini and Mr Blumberg, as I understand it, to make inculpatory statements against Mr Smith". The statements would be ready within a month. Blumberg and Emini were ordered to appear on 18 July 2011 at which time they are expected to plead guilty and be sentenced.

Smith's trial was set to commence on 25 July 2011.[26]

Laurie Emini and Anthony Blumberg appeared before Justice David Beach in Court 1 of the Supreme Court of Victoria. As expected from representations to the directions hearings, they pleaded guilty to amended charges.[27]

Emini pleaded guilty to:

• Two charges of dishonestly using his position as a director of Leveraged Capital Pty Ltd with the intention of gaining an advantage for Riqueza Holdings Limited or himself contrary to s.184(2)(a) Corporations Act 2001;
• One charge of recklessly failing to exercise his powers and discharge his duties as a director of Opes Prime Stockbroking Limited (OPSL) contrary to s.184(1)(a) Corporations Act 2001.[27]

Blumberg pleaded guilty to:

• One charge of using his position dishonestly with the intention of gaining an advantage for himself or someone else contrary to s.184(2)(a) Corporations Act 2001.[27]

In an agreed statement of facts presented to the hearing, the prosecuting counsel, Dr Gregory Lyon SC, indicated that control was taken of Riqueza in 2006 in order to provide "financial engineering" via the Opes Prime balance sheet in breach of ASX Rules to enable Leveraged Capital to continue to operate despite a reduction in its borrowing limit by ANZ Bank.[28]

Shares deposited with Leveraged Capital in exchange for loans were also used via this route to cover the margin position for Opes Prime's largest client, Chris Murphy, who had a business relationship with Leveraged Capital. This was carried out in accordance with an agreement struck with Murphy that there would be no margin requirements. "You don't have to worry as we will always cover you if you go into margin anyway", Emini had written in an email to Murphy.[28]

Lyon called for a sentence at the bottom of the range for Emini, praising the "remarkable" co-operation he had given authorities since the collapse. He went further and stated, "It is submitted by the Commonwealth that he is entitled to the maximum discount". He then called for Emini to serve between 12 and 17 months' jail before being eligible for parole. He also indicated that Blumberg should serve between 6 and 12 months' jail, but stated that the Crown would not oppose a defence submission that he be jailed for less than 6 months.[29]

The case against Julian Smith was adjourned for trial in the Supreme Court of Victoria on 11 April 2012.[27]

Laurie Emini and Anthony Blumberg appeared before Justice David Beach for sentencing on the charges to which they had pleaded guilty on 18 July 2011.

In passing sentence Justice Beach made a number of comments in relation to the charges and the actions of the two accused. He indicated that, "Whilst the collapse of Opes Prime is part of the background of the circumstances to your offending it must be remembered that each of you falls to be sentenced for the offending to which you have pleaded guilty rather than for some broad and uncharged allegation that you each engaged in fraudulent conduct which caused Opes Prime to collapse."[30] He indicated that the settlement with ANZ and Merrill Lynch made it ''difficult to quantify any loss to [Opes Prime's] creditors as a result of the criminal conduct of each of you."[31] He further stated that, "Sentences which require each of you to spend actual time in custody are necessary, having regard to the seriousness of the offending of each of you, and the necessity to deter others from like offending."[32]

In relation to the specific charges against Emini that he improperly transferred assets between companies he controlled, Justice Beach found the transfers were dishonest. "In a nutshell the transfers were seen by you as a short term solution enabling the business to continue trading whilst long term resolutions could be found for these problems. That said, making these transfers was dishonest in circumstances where you were personally conflicted as you were a director and beneficial interest holder in OPSL [Opes Prime Stockbroking Limited] and you were also a director of another company which benefited from these transfers."[30]

In respect of Blumberg who was charged in respect of the agreement entered into with ANZ Bank for the provision of a $95 million loan, the court found that Blumberg knew there was a good chance that Opes Prime was insolvent and wouldn't be able to repay the money. Justice Beach commented, "Ultimately I accept that you knowingly engaged in this improper and dishonest transaction for the purpose of attempting to keep OPSL, a company in which you had a substantial interest, in business."[30]

