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==Collapse==
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The Commonwealth Bank forced Storm into [[administration (law)|administration]] on the 9th Jan 2009 when the bank called up its lending facilities to Storm citing a [[default (finance)|default]] on Storms own margin lending facility with the bank.<ref name="StormNotice1">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2008.12.29%20CBA%20notice%20of%20demand%20on%20Storm.pdf |title=CBA notice of demand 1 |date=29 Dec 2008 |work=[[Commonwealth Bank of Australia]] |publisher=The Plain Truth }}</ref><ref name="StormNotice2">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2008.12.31%20CBA%20notice%20of%20demand%20on%20Storm.pdf |title=CBA notice of demand 2 |date=31 Dec 2008 |work=[[Commonwealth Bank of Australia]] |publisher=The Plain Truth }}</ref> Whilst the date of the alleged default by Storm was the 10 October 2008, the Commonwealth Bank records at the time showed Storm to not be in default. The banks acceptance of non-default was evidenced by the banks approval to Storm for a $30m loan facility on 24 October 2008, the banks funding of a $10m facility to Storm on the 29 October 2008 and a new loan facility of $4.725 m on 5 December 2008 for the purchase of a new building.<ref name="StormDefault">{{cite web |url=http://www.commonwealthbankdeception.com/?p=17 |title=Commonwealth Bank resorts to lies too take out Storm |date=29 Oct 2011 |publisher=The Plain Truth }}</ref>
The Commonwealth Bank forced Storm into [[administration (law)|administration]] on the 9th Jan 2009 when the bank called up its lending facilities to Storm citing a [[default (finance)|default]] on Storms own margin lending facility with the bank.<ref name="StormNotice1">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2008.12.29%20CBA%20notice%20of%20demand%20on%20Storm.pdf |title=CBA notice of demand 1 |date=29 Dec 2008 |work=[[Commonwealth Bank of Australia]] |publisher=The Plain Truth }}</ref> <ref name="StormNotice2">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2008.12.31%20CBA%20notice%20of%20demand%20on%20Storm.pdf |title=CBA notice of demand 2 |date=31 Dec 2008 |work=[[Commonwealth Bank of Australia]] |publisher=The Plain Truth }}</ref> Whilst the date of the alleged default by Storm was the 10 October 2008, the Commonwealth Bank records at the time showed Storm to not be in default. The banks acceptance of non-default was evidenced by the banks approval to Storm for a $30m loan facility on 24 October 2008, the banks funding of a $10m facility to Storm on the 29 October 2008 and a new loan facility of $4.725 m on 5 December 2008 for the purchase of a new building.<ref name="StormDefault">{{cite web |url=http://www.commonwealthbankdeception.com/?p=17 |title=Commonwealth Bank resorts to lies too take out Storm |date=29 Oct 2011 |publisher=The Plain Truth }}</ref>


