Merrill objects to insider trading claims
Sydney Morning Herald
Wednesday June 10, 2009
LAWYERS for the investment bank Merrill Lynch have objected to insider trading claims being admitted in court on the first day of the bank's action to recover trading losses from its former client David Waterhouse.Merrill's associate Berndale Securities is seeking $9.8 million, including interest on trading losses incurred by a Waterhouse account, How Trading, as the stockmarket fell sharply last year.Waterhouse, of the prominent Sydney horse racing and bookmaking family, has a claim against Merrill for $4 million. The details include allegations of insider trading.Counsel for Merrill Lynch told the Victorian Supreme Court yesterday that the allegations being made by Mr Waterhouse had "no relevance" to the case and alleged "serious criminal wrongdoing"."Merrill Lynch is deeply concerned, and [the allegations] are most emphatically denied andare utterly irrelevant to these proceedings," said Paul Anastassiou SC, in court yesterday.Counsel for the bank argued Mr Waterhouse's failed trading in options contracts had exposed Merrill to a massive potential loss due to the scale of his "entirely unhedged" portfolio.Options contracts give holders the right to buy or sell shares at an agreed price but are not always exercised.Mr Anastassiou said "the notional value" of How Trading's account the amount of money that would have to be paid out to settle all options contracts was $545 million. To hedge against his potential losses it had to short-sell $51.8 million in shares in BHP and Australia's biggest four banks.Mr Waterhouse's counsel, Robert Grieve, QC, said the insider trading allegations went to the "motive and purpose" of why Berndale wound up its client's shares rather than liquidating the portfolio. Justice James Judd said he would decide today whether to allow the short-selling allegations as evidence.Berndale says the account defaulted because Mr Waterhouse did not provide enough money to "keep the account operating within the margin requirements".How Trading has a counter-claim for unjust enrichment and breach of contract. Mr Waterhouse is also demanding the return of $4 million, which he says Berndale took from a Westpac account. This account was funded by a mortgage on a property in Elizabeth Bay owned by Mr Waterhouse's wife, Janette.Mr Waterhouse said Berndale broke the trading agreement when it seized control of his portfolio on January 14 last year. Further, that senior Merrill Lynch staff told him they would "short the hell out of your stocks in the market".In a witness statement Mr Waterhouse alleged Merrill Lynch staff knew their New York headquarters were about to release "awful news" that would affect global equities markets.On January 18 or January 17 in New York Merrill Lynch announced a $US9.83 billion fourth-quarter loss. Sharemarkets and bank stocks around the world tumbled on the news.
© 2009 Sydney Morning Herald
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