Storm Financial directors breached duties

finance law accountants ASIC breach

29 August 2016
| By Malavika |
image
image
expand image

Storm Financial directors, Emmanuel and Julie Cassimatis have been found to have breached their duties as directors and provided inappropriate advice to certain investors.

The Federal Court ruled on 26 August that Storm Financial provided inappropriate advice to certain investors based on their personal circumstances and failed to consider each person's circumstances and investigate the subject matter of the advice.

The Australian Securities and Investments Commission (ASIC) began civil penalty proceedings against the Cassimatises in late 2010. ASIC considered that Storm operated a one-size-fits-all system since 1994 when providing investment advice to clients.

The advice recommended that Storm clients invest large amounts in index funds, using "double gearing". This approach involved taking out both a home loan and a margin loan in order to buy units in index funds, create a "cash dam" and pay Storm fees.

Once initial investment occurred, "Stormified clients were encouraged to take "step" investments over time.

According to ASIC, by the time Storm collapsed in early 2009, around 3,000 of its 14,000 clients had been "Stormified", with many clients in negative equity positions and experiencing significant losses.

ASIC launched a case based on a sample of investors who were advised to invest according to the Storm model. ASIC considered the advice to be inappropriate as each of the investors were alleged to be over 50 years old, were retired or were approaching and planning for retirement, had limited income and assets, and had little or no chance of recovering their losses.

ASIC also alleged Storm failed to ensure the financial services covered by its licence were provided efficiently, honestly, and fairly. It also alleged the Cassimatises had breached its obligations under the Corporations Act and did not exercise their powers as directors of Storm with the diligence expected of directors in that situation.

In his ruling, the judge found that:

"A reasonable director with the responsibilities of Mr and Mrs Cassimatis would have known that the Storm model was being applied to clients such as those who fell within this class and that its application was likely to lead to inappropriate advice. The consequences of that inappropriate advice would be catastrophic for Storm (the entity to whom the directors owed their duties). It would have been simple to take precautionary measures to attempt to avoid the application of the Storm model to this class of persons."

The case is due for a later hearing to determine civil penalties and the nature of disqualification orders to be imposed on the directors for breaching their duties.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

Completely agree Peter. The definition of 'significant change is circumstances relevant to the scope of the advice' is s...

3 weeks 5 days ago

This verdict highlights something deeply wrong and rotten at the heart of the FSCP. We are witnessing a heavy-handed, op...

1 month ago

Interesting. Would be good to know the details of the StrategyOne deal....

1 month ago

Insignia Financial has confirmed it is considering a preliminary non-binding proposal received from a US private equity giant to acquire the firm. ...

1 week 3 days ago

Six of the seven listed financial advice licensees have reported positive share price growth in 2024, with AMP and Insignia successfully reversing earlier losses. ...

6 days ago

Specialist wealth platform provider Mason Stevens has become the latest target of an acquisition as it enters a binding agreement with a leading Sydney-based private equi...

5 days 4 hours ago