BBY trust accounts missing money, KPMG says; clients out of pocket millions of d

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BBY trust accounts missing money, KPMG says; clients out of pocket millions of dollars
By Elysse Morgan
Posted yesterday at 7:17pm

Two weeks after the very public collapse of broker BBY, clients have no idea of the state of their investments, with administrator KPMG today releasing a statement saying the broking firm may not have enough money to pay creditors.
KPMG said they believed some clients' money was missing from BBY's trust accounts.
"At this preliminary stage of our investigations, we have concerns that there could be a shortfall in funds held in trust on behalf of BBY clients, and we are now forensically reconciling the extent of this gap," it said in a statement.
They said their investigations were being hampered by the poor state of BBY's financial records and the high number of unprocessed transactions.
The administrators held a meeting earlier in the week but creditors said it gave them no new information.
BBY chief Glenn Rosewall was a big name in the stockbroking world but unbeknownst to hundreds of clients, his firm had been teetering on the edge of insolvency for weeks.
It all came crashing down a fortnight ago when BBY's bank pulled the pin, leaving some clients millions of dollars out of pocket.
Following the collapse, the ASX stepped in and froze the company's activities with some clients saying this exposed them to potentially heavy losses.
Client traded options for 40 years, lost up to $10m in collapse
BBY client Dr Julian Mazzetti has traded options for 40 years and said he was out of pocket "somewhere between $4 and $10 million".
He said his money was lost when his options contracts were forcibly closed by the ASX following BBY's collapse.
Some of the positions that I had bought I had held for over nine months. I thought they were mine to sell and manage as my property - apparently not.
BBY client Dr Julian Mazzetti
"My property was taken and sold last week, without my knowledge, without my consent and still a week later I can't get any sense out of anyone," Dr Mazzetti said.
Options are complex and risky. They are contracts between buyers and sellers in the market, the buyer has the option to buy a stock at a certain price within a specified time.
They require constant management.
"Some of the positions that I had bought I had held for over nine months," Dr Mazzetti said.
"I thought they were mine to sell and manage as my property - apparently not."
The ASX stopped all clients from trading within hours of administrators taking control.
Options then started to be closed out, but not instantly, leaving clients exposed.
The ASX said it had no alternative but to take the unprecedented action.
"... When insolvency occurs unfortunately the number of options shrinks dramatically - we had no choice but to start closing out," ASX chief Elmer Funke Kupper said.
'I watched tens, if not hundreds, of thousands of dollars disappear'
BBY client Dr Gunnar Haid was stunned when the ASX stopped all clients from trading.
"There was a complete halt on trading them, that doesn't sound like a big deal but for an options trader to not be able to trade open positions is a bad thing and is scary and can cause a lot of damage," he said.
There are two ways to look at it, inside the ASX they either didn't know what the consequences are or they didn't care, it's one of those and I don't know which one is worse.
BBY client Dr Gunnar Haid
"What shocked me was that I was told 'sorry, but you can no longer trade' so I was waiting with open contracts three days before expiry [which is a] pretty nasty market move and all I could do was look and watch as possibly tens, if not hundreds, of

thousands of dollars disappeared."
Questions are being asked whether the ASX could have prevented the losses if it moved against BBY earlier.
Back on May 6, the ASX was aware BBY was close to insolvency and committed then to working with the company to prevent a collapse and protect clients.
"We worked very hard for those 10 days with the company and with the bank to see if we could get to an orderly process of the company exiting the options business and transferring the customers to another clearer and another bank," Mr Kupper said.
BBY had told clients then they had to find a new broker by June 1 but that suddenly changed when Mr Rosewall called in the administrators on May 18.
Clients that had not already switched brokers, like Dr Mazzetti, were closed out and are furious.
"If the regulators were able to appoint a broker who I think was UBS to close out all the accounts, surely they could have appointed a broker to allow continuing trading by the people whose accounts were involved," he said.
That was not possible according to the ASX with Mr Kupper saying: "It's not something we can force because remember brokers are independent companies".
"We are very grateful to a couple of brokers and clearing participants who were willing to work very hard to take as many clients as possible but again the insolvency event made that stop effectively," he said.
That did not sit well will Mr Haid.
"There are two ways to look at it, inside the ASX they either didn't know what the consequences are or they didn't care, it's one of those and I don't know which one is worse," he said.
Industry critical of ASX action
Major industry players saw the ASX's actions as controversial.
"I didn't see it form their point of view, I must admit," Ord Minnett chief Karl Morris said on Thursday.
"But it would seem now that the position that BBY got itself into had some issue with systemic risk across all the brokers and across the exchange."
Criticism has so far been directed at the ASX. But the role of BBY directors Glenn Rosewall, his father Ken and David Perkins is yet to be fully explored.
BBY clients left with no clue as to when their money will be returned
By finance reporter Elysse Morgan
Updated Wed at 1:19pm