Whilst in the past the Commonwealth Bank sent margin call notices out to Storm clients, the advisor or both,<ref name="CBAmarginhistory">{{cite web |url=http://www.commonwealthbankdeception.com/?p=326 |title=Storm Financials re-participation strategy: Did it exist? (conclusion) |date=25 May 2012 |publisher=The Plain Truth }}</ref> the banks failure to issue margin call notices at the critical time was one of the major influences in late 2008 that triggered the eventual collapse of Storm.<ref name="CBA2008margincall">{{cite web |url=http://www.commonwealthbankdeception.com/?p=78 |title=Commonwealth Bank- Determined to be different |date=16 Apr 2012 |publisher=The Plain Truth }}</ref> The banks failure to issue margin call notices together with its inability to reconcile the correct financial position of each client ultimately led to many clients passing through their [[margin (finance)|margin call]] trigger points and ending in [[negative equity]].<ref name="CBA2008margincall">{{cite web |url=http://www.commonwealthbankdeception.com/?p=95 |title=Storm clients call to open Parliamentary Joint Committee Inquiry into Commonwealth Bank deceptions |date=24 Apr 2012 |publisher=The Plain Truth }}</ref>
Whilst in the past the Commonwealth Bank sent margin call notices out to Storm clients, the advisor or both,<ref name="CBAmarginhistory">{{cite web |url=http://www.commonwealthbankdeception.com/?p=326 |title=Storm Financials re-participation strategy: Did it exist? (conclusion) |date=25 May 2012 |publisher=The Plain Truth }}</ref> the banks failure to issue margin call notices at the critical time was one of the major influences in late 2008 that triggered the eventual collapse of Storm.<ref name="CBA2008margincall">{{cite web |url=http://www.commonwealthbankdeception.com/?p=78 |title=Commonwealth Bank- Determined to be different |date=16 Apr 2012 |publisher=The Plain Truth }}</ref> The banks failure to issue margin call notices together with its inability to reconcile the correct financial position of each client ultimately led to many clients passing through their [[margin (finance)|margin call]] trigger points and ending in [[negative equity]].<ref name="CBA2008margincall">{{cite web |url=http://www.commonwealthbankdeception.com/?p=95 |title=Storm clients call to open Parliamentary Joint Committee Inquiry into Commonwealth Bank deceptions |date=24 Apr 2012 |publisher=The Plain Truth }}</ref>
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The unreliability and inaccuracy of the data provided to Storm and Storm clients by the Commonwealth Bank was identified in clause 24 of an evaluation conducted by the Honourable Roger Gyles AO QC on 18 November 2011.<ref name="EvaluationGyles">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2011.11.18-Evaluation-by-Hon-Gyles-extract-only.pdf |title=Evaluation of Storm client by Hon R Gyles AO QC (extract only) |date=18 Nov 2011 |work=The Hon Roger Gyles AO QC |publisher=The Plain Truth }}</ref> This evaluation further states that not only was the banks data inaccurate but that Commonwealth Bank officers knew of these inaccuracies. Separate analysis revealed the extent of the CBA data errors and how integral these errors were to the significant losses that Storm clients suffered.<ref name="CBAdirectors">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2011.08.15%20Letter%20to%20CBA%20board%20-%20David%20Turner%20(FULL).pdf |title=Letter to CBA Board of Directors |date=15 Aug 2011 |work=The Commission on Banking & Financial Services |publisher=The Plain Truth }}</ref>
The unreliability and inaccuracy of the data provided to Storm and Storm clients by the Commonwealth Bank was identified in clause 24 of an evaluation conducted by the Honourable Roger Gyles AO QC on 18 November 2011.<ref name="EvaluationGyles">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2011.11.18-Evaluation-by-Hon-Gyles-extract-only.pdf |title=Evaluation of Storm client by Hon R Gyles AO QC (extract only) |date=18 Nov 2011 |work=The Hon Roger Gyles AO QC |publisher=The Plain Truth }}</ref> This evaluation further states that not only was the banks data inaccurate but that Commonwealth Bank officers knew of these inaccuracies. Separate analysis revealed the extent of the CBA data errors and how integral these errors were to the significant losses that Storm clients suffered.<ref name="CBAdirectors">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2011.08.15%20Letter%20to%20CBA%20board%20-%20David%20Turner%20(FULL).pdf |title=Letter to CBA Board of Directors |date=15 Aug 2011 |work=The Commission on Banking & Financial Services |publisher=The Plain Truth }}</ref>


