Another business model that was always going to end in tears?

[a_unique_person]

http://business.theage.com.au/highliving-tycoon-crashes-to-earth/20080329-22d3.html






WHEN Peter Berlowitz wanted to buy Australia's most luxurious snowfields apartment he jumped in his luxury helicopter and flew to Queensland to seal the $7.5 million deal. He always liked to travel in style.
A confident and, some say, brilliant salesman, Berlowitz regularly used the $2.3 million helicopter to fly from Melbourne to Mount Hotham to ski.
His love of skiing and the finer things in life was the reason he decided he had to have the five-bedroom Mount Hotham penthouse in the Ray Group's Bale apartment project. He handed over a $200,000 deposit for it two years ago but the penthouse, with its projected sweeping views of the alps, is yet to be built. (The 41-apartment project, according to the developers, is expected to be open by the 2010 ski season.)
Unfortunately for more than 400 people who invested $35 million with Berlowitz, the business empire he created is now gone and Australia's corporate watchdog is considering laying criminal charges against the former Esanda executive and personal development trainer.
A Federal Court judge found Berlowitz's HLP Group of companies had been operating as an unregistered managed investment scheme.
One of his companies, HLP Financial Planning, according to the Australian Securities and Investments Commission, had been offering investors returns of 5% in the first year of investment, 11% in year two, 57% in year three and 67% in year four. It was promoted as a business that "seeks out and develops worthy investment opportunities for its clients".







67%? Why didn't anyone tell me about this?

[Gord_in_Toronto]

http://business.theage.com.au/highliving-tycoon-crashes-to-earth/20080329-22d3.html


67%? Why didn't anyone tell me about this?

Pah, I don't invest in anything that does not promise 100% return in the first year. I'd tell more but the mission is just about to open for breakfast.

[a_unique_person]

But what makes Opes Prime and Tricom different to most other margin lenders is that they don't own shares on trust for the client. In most cases, margin lenders hold shares in a separate account in the client's name. In Opes Prime and Tricom's case, the shares get mixed in with Opes Prime's and Tricom's and everyone else's shares in providing securities to the banks that provide the margin loans to Opes Prime and Tricom.
Opes Prime is a living example of what happens when a company with this model goes belly up: clients become unsecured creditors and, as always, they remain behind the banks. Put simply, the client has taken on Opes Prime's credit risk.
There is enormous pain for Opes Prime clients, some of whom claim they did not know they had signed over beneficial ownership of their shares when they took out margin loans with the broker. Investors in companies whose shares have been shellacked due to margin calls triggered by Opes Prime are also in pain.
This episode, coupled with the shenanigans at Tricom, has put the whole financial system and its level of regulation further under the spotlight. It comes up short.






So margin lending on your shares isn't actually getting a maring loan on your shares, it's taking out a loan to buy shares for them, which you'll be able to make a claim on if everythings OK. Which it isn't.