People owed money by collapsed broking firm BBY say a creditors meeting today has given them no information on what has happened to their funds.
BBY called in administrators KPMG last week after it declared it was trading insolvent.
All funds were frozen and hundreds of clients are left wondering where their money is and if they will get it back.
Some have told the ABC they have millions of dollars in superannuation invested through the company, and other investors claim to have lost millions of dollars when regulators cancelled their options trades.
One creditor outside the meeting told the ABC he has $200,000 in a US dollar account with BBY but the creditors indicated it will be months before he can get it back.
He said KPMG understands there are around 26 trust accounts, but it is still working through the details.
Chairman and chief executive Glenn Rosewall, son of tennis great Ken, would not answer questions following the meeting.
He replied "no comment" when probed about how he feels about clients who have lost money.
Mr Rosewall and an advisor believe its too early to tell whether the Rosewall family will retrieve any of their own investment in the firm that they had an 80 per cent stake in.
Early investigations by KPMG have found significant trading losses, high overhead costs, poor accounting and financial systems and increased competition led to BBY's collapse.
KPMG said it is going to take a least a month to determine who's owed what and where the money is.
Clients' money is held in accounts which are segregated, KPMG said, from BBY's house funds, and are not subject to claims by other creditors.
The accounts are not "whole" though and are waiting on the return of funds from the ASX and other foreign exchange and futures counterparties.
KPMG warns that it is likely that direction from the court will be needed before any money can be returned to clients.
Clients speaking outside the meeting in Sydney said they were relieved to hear the funds in trust will be returned to them but were frustrated that it could be several months before they see their money again.
:eek: :eek:

BBY administrators' stalemate with internet provider Indicium
By finance reporter Elysse Morgan
Updated Thu at 1:39pm
PHOTO: BBY's administrators and receivers are in dispute with its internet provider. (Reuters)
RELATED STORY: BBY clients in the dark on when their money will be returned

The transfer of BBY clients to other brokers has hit a major snag with the collapsed company's internet provider, Indicium, pulling the plug and demanding more money.
Indicium is understood to be owed money by BBY and is believed to be demanding $7,000 a day to turn internet services back on.
However, the administrators and receivers are not paying.
They struck a deal with Indicium last week, in which the company would be paid a lump sum of $50,000 plus a lucrative ongoing rate for the internet service.
Indicium's move today to cut the service and demand $7,000 a day has been slammed by one BBY insider as being "ransom".
The action is preventing brokers from getting their clients' details, known as HINs, out of BBY and into other firms.
One broker has in excess of 200 clients' HINs still held by BBY, which is preventing the broker from trading on behalf of clients and ruling out any chance of them making commissions.
"Our business is still in limbo," he said.
"There is no fair and orderly market taking place – why isn't ASX or ASIC stepping in is the question we should be asking."
The ASX said it is a matter for BBY's caretakers.
"An internet issue this morning at BBY has held up that process. Remedying the situation is a top priority for the receivers, we believe," a spokesman said.
Receiver PPB is taking court action to force Indicium to turn the internet back on to allow the process of transferring HINs out of BBY to resume.
The ABC understands it would take weeks to set up with a new internet provider.
Indicium refused to comment when contacted by the ABC.
It is understood the firm used similar tactics when Lehman Brothers collapsed.
Wang's AIMS takes BBY and remaining staff
Around 150 creditors met yesterday with administrators KPMG but failed to get any clear answers on the future of their funds frozen in BBY accounts and when owed monies will be paid.
BBY went into administration on May 18 after chief executive Glenn Rosewall declared the firm insolvent and called in administrator KPMG.
Overnight, entrepreneur George Wang signed a deal with KPMG which will see his AIMS Financial Services buy the failed broker for an undisclosed price and take control of the remaining assets.
It is unclear how long it will take Mr Wang to convince necessary regulators to grant him BBY's trading licences.
Under the move AIMS Financial Services will become BBY Asia Pacific.
The 120 staff that were left at BBY after the administrator had cleared out some staff have all been offered positions at BBY Asia Pacific.
A spokesman says the firm will offer many of the trading services that BBY did, but that the firm will be run "a lot more conservatively."
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