On 8 December 2008, the Commonwealth Bank sent a letter<ref name="CBAletter8Dec">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2008.12.08%20d%20CML%20letter%20to%20client%20re%20negative%20equity.pdf |title=2008.12.08 CBA letter to Storm clients re negative equity |date=8 December 2008 |work=The Commonwealth Bank of Australia |publisher=The Plain Truth }}</ref> to all of its Storm clients who found themselves in negative equity (according to CBA data which was faulty<ref name="CBAdataerrors">{{cite web |url=http://www.commonwealthbankdeception.com/?p=30 |title=Ian Narev’s Half-Truths unravel as Full Truth emerges |date=15 November 2011 |publisher=The Plain Truth }}</ref>) as a consequence of falling markets and the banks failure to issue clients with a margin call notice. The lack of information meant that clients were unable to transact on their portfolios with confidence consequently resulting in significant losses.<ref name="CBA2008margincall">{{cite web |url=http://www.commonwealthbankdeception.com/?p=78 |title=Commonwealth Bank- Determined to be different |date=16 Apr 2012 |publisher=The Plain Truth }}</ref> The CBA letter to Storm clients further incorrectly states that Storm was the sole manager of the clients margin loan throughout the period. On 24 December 2008 the [[Federal Court of Australia]] found that Storm had proved, to the requisite standard of proof for [[interlocutory injunction]], that the CBA had engaged in conduct that was, in contravention to the [[Corporations Act 2001]], misleading or deceptive or likely to mislead or deceive. <ref name="FederalCourtsummary">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.31.1-d-Court-summary-of-Judgement.pdf |work=Russell and Company |date=31 December 2008 }}</ref><ref name="FederalCourtjudgment">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.24-d-Justice-Greenwood-Judgment.pdf |work=Federal Court of Australia |date=24 December 2008 }}</ref>
On 8 December 2008, the Commonwealth Bank sent a letter <ref name="CBAletter8Dec">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2008.12.08%20d%20CML%20letter%20to%20client%20re%20negative%20equity.pdf |title=2008.12.08 CBA letter to Storm clients re negative equity |date=8 December 2008 |work=The Commonwealth Bank of Australia |publisher=The Plain Truth }}</ref> to all of its Storm clients who found themselves in negative equity (according to CBA data which was faulty) <ref name="CBAdataerrors">{{cite web |url=http://www.commonwealthbankdeception.com/?p=30 |title=Ian Narev’s Half-Truths unravel as Full Truth emerges |date=15 November 2011 |publisher=The Plain Truth }}</ref> as a consequence of falling markets and the banks failure to issue clients with a margin call notice. The lack of information meant that clients were unable to transact on their portfolios with confidence consequently resulting in significant losses.<ref name="CBA2008margincall">{{cite web |url=http://www.commonwealthbankdeception.com/?p=78 |title=Commonwealth Bank- Determined to be different |date=16 Apr 2012 |publisher=The Plain Truth }}</ref> The CBA letter to Storm clients further incorrectly states that Storm was the sole manager of the clients margin loan throughout the period. On 24 December 2008 the [[Federal Court of Australia]] found that Storm had proved, to the requisite standard of proof for [[interlocutory injunction]], that the CBA had engaged in conduct that was, in contravention to the [[Corporations Act 2001]], misleading or deceptive or likely to mislead or deceive. <ref name="FederalCourtsummary">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.31.1-d-Court-summary-of-Judgement.pdf |work=Russell and Company |date=31 December 2008 |publisher=The Plain Truth }}</ref> <ref name="FederalCourtjudgment">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.24-d-Justice-Greenwood-Judgment.pdf |work=Federal Court of Australia |date=24 December 2008 |publisher=The Plain Truth }}</ref>


