An erroneous trade in Woolworths options in March, by now defunct broking firm BBY, has a former adviser of the firm desperately battling lender St George Bank and receivers PPB Advisory for the return of $630,000.
Almost six months after BBY's spectacular collapse, St George and PPB are still refusing to return the funds as they claim they can not prove who is legally entitled to them.
That is despite evidence provided to them by former BBY adviser Darrell Seeto, whose junior trader executed the spurious trade, which shows the former personally deposited the money into BBY's operational account in April.
The buy and sell trade instructions were entered the wrong way around and were not picked up by the now defunct firm's checking processes. The trade did, however, trigger alarm bells at the ASX as it was within the bourse's Extreme Trading Range (ETR), under its operating rules. But it was not unwound as the error was reported roughly five minutes outside a 30-minute window for cancelling such transactions, according to documents sighted by Fairfax Media.
The events and the $630,000 loss are now caught up in the collapse of BBY, the first market participant to fail in more than three decades. The error shines a light on the failure of BBY's checking processes ahead of trades being lodged, and the lengths the firm went to, to force the adviser to wear the loss and negotiate with counterparty, Liquid Capital, to have the funds returned.
The Australian Securities and Investments Commission also became involved after being made aware of the trade.
A former BBY trader within Mr Seeto's team executed the erroneous trade, and a day after it was undertaken in late March, BBY's executive chairman Glenn Rosewall made it clear that the trader and the adviser, not BBY, would have to fund the mistake to ensure the client was not out of pocket.
Verbal arrangement
"Glenn Rosewall made it very clear BBY was not funding the error trade and that I had to fund it," Mr Seeto told Fairfax Media.
Mr Seeto came to a verbal arrangement with Liquid Capital in late March that would see the latter keep $75,000 of the $630,000 and return the difference. He then paid the lost amount into a BBY operational account, where the firm's client settlements were conducted. Those plans were delayed, however, when Mr Rosewall took a more active role in negotiations and subsequently they were then thrown into doubt as BBY was placed in voluntary administration in May.
Mr Seeto is now in a long-running stoush with St George and PPB over the funds he deposited.
"St George has grabbed my funds through PPB and recently cut a deal with Liquid Capital. It was only after I threatened a court injunction, they decided to put the money into a trust account," he said.
Liquid Capital confirmed they had transferred $555,000 to PPB last week.
Thousands of clients entangled in the BBY saga are also yet to find out their net positions for tax purposes, after many endured notable losses. The liquidator of most BBY entities, KPMG, also uncovered a shortfall in total client accounts of as much as $16 million and, in a report to creditors, outlined potential fraud and that BBY was likely trading insolvent since June 2014.
Letters demand repayments
Aggrieved groups of BBY clients are also fighting for funds to be returned in the NSW Supreme Court.
BBY collapsed owing money to St George and after several run-ins with regulators over its capital requirements and governance.
The battle over the erroneous trade comes as PPB's lawyers K&L Gates dispatched letters demanding clients repay money owed to BBY by November 4.
Commenting on the stoush over the erroneous trade, PPB partner Brett Lord said his firm was focused on getting the "correct legal answer".
"[The disputed funds are] in a non-Westpac St George trust account pending determination of who has entitlement to the funds," he said.
A spokeswoman for St George said: "these are matters for the receivers", declining to comment further.
Mr Rosewall did not return calls seeking comment. BBY was majority owned by Rosewall and his father, tennis great, Ken Rosewall, who won eight major singles titles during his career. Both were directors of BBY alongside lawyer David Perkins.
Voluntary transfer of funds
Liquid Capital's Asia Pacific managing director Tim Plunkett said his firm had returned the funds to PPB.
"After recent discussions with PPB we have made the voluntary transfer of funds to BBY in line with our intentions from soon after the trade occurred," he said.
Mr Seeto also hit out at the ASX saying the exchange had cancelled other trades outside their specified timeframe. He is preparing to take the matter to court.
"Despite both parties agreeing to cancel the trade, the trade was not cancelled by the ASX and now St George think the funds are theirs," he said. "All parties who benefited from the erroneous trade appear to be ducking and weaving whilst I remain out of pocket and having to fund legal fees."
An ASX spokesman said while the exchange has some discretion to cancel trades outside the 30 minute window, as specified in the rules, it makes a decision after examining trading before and after the transaction in question.
"For options trades, ASX has a discretion to cancel trades if they are found to have had a negative impact on market orderliness," he said, noting that the trade in question, despite being within the ETR, was not deemed to be so.
