Posted on 29 Nov 2010
National law firm Slater and Gordon has filed a claim against Southern Cross Equities in the Federal Court of Australia on behalf of a couple who lost a portfolio worth in excess of $25 million, at the time of the collapse of Opes Prime.
Slater and Gordon, Practice Group Leader, Mark Walter said the claim alleges Southern Cross Equities had failed to properly advise New Zealander Mr John McIntyre (and his now deceased wife, Elizabeth) as to the true nature of a securities lending facility with Opes Prime.
Mr Walter said it was alleged that Mr and Mrs McIntyre were not advised of the true nature and high risks associated with the Opes Prime facility.
“The McIntyres had engaged Southern Cross Equities as stockbrokers and advisors as they mainly invested in shares in mining and energy companies,” Mr Walter said.
“In April 2005, Southern Cross Equities advised the McIntyres to enter into a margin lending facility with Opes Prime Securities Limited, allowing them to borrow to invest further using their shares as security. In fact, what they entered into was not a standard margin lending facility, but a far more risky and dangerous share lending arrangement.”
Mr Walter said the contract enabled Opes Prime to take control of the McIntyre’s entire share portfolio and to use it as it “as seen fit”, including the use of those shares as collateral for its own loans.
“In a margin lending facility, the loan remains in the name of the borrower and it is provided as collateral security only, but under the Opes Prime facility, the borrower transferred the borrower’s entire share portfolio to Opes Prime absolutely, in consideration for an unsecured promise to replace the portfolio in the future,” he said.
The documents lodged with the court allege that when Opes Prime collapsed in March 2008, the McIntyre’s portfolio had a market value of $25.5 million, with a loan owed to Opes Prime of $8.4 million. However, Opes Prime had already transferred the shares to a third party meaning that when Opes Prime went into administration, the McIntyres lost their entire share portfolio, including equity of approximately $17 million. Within months the same portfolio was valued at $56 million.”
The McIntyres allege “Southern Cross Equities failed to inform the McIntyres of the risks, or to advise them in any way that their portfolio would be made so vulnerable in such an agreement.”
“The McIntyres allege Southern Cross Equities were negligent costing them millions in equity, plus many more millions in potential earnings. The McIntyres allege that the stockbroker didn’t make a proper assessment or investigation into the Opes Prime product; didn’t advise them on the implications of the agreement, and didn’t explain that they had lost ownership and control of their shares in their portfolio, merely becoming an unsecured creditor.”
Mr Walter said any investor who entered into an Opes Prime facility on the advice or recommendation from a financial advisor should seek legal advice.