The Commonwealth Bank then issued a letter on 9 December 2008 to its Storm clients that were sold out of the market allegedly on the instructions of Storms CEO, Emmanuel Cassimatis. This letter repeated elements of CBA’s 8 December 2008 letter as well as alleging that Storm provided instruction to the bank that the CBA / Storm portfolios of all margin lending clients with an [[loan-to-value ratio|LVR]] greater than 90% be fully redeemed. <ref name="CBAletter9Dec">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2008.12.09%20d%20CML%20letter%20to%20client%20re%20Storm%20instructions%20to%20sell.pdf |title=2008.12.09 CBA letter to Storm clients re 90% sale |date=9 December 2008 |work=The Commonwealth Bank of Australia |publisher=The Plain Truth }}</ref> Material elements of CBA’s letter of 9 December 2008 was also found to be [[misleading or deceptive conduct|deceptive and misleading]] by the Federal Court of Australia.<ref name="FederalCourtsummary">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.31.1-d-Court-summary-of-Judgement.pdf |work=Russell and Company |date=31 December 2008 }}</ref><ref name="FederalCourtjudgment">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.24-d-Justice-Greenwood-Judgment.pdf |work=Federal Court of Australia |date=24 December 2008 }}</ref>
The Commonwealth Bank then issued a letter on 9 December 2008 to its Storm clients that were sold out of the market allegedly on the instructions of Storms CEO, Emmanuel Cassimatis. This letter repeated elements of CBA’s 8 December 2008 letter as well as alleging that Storm provided instruction to the bank that the CBA / Storm portfolios of all margin lending clients with an [[loan-to-value ratio|LVR]] greater than 90% be fully redeemed. <ref name="CBAletter9Dec">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2008.12.09%20d%20CML%20letter%20to%20client%20re%20Storm%20instructions%20to%20sell.pdf |title=2008.12.09 CBA letter to Storm clients re 90% sale |date=9 December 2008 |work=The Commonwealth Bank of Australia |publisher=The Plain Truth }}</ref> Material elements of CBA’s letter of 9 December 2008 was also found to be [[misleading or deceptive conduct|deceptive and misleading]] by the Federal Court of Australia.<ref name="FederalCourtsummary">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.31.1-d-Court-summary-of-Judgement.pdf |work=Russell and Company |date=31 December 2008 |publisher=The Plain Truth }}</ref> <ref name="FederalCourtjudgment">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.24-d-Justice-Greenwood-Judgment.pdf |work=Federal Court of Australia |date=24 December 2008 |publisher=The Plain Truth }}</ref>


On 17 December 2008, the Commonwealth Bank sent a generic letter to all its Storm clients further reinforcing the banks message of 8 and 9 December 2008 that Storm was the sole manager of the clients margin loan and further adding that Storm was “completely responsible for your [the clients] financial position…”.<ref name="CBAletter17Dec">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2008.12.17%20d%20CML%20letter%20to%20client%20re%20Storm.pdf |title=2008.12.17 CBA generic letter to Storm clients |date=17 December 2008 |work=The Commonwealth Bank of Australia |publisher=The Plain Truth }}</ref> Once again, the Federal Court of Australia found to the standard of proof for [[interlocutory injunction]] that the assertions by the Commonwealth Bank were deceptive and misleading. <ref name="FederalCourtsummary">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.31.1-d-Court-summary-of-Judgement.pdf |work=Russell and Company |date=31 December 2008 }}</ref><ref name="FederalCourtjudgment">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.24-d-Justice-Greenwood-Judgment.pdf |work=Federal Court of Australia |date=24 December 2008 }}</ref>
On 17 December 2008, the Commonwealth Bank sent a generic letter to all its Storm clients further reinforcing the banks message of 8 and 9 December 2008 that Storm was the sole manager of the clients margin loan and further adding that Storm was “completely responsible for your [the clients] financial position…”.<ref name="CBAletter17Dec">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2008.12.17%20d%20CML%20letter%20to%20client%20re%20Storm.pdf |title=2008.12.17 CBA generic letter to Storm clients |date=17 December 2008 |work=The Commonwealth Bank of Australia |publisher=The Plain Truth }}</ref> Once again, the Federal Court of Australia found to the standard of proof for [[interlocutory injunction]] that the assertions by the Commonwealth Bank were deceptive and misleading. <ref name="FederalCourtsummary">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.31.1-d-Court-summary-of-Judgement.pdf |work=Russell and Company |date=31 December 2008 |publisher=The Plain Truth }}</ref> <ref name="FederalCourtjudgment">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.24-d-Justice-Greenwood-Judgment.pdf |work=Federal Court of Australia |date=24 December 2008 |publisher=The Plain Truth }}</ref>
Unfavourable findings for the Commonwealth Bank were brought down on Wednesday 24 December 2008 by Justice Greenwood in the Federal Court in an interlocutory action brought about by Storm Financial.
Unfavourable findings for the Commonwealth Bank were brought down on Wednesday 24 December 2008 by Justice Greenwood in the Federal Court in an interlocutory action brought about by Storm Financial.