In mitigation, Justice Beach noted in respect of Emini that, "Your disclosures not only assisted the Crown's case against you but also against Mr Blumberg and another accused who is yet to stand trial."[30] He found that Emini's co-operation with the Australian Securities and Investments Commission, including providing a 64- page statement and a 125-page folder of important emails, had been "at the highest level".[31] He also indicated that Blumberg's co-operation had helped Opes Prime's liquidators recover $226 million from the broker's financiers, ANZ and Merrill Lynch, which was distributed to victims.[31] He further indicated that both men suffered from depression, had unblemished records prior to the offending for which they were charged and were unlikely to offend again.[30][31][32]

He concluded with, "Having said all that the only sentence that is appropriate in the circumstances of these offences is imprisonment. The offences were as I have said serious."[30]

Justice Beach sentenced Emini to two years in jail and Blumberg to one year. If they are of good behaviour, Emini will be released after one year on a one-year good behaviour bond and Blumberg will be released after six months on a six-month good behaviour bond.[30][31][32] Blumberg's sentence was backdated to 18 July 2011 when he was placed on remand after declining to apply for bail.[33]

Following the sentencing of Emini and Blumberg, directions were given for them, Opes Prime client Chris Murphy and Leveraged Capital client Norm Seckold to appear in the supreme court on 15 August 2011 to give preliminary evidence in the case against Julian Smith which is set down for hearing on 11 April 2012.[31]

Julian Smith's trial, originally scheduled for 11 April 2012, was deferred until 29 May 2012. The trial did not open for public hearings and was further deferred for the resolution of certain legal matters and ultimately rescheduled for hearing on 22 July 2013.[34]

The trial got underway on 22 July 2013 before Justice Simon Whelan. The prosecuting counsel is Dr Gregory Lyon SC[35] and the defence counsel is Mark Regan.[36] Smith pleaded not guilty to two counts of using his position as a director dishonestly to obtain advantage.[37]

Opening statements

In presenting his opening statement, Dr Lyon repeated a number of allegations outlined at earlier proceedings but he went further and also referenced items of evidence to support his contentions. The crux of the allegations is that Smith obtained a $95m loan from ANZ Bank by pledging the assets of two Opes Prime companies, but that the loan was actually used to prop up the financial position of Leveraged Capital, a company of which Smith was a director and shareholder.[38] He further indicated that Smith knowingly misrepresented Opes Prime's financial position in order to obtain the loan.[37] He advised the jury that, "This is the world of big business … It's not theft or murder. It's using his position as a company director dishonestly"[39] "An honest director would not have signed the loan documents". Smith was prepared to let Opes Prime take on this "crushing burden" despite it not being in the company's best interest.[37]

In support of his allegations, Dr Lyon referenced a number of emails which he contended showed that Smith was clearly aware of the true position of the company. In one email from CEO Laurie Emini to Smith dated 9 March 2008, Emini reported a $116m shortfall in the account of Chris Murphy and that he would be stepping down as CEO. Smith replied by saying "one for all, all for one" and that the decline in the share price of Mr Murphy's favoured stock Challenger (which decline had caused the shortfall in his account) was "temporary and a huge opportunity". "Once we have got ANZ off our backs we can think about that". Dr Lyon pointed out that Smith's response demonstrated that he had "a very clear understanding of the situation facing Opes". "His email expresses no surprise or uncertainty. His email expresses no reproval".[38] Dr Lyon also indicated that Smith had sent an email to staff in which he demanded to be kept up to date on company developments. "The emails are evidence which shows Mr Smith was far from kept in the dark".[40]

In a new revelation, Dr Lyon indicated that Smith had been warned that accounts held by Norm Seckold and Chris Murphy were a risk to the company. The risk committee had identified five areas of risk including these two accounts and the company's reliance on ANZ Bank as a source of finance. The committee recommended placing limits on Mr Murphy's account, removing his ability to borrow 100% of the value of his stock and seeking more diversity in his holdings. The committee further indicated that the company would be "significantly impacted" if Mr Seckold sought the return of his shares because Leveraged Capital had been using the free margin on the account as a buffer. Smith was also warned that the ANZ could withdraw finance or vary its terms on short notice and that without another source of funding, the company would need to recall funds from its clients. In response Smith accused the committee of a "serious error of judgement" and offered to educate it. Pointing to his decades of experience, he said the report misunderstood securities lending and borrowing. Dr Lyon commented that Smith, "more than just dismissed the issues raised on behalf of the risk committee, he dismissed them and smacks them down for being misinformed and uneducated".[41]

