Landmark settlement reached in Storm fallout

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ASIC has settled legal proceedings against Bank of Queensland (BoQ), Senrac and Macquarie Bank on behalf of two former Storm investors, Barry and Deanna Doyle.

Without admission, BOQ, Senrac and Macquarie have agreed to pay $1,100,000, which will fully compensate Barry and Deanna Doyle for their financial loss arising from their Storm investments, as calculated by independent experts retained for the proceedings and as calculated by ASIC.

A three-week trial was due to commence on 3 June, 2013, in the Federal Court of Australia, “to hold the banks accountable for their role in the losses suffered by those who invested through Storm and to establish a basis upon which the Doyles, and ultimately other Storm investors, could achieve fair and adequate compensation,” said ASIC Chairman Greg Medcraft.

Allegations against BoQ and Macquarie were for breach of contract, unconscionable conduct and liability as linked credit providers of Storm. Medcraft said the allegations had provided a template for similar allegations that have been raised in class actions brought on behalf of investors against BoQ, Macquarie and CBA.

“ASIC will continue its efforts to achieve fair compensation for all former Storm investors,” Medcraft said.

Claims similar to those made in the Doyle proceedings were made in the Richards class action against Macquarie.

Under the class action settlement negotiated by solicitors of Levitt Robinson and Macquarie, approximately 70% of class action members would recover about 18% of their lost ‘net equity’ (as estimated by Levitt Robinson).

The remaining class action members, who contributed in varying amounts to the funding of the class action, would be reimbursed their legal costs and also compensated for approximately 42% of their lost ‘net equity’ (as estimated by Levitt Robinson). In return for receiving this compensation, members of the Richards class action would be required to give up any further claims against Macquarie in respect of Storm.

ASIC has appealed the Federal Court's approval of the Richards class action settlement. ASIC’s appeal raises the question whether the class action settlement was unfair to the 70% of class action members who did not, or were unable to, contribute to the funding of the action.

The Federal Court is yet to set a date for delivery of its judgment in ASIC's unregistered managed investment scheme action against Storm, BoQ and Macquarie.

  • GAB on 30/05/2013 8:59:47 AM

    I think we tend to forget the severity of the GFC. If we want someone to blame it could be Greenspan, Clinton, Wall street and so on. Hundreds of managed funds failed or were shut down and hundreds of listed entities have died as a result. Can't blame high commissions and bad product knowledge when in reality it's a fund manager in control. Debentures, property trusts, mortgage trusts....going going gone. If they don't know their own product and the market...advisers don't have much hope...hence the attraction to ETFs etc. And still, the researchers are out thre promoting the virtues of hedge funds and why advisers should use them for their clients. Yeah right....not while we cop the blame for fund manager incompetence, thanks.

    Double gearing or just gearing to 70% was a popular strategy and pushed to advisers at many a PD day. How things have changed since then.

    Anyway, we're all wiser now....but I reckon advisers get the rough end of the stick while research firms, BDMs and fund managers walk away unscathed.

  • Pat on 30/05/2013 7:50:15 AM

    All the comments suggesting greed have an element of truth behind them, but comments like Alleycat's illustrate a misunderstanding of the emotional element involved. As advisers who, I presume, have some base understanding of finance, you can see the risk associated with a double gearing strategy into a single asset class.

    But consider it from a lay consumer's perspective who wants a better retirement. They are referred to or go to a seminar put on by a very professionally presented outfit. Oxygen is pumped into the rooms to make them feel better (I kid you now). They are shown aspirational images, long term historical charts and told of how they can better their situation.

    These are people who are somewhat financially illiterate, looking for someone to trust to help them.

    They buy the story that you and I know is bound to fail.

    Apart from the quantum of the actual consequences, it is not a lot different to clients of advisers who went into:

    Astarra/Trio (such as those AIOFP advisers paid marketing fees to sell that crap);
    Basis Capital;
    Westpoint and the others of their ilk.

    These are clients who believed their advisers knew what they were doing and knew their products. In the end, advisers in almost all these cases, including Storm, ripped their clients off heavily with commissions and high percentage based fees into strategies or products they did not sufficiently understand and had few real consequences.