Furthermore following these unfavourable findings, the Commonwealth Bank on the next available business day after the Christmas break being Monday 29 December 2008 issued notices of demand to Storm Financial calling up Storms entire commercial facilities. <ref name="StormNotice1">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2008.12.29%20CBA%20notice%20of%20demand%20on%20Storm.pdf |title=CBA notice of demand 1 |date=29 Dec 2008 |work=[[Commonwealth Bank of Australia]] |publisher=The Plain Truth }}</ref><ref name="StormDefault">{{cite web |url=http://www.commonwealthbankdeception.com/?p=17 |title=Commonwealth Bank resorts to lies too take out Storm |date=29 Oct 2011 |publisher=The Plain Truth }}</ref> The ultimate consequence of the banks demands was to force Storm Financial into administration on 9 January 2009 ‘coincidentally’ being the date that Justice Greenwood had set the matter down for mention for the purpose of setting a trial date with the Commonwealth Bank being the [[defendant]]. <ref name="FederalCourtjudgment">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.24-d-Justice-Greenwood-Judgment.pdf |work=Federal Court of Australia |date=24 December 2008 }}</ref> Storm being forced into administration by the Commonwealth Bank had the desirable outcome that the bank avoided trial.
Furthermore following these unfavourable findings, the Commonwealth Bank on the next available business day after the Christmas break being Monday 29 December 2008 issued notices of demand to Storm Financial calling up Storms entire commercial facilities. <ref name="StormNotice1">{{cite web |url=http://www.commonwealthbankdeception.com/documents/rnd2/2008.12.29%20CBA%20notice%20of%20demand%20on%20Storm.pdf |title=CBA notice of demand 1 |date=29 Dec 2008 |work=[[Commonwealth Bank of Australia]] |publisher=The Plain Truth }}</ref> <ref name="StormDefault">{{cite web |url=http://www.commonwealthbankdeception.com/?p=17 |title=Commonwealth Bank resorts to lies too take out Storm |date=29 Oct 2011 |publisher=The Plain Truth }}</ref> The ultimate consequence of the banks demands was to force Storm Financial into administration on 9 January 2009 ‘coincidentally’ being the date that Justice Greenwood had set the matter down for mention for the purpose of setting a trial date with the Commonwealth Bank being the [[defendant]]. <ref name="FederalCourtjudgment">{{cite web |url=http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.24-d-Justice-Greenwood-Judgment.pdf |work=Federal Court of Australia |date=24 December 2008 |publisher=The Plain Truth }}</ref> Storm being forced into administration by the Commonwealth Bank had the desirable outcome that the bank avoided trial.


On 12 December 2008, the [[Australian Securities and Investments Commission]] began investigation of Storm Financial's margin lending and related advice.<ref name="ASICupdate">{{cite web|url=http://www.asic.gov.au/asic/asic.nsf/byheadline/Storm+financial?openDocument|title=Update for former clients of Storm Financial|publisher=Australian Securities and Investments Commission|accessdate=15 January 2010}}</ref> Storm Financial was placed in [[administration (insolvency)|administration]] in January&nbsp;2009.<ref name="Osborne1">{{cite news|url=http://news.theage.com.au/breaking-news-business/storm-financial-collapse-plan-outlined-20090810-ef9y.html|title=Storm Financial collapse plan outlined|last=Osborne|first=Paul|date=10 August 2009|work=The Age (Melbourne)|accessdate=15 January 2010}}</ref> The company had A$88 million in debts at the time.<ref name="Roy"/>
On 12 December 2008, the [[Australian Securities and Investments Commission]] began investigation of Storm Financial's margin lending and related advice.<ref name="ASICupdate">{{cite web|url=http://www.asic.gov.au/asic/asic.nsf/byheadline/Storm+financial?openDocument|title=Update for former clients of Storm Financial|publisher=Australian Securities and Investments Commission|accessdate=15 January 2010}}</ref> Storm Financial was placed in [[administration (insolvency)|administration]] in January&nbsp;2009.<ref name="Osborne1">{{cite news|url=http://news.theage.com.au/breaking-news-business/storm-financial-collapse-plan-outlined-20090810-ef9y.html|title=Storm Financial collapse plan outlined|last=Osborne|first=Paul|date=10 August 2009|work=The Age (Melbourne)|accessdate=15 January 2010}}</ref> The company had A$88 million in debts at the time.<ref name="Roy"/>