In presenting his opening statement for the defence, Mr Regan told the court that Smith's intention was to rescue his company and he did not commit a crime. He denied that Smith deliberately misrepresented Opes Prime's position. He indicated that Smith had provided a personal guarantee for the loan and would not have knowingly risked his "life accumulated wealth" if he gave the guarantee knowing that the company would soon collapse. "It's a financially suicidal act both for the companies and his own wealth". In commenting on the prosecution case he said, "We say there is something fundamentally wrong with their case theory".[42][43]

Mr Regan told the court the evidence will show that in the lead-up to signing the lifeline deal with ANZ, that Smith took "reasonable and appropriate steps based on the information that was available to him". This included going to lawyers Hall & Wilcox, rather than "jumping on a plane to South Africa". "We say that that mitigates against dishonesty in this case. It's as simple as that", Mr Regan said. "The honest director, in the shoes of Mr Smith, signed the co-operation deed as a lifeline".[44]

Mr Regan also commented on the actions of ANZ Bank. He said that ANZ's decision to foreclose on the loan a week after issuing it raised questions about the bank's motives. "One has to wonder whether the ANZ Bank's loss of appetite for continued support had anything to do with the fact that they had got the long sought-after change to the AMSLA (Australian Master Securities Lending Agreement) on March 20."[43]

He urged jurors not to be daunted by the big dollar figures involved in the case and to remove the benefit of hindsight from their minds.[42]

Evidence

Although witnesses were called from the conclusion of the counsels' opening statements on 30 July 2013, the first reported evidence was that of former Opes Prime director Laurie Emini.[45][46]

Emini told the court that Smith was aware that shares pledged by mining identity Norm Seckold were being used as a buffer[45] and that he was also aware of the transactions between Opes Prime and Riqueza using Mr Seckold's shares.[46] The jury was shown emails from Smith to Opes Prime employees regarding Mr Seckold's shares and transactions between Riqueza and Opes Prime. When asked by counsel as to why Smith had issued these instructions, Emini replied, "I think Mr smith was cleaning up the accounts of Leveraged Capital and crystallising any losses etc within those accounts".[46] Mr Seckold had earlier told the court that he had no knowledge that his shares had been transferred to Riqueza.[45]

Emini further indicated that he had transferred assets of Hawkswood (the venture capital company owned by Smith, Emini and Blumberg) to cover shortfalls in the Murphy accounts until those assets were exhausted.[47] In later cross examination by the defence, he indicated that Smith had not been included on the email in December 2007 that had detailed the initial $20 million shortfall in the Murphy accounts, but also said that he had not hidden the fact that he started using directors' shares and cash to prop up the Murhy accounts from Smith or Blumberg. He did, however, admit that he had not told Smith that he was double counting securities and that he could not recall whether he had told Smith that Norm Seckold's account "might be used for short-term liquidity funding".[48]

The jury was told that Smith was spending a week every four to five weeks in Singapore and had relocated to Sydney in late 2007 and travelled to Melbourne for board meetings. Emini, however, indicated that Smith was communicating with him in early 2008 despite his move to Sydney, had knowledge of the problem accounts and was involved from the first meeting with financier ANZ Bank.[47][48] He also told the court that Smith's knowledge of securities lending was "second to none" and that he was known as a leader in that industry with extensive experience of the industry.[45][46]

Emini spoke of his devastation when he was informed by Chris Murphy that he (Murphy) could not get financial support from billionaire James Packer - an option he had earlier flagged along with securitising his property portfolio which was worth more than $10m. Emini told the court that he had nowhere to move at that time, because Opes had insufficient cash - only about $12 million - to cover the shortfall and would therefore fail the ASX liquid capital requirements.[47]

Another person who gave evidence earlier was Dean Boyle, Opes Primes' chief operating officer. He spoke of approaching Smith in February 2008 about his concerns regarding the negative equity position in Chris Murphy's account which at that stage was $78.5m. Boyle stated that Smith, "rolled his eyes and said, 'Dean you don't know what Laurie, Anthony and I have got. Put a stop to this shit now and get on with your job'."[14][45]

John Lindholm, the Opes Prime liquidator, followed Emini and gave evidence that the changes made to the AMSLA between Opes and ANZ Bank had cost Opes between $205 million and $270 million. "That is our estimate of the cost to the company of the varied AMSLA and then them [ANZ] having first dibs on the money as secured creditor. It was really the AMSLA that cost the money," he said. "So rather than being a debtor for the business of $195 million, they sold all the security down and said, 'We are still owed $77 million'."[49]

Julian Smith was found not guilty on 6 September 2013[50]