Insider trading allegations play out in court with a 'poker' email exchange

Amid the yet-to-be-tested claims being made by David Waterhouse is the allegation that Merrill Lynch was aware in advance of bad news due out of New York on January 18 last year - that the bank was about to announce a $US9.83 billion fourth-quarter loss, incorporating a $US16.7 billion write-down associated with subprime mortgage losses - and he was warned not to write any more put options that could expose him to huge losses.

The details of the case will play out in court in coming weeks, as the key players give evidence in the battle between Waterhouse's company, How Trading, and Merrill Lynch subsidiary Berndale Securities, but already the details emerging provide insight into the world of the Thundering Herd.

According to the witness statement provided by Waterhouse, the most serious insider trading allegations were pitched in boys' club style. Indeed, according to the witness statement, Dan Ritchie is alleged to have begun his advice with: "David, you're a nice guy and you have done the right thing."

After running through the short-selling plan and the impact of the "awful" news due from head office on global markets, Ritchie is alleged to have concluded: "Merrill Lynch are a strange bunch, they seem to stuff up on every score, they closed down their private dealers here at the start of the last boom. They make some of the dumbest decisions. Keep our conversation to yourself, of course, as I'm trying to be a major help to you. In other circumstances we would be good friends."

Waterhouse claims Merrill Lynch had begun short-selling the stocks he had taken a long position in well before it seized control of How Trading on January 14 last year.

Among the documents provided to the court are emails between Merrill Lynch executives. One exchange, between Scott Anderson, the chief operating officer for options and futures trading at Merrill Lynch, and Robert Forbes, chief of Berndale, occurred just as Waterhouse's How Trading teetered on the brink of its $6.5 million margin call limit.

Anderson: "Margin has increased by $505,700 to $6,485,700. Teetering on the edge for Friday."

Forbes: "Thank God!"

Anderson: "I think he's in trouble anyway, don't you? Only 15K to go and one day. It's like the ASX's very own movie script. Are you pokering?"

Forbes: "Market is going to rally tomorrow. Markets crapped twice in a week and he's still under for next month. Just have to sit and hope. Poker will be later."

That email exchange might make it hard for Berndale to argue they were working in their client's best interests.

Judd presiding

A FEW who followed the last headline-grabbing insider trading case in Australia - Steve Vizard's self-confessed "serious contravention of the law" when he abused his position as a Telstra director by using boardroom information to trade shares - couldn't help but note the name presiding when Berndale Securities v How Trading was listed in the Victorian Supreme Court.

One Justice James Judd will be hearing matters, formerly James Judd, QC - the man who was Vizard's counsel during those dark days.

Benz sales talk

THERE were a few smiles out at Mulgrave as the top brass at Mercedes-Benz Australia departed for the long weekend.

After copping a blast from some cardigan-wearing advertising types on ABC's The Gruen Transfer for its "Let's Talk" campaign - they argued that encouraging buyers to bargain for a car devalued the Mercedes brand - the sales figures are now in.

Mercedes-Benz outsold its Bavarian rival BMW for the "first time in as long as anyone can remember" as a result of the campaign, according to one staffer from Mercedes HQ. "We even outsold them in SUVs for the first time." In May, Mercedes sold 1448 cars to BMW's 1171.

"I guess when Mercedes-Benz talks, people listen," quipped managing director Horst von Sanden.