Revision as of 05:23, 7 February 2013

Storm Financial
Company typePublic
FounderEmmanuel Cassimatis and Julie Cassimatis
DefunctMarch 26, 2009 (2009-03-26)
FateLiquidated
Headquarters
Townsville, Queensland
,
Australia
ServicesFinancial advice

Storm Financial Limited was a financial advice company, based in Townsville, Queensland, Australia. The company was founded by Emmanuel Cassimatis and his wife Julie Cassimatis as a private company initially with the name Cassimatis Securities Pty Ltd on 23 May 1994.[1] As part of the company’s expansion outside of Townsville the company changed its name from a personality based name to ozdaq Securities Pty Ltd on 10 April 2000. This name remained intact until 1 Feb 2004 when it was relinquished consequent to trademark objections from the NASDAQ stock exchange in the United States. The company then traded as Storm Financial Pty Ltd from 2 Feb 2004 until 14 Jun 2007 at which time the company became an unlisted public company and continued trading as Storm Financial Ltd from 15 Jun 2007 in preparation for making an initial public offering (IPO) in December 2007. This IPO was subject to a Storm Financial Prospectus which was dated 14 Nov 2007 and lodged with the Australian Securities and Investment Commission (ASIC) on the same date. Storm Financial Ltd continued to trade until external administrator Worrells Solvency and Forensic Accountants were appointed on 9 Jan 2009. The main creditor Commonwealth Bank appointed receivers and manager KordaMentha on 15 Jan 2009.

Business

At the time of Storm Financial’s proposed listing on 17 Dec 2007 Storm Financial had over 146 employees in 13 offices in Queensland, New South Wales and Victoria.[2] Storm Financial was financial planning business which gave advice across the broad spectrum of financial products including advice on, but not limited to:- investments, unit trusts, superannuation, life insurance and associated traditional and margin loans.[3]

Storm had approximately 13,000 clients across Australia with $4.5 billion of funds and loans under advice (FLUA) as at June 2007. Of Storm’s 13,000 clients, approximately 3,000 (23%) had some form of gearing associated with their portfolios and recommended by Storm.[2]

A cornerstone of Storm’s business model was to acquire and aggregate other financial planning businesses into a single conglomerate whose practices, quality control and the manufacturing mechanics of the advice was consistent.[2]

In August 2008, Storm Financial's clients had A$4.8 billion invested in the Storm branded index funds that were managed by Colonial First State and Challenger and other non-Storm branded funds.[4] By October 2008, that had dropped to A$3.5 billion, primarily as a result of falling share values. In August 2008, approximately 37 percent of investments were being funded by margin lending.[5] In October 2008 it had 13 000 clients.[6]

Client Fees

In addition to gaining efficiencies by commoditising the packaging of its advice in Storm’s back office, Storm Financial used its large flow of funds to obtain significant discounts in fees charged by financial product manufacturers such as Fund managers and Margin Lenders. This enabled Storm to pass on significant savings to its clients, effectively allowing its clients to be charged wholesale prices for retail advice and retails products.[2]

Storm offered two alternative fee options to its clients. The first fee option was a fee for service structure consisting of a relatively higher upfront fee and lower ongoing trail commission. The alternative option had a nil upfront fee component with higher ongoing trail commissions, similar to traditional financial advice models.[4] [7]

Storm’s Statement of Advice indicated that, on average, the cost of the two fee options to the client converged after a period of approximately four and a half years. Before this period the nil upfront fee option with the higher trail commission favoured the client, whilst after this period the client was better off under the fee for service option with the fee advantage increasing exponentially over time.[7]

The upfront and ongoing fees charged by Storm in both fee options were identified in general terms in Storm’s Financial Services Guide (“FSG”) [8] as well as a more detailed breakdown with specific pricing in each individual client Statement of Advice.