  • alleycat on 29/05/2013 4:19:36 PM

    @ Fedup
    You're on the money !
    No one in their right minds who spent 25-30 years working to pay off a mortgage and be debt free in retirement should have even considered the Storm proposal unless.... Greed and stupidity were the architects and drivers for all participants involved

  • Ken M on 29/05/2013 4:05:23 PM

    Agree with the previous comments but I am wondering what is happening with the Storm Financial owners and advisers. After all, they were the people who gave the advice and introduce people to the 'safe' strategies. I do hope they are well and truly held to account ie banned for life at the very least.

  • Hugh Jarsole on 29/05/2013 1:44:30 PM

    I agree with FEDUP - have reviewed some Storm SoA's and with doubl gearing and "low risk"! investment in the "Safe " sharemarket most of the clients were always going to be in financial nirvana- not! Caveat Emptor but Greed wins (and loses) every time. Clients need to take some responsibility for thier actions.

  • Farbo on 29/05/2013 1:29:12 PM

    Fedup is so right, we all knock car salesmen, but a friend of mine who owned a car business used to say "buyers are liars". Greed will blind them every time !!

  • GAB on 29/05/2013 1:16:20 PM

    Just shows you how worthless a Statement of Advice is really.....if the underlying strategy is flawed. But hey, as long as compliance is in order it's all above board. Yet we keep churning out SOAs as if they're the measure of great advice. Ban this junk document and focus more on the quality of advice....oh crap, I'm running out of time getting ready for these FDS things.

  • John A on 29/05/2013 12:54:47 PM

    I dont know why banks are getting the blame, the Storm financial planners and owners should be held accountable as the advice they gave is criminal

  • Ben (CFP) on 29/05/2013 12:33:51 PM

    So true Fedup, so true. As a client said to me just this morning 'when things are going well you hear nothing but when things turn downwards people start to jump up and down'. You have used the one and only appropriate word...GREED!

  • carl on 29/05/2013 12:25:07 PM

    Is'nt the account of fedup a reality check. FOFA has come out of all of this but the balance between extra work and good outcomes is ? All that is really needed is 'good' people/participants but that is utopia.
    Justice is quite often illusory and yes stories change when needs change.

  • Fedup on 29/05/2013 11:55:50 AM

    I spoke with a Storm client and went through their plan with them and told them that the plan was destined to fail due to high leverage and statistically would fail at some stage due to market volatility. They didn’t want to hear it and told me I didn’t know what i was talking about. The same client has their hand out for compensation. GREED is the key word here! Both the Storm adviser and to some extent, the clients bare resposibility. What weight you put to the clients I struggle to determine, but they are not without fault. When we speak sense to people they often turn away and go where they think they can get rich quick.

  • Innocent Observer on 6/06/2013 7:29:58 AM

    Ian - I am going guess that you're not an adviser and you certainly don't understand how the licensing regime (in a practical sense) works.

    Dealer groups provide a critical link in the compliance chain: it allows smaller operates to run their businesses and it allows for regular and thorough compliance checks/internal audits. It would be insanely expensive and inefficient. If we think ASIC are slow now, throw another few thousand AFSL's at them.

    We don't need more red tape. That just makes it easier for the crooks to hide, and a hell of a lot harder for them to be caught & prosecuted.

    Oh, and re: the actual Storm Case. Greed is the common denominator. Clients want to believe what they want. Happened before, will happen again.

  • Fedup on 5/06/2013 9:15:19 PM

    Ian are you a Labor Party plant. I cant believe anyone who has had bothered to open their eyes and observe, would not suggest that government control would fix things. Government boys (Labor) suggest money should be pumped into infrastructure, for one. Sounds great! cheap funding to get a useless government out of the s.... What rate do the investors get on their infrastructure investment. 2%? too low! 5? better returns to be had in equities! 9% you can borrow from the banks cheaper! Would you be happy to invest your money at less than 8% in an illiquid investment,over the long term. Not me! the ones pushing it don't have 2 cents to rub together. you can pick the lefties as soon as they come out with these ridiculous suggestions. Would a Labor government mandate that we have to invest in infrastructure at a below market rate of return?

  • Ian on 30/05/2013 11:48:39 AM

    This occurred because Storm Advisers were trained to be good sales people , and they believed what they were doing was right. If the government had licensed advisers directly instead of the Dealer Group system I am sure we would have had different outcomes.
    The Milgram experiment pretty much explains how good thought processes leave advisers when they are influenced by people they think know what they are about.

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