The avenues for compensation for the clients of Storm Financial appear to be closing down, with one industry complaints service closing its doors to Storm clients.
Storm Financial was until recently a member of the Financial Ombudsman Service, the industry body designed to facilitate complaints and compensation for clients of financial services companies. The Financial Ombudsman Service (FOS) is the amalgamation of the Banking and Financial Services Ombudsman, the Insurance Ombudsman Service and the Financial Industry Complaints Services (FICS). FOS was launched in July last year.
Since then FICS has been in the process of transferring its members to FOS, though it has maintained control of a few that had existing complaints. Storm was one of the companies yet to be fully transitioned. Storm now remains a member of FICS, but the company’s entry into receivership ruled it out of being a member of FOS.
When a member ceases to be amember of FOS, complaints can no longer be accepted against that member, closing off that avenue for monetary compensation.
FICS chief executive Alison Maynard said complaints against Storm Financial could still be dealt with through FICS — although FICS is outsourcing this work to FOS. Outsourcing the management of complaints from FICS to FOS shouldn’t change the way they are handled, as the two bodies are comprised of the same staff and most rules and procedures are the same. Maynard now heads up the investments, life insurance and superannuation arm of FOS.
There is one technicality to be aware of, however; should Storm Financial enter liquidation, it would then no longer be a member of FICS. The fact that FICS is still fielding complaints is only due to the fact that Storm was yet to be fully transitioned to the FOS structure. Had it been, Storm clients would now have no ready or obvious access to an industry compensation service.
The FICS limits for compensation for claims relating to funds management, investment and financial advice are $100,000 per claim for complaints before July 1, 2008, while complaints relating to issues post July 1, 2008, have a limit of $150,000. Investors can make multiple complaints if the dispute revolves around separate transactions or financial advice that occurred on separate occasions. In these cases, the $100,000 limit may apply for each transaction or advice in dispute.
Many former Storm clients are out of pocket to the tune of hundreds of thousands of dollars. While the FICS limits would not come close to compensating many of these clients, they may at least be assured that the funds come from a reliable funding pool, with Storm currently owing other creditors more than $78 million.
On the other hand, former Storm clients may have a restricted timeframe in which to access any FICS compensation, as an entry by Storm into liquidation would close off this avenue. Furthermore, former Storm clients who are engaged in legal action are precluded from taking action through FICS. Investors with complaints must then choose the compensation angle they believe will be most fruitful.
Maynard said if investors are not happy with the FICS result they could then pursue legal action, or put court proceedings on hold while FICS action is taken.
Damian Scattini of Slater & Gordon this morning said the firm is preparing legal action on behalf of more than 800 former Storm Financial clients, but that the firm is still trying to have the matter settled out of court.
The situation with FOS is akin to that of the Financial Planning Association’s (FPA) investigation into the conduct of Storm Financial. The FPA’s investigation into its former principal member gave it the basis to lay charges, but the company’s entry into administration ended its membership with the FPA, leading to the close of the investigation.
Meanwhile, the Australian Securities and Investments Commission (ASIC) has taken legal action to reclaim a $2 million dividend paid from Storm Financial to Julie and Emmanuel Cassimatis in December last year.
Media reports state that ASIC wants the money paid back to the company in the interests of investors and that ASIC’s lawyers “told the court the couple knew the company was in trouble and acted improperly bypaying themselves the dividend”.
ASIC applied to the Brisbane Supreme Court to freeze the millions held in the Cassimatis’ private bank account. The freeze was successful and will remain in place for two weeks.
UPDATE:
ASIC has confirmed this morning’s reports that it has obtained orders from the Queensland Supreme Court to freeze a $2 million payment made from Storm Financial to founders Julie and Emmanuel Cassimatis.
As reported earlier today, the $2 million payment has been deemed by the regulator as improper.
An ASIC statement released this afternoon expressed the regulator’s concern that there did “not seem to be a proper basis for the payment”.
ASIC wants the money returned to Storm Financial. The court orders restrict the Cassimatis’ from touching the money at least until February 18, at which time the court will determine whether ASIC can maintain the freezing orders.