Collapse

The Commonwealth Bank forced Storm into administration on the 9th Jan 2009 when the bank called up its lending facilities to Storm citing a default on Storms own margin lending facility with the bank.[9] [10] Whilst the date of the alleged default by Storm was the 10 October 2008, the Commonwealth Bank records at the time showed Storm to not be in default. The banks acceptance of non-default was evidenced by the banks approval to Storm for a $30m loan facility on 24 October 2008, the banks funding of a $10m facility to Storm on the 29 October 2008 and a new loan facility of $4.725 m on 5 December 2008 for the purchase of a new building.[11]

Whilst in the past the Commonwealth Bank sent margin call notices out to Storm clients, the advisor or both,[12] the banks failure to issue margin call notices at the critical time was one of the major influences in late 2008 that triggered the eventual collapse of Storm.[13] The banks failure to issue margin call notices together with its inability to reconcile the correct financial position of each client ultimately led to many clients passing through their margin call trigger points and ending in negative equity.[13]

The unreliability and inaccuracy of the data provided to Storm and Storm clients by the Commonwealth Bank was identified in clause 24 of an evaluation conducted by the Honourable Roger Gyles AO QC on 18 November 2011.[14] This evaluation further states that not only was the banks data inaccurate but that Commonwealth Bank officers knew of these inaccuracies. Separate analysis revealed the extent of the CBA data errors and how integral these errors were to the significant losses that Storm clients suffered.[15]

On 8 December 2008, the Commonwealth Bank sent a letter [16] to all of its Storm clients who found themselves in negative equity (according to CBA data which was faulty) [17] as a consequence of falling markets and the banks failure to issue clients with a margin call notice. The lack of information meant that clients were unable to transact on their portfolios with confidence consequently resulting in significant losses.[13] The CBA letter to Storm clients further incorrectly states that Storm was the sole manager of the clients margin loan throughout the period. On 24 December 2008 the Federal Court of Australia found that Storm had proved, to the requisite standard of proof for interlocutory injunction, that the CBA had engaged in conduct that was, in contravention to the Corporations Act 2001, misleading or deceptive or likely to mislead or deceive. [18] [19]

The Commonwealth Bank then issued a letter on 9 December 2008 to its Storm clients that were sold out of the market allegedly on the instructions of Storms CEO, Emmanuel Cassimatis. This letter repeated elements of CBA’s 8 December 2008 letter as well as alleging that Storm provided instruction to the bank that the CBA / Storm portfolios of all margin lending clients with an LVR greater than 90% be fully redeemed. [20] Material elements of CBA’s letter of 9 December 2008 was also found to be deceptive and misleading by the Federal Court of Australia.[18] [19]

On 17 December 2008, the Commonwealth Bank sent a generic letter to all its Storm clients further reinforcing the banks message of 8 and 9 December 2008 that Storm was the sole manager of the clients margin loan and further adding that Storm was “completely responsible for your [the clients] financial position…”.[21] Once again, the Federal Court of Australia found to the standard of proof for interlocutory injunction that the assertions by the Commonwealth Bank were deceptive and misleading. [18] [19] Unfavourable findings for the Commonwealth Bank were brought down on Wednesday 24 December 2008 by Justice Greenwood in the Federal Court in an interlocutory action brought about by Storm Financial.

Furthermore following these unfavourable findings, the Commonwealth Bank on the next available business day after the Christmas break being Monday 29 December 2008 issued notices of demand to Storm Financial calling up Storms entire commercial facilities. [9] [11] The ultimate consequence of the banks demands was to force Storm Financial into administration on 9 January 2009 ‘coincidentally’ being the date that Justice Greenwood had set the matter down for mention for the purpose of setting a trial date with the Commonwealth Bank being the defendant. [19] Storm being forced into administration by the Commonwealth Bank had the desirable outcome that the bank avoided trial.

On 12 December 2008, the Australian Securities and Investments Commission began investigation of Storm Financial's margin lending and related advice.[22] Storm Financial was placed in administration in January 2009.[23] The company had A$88 million in debts at the time.[24]

The company was placed in liquidation by a Federal Court decision on 26 March 2009, putting asset recovery in the hands of liquidators Worrells Solvency and Forensic Accountants.[22][25]

Investors in Storm Financial were expected to face large losses, possibly getting none of their funds back. Many of Storm Financial's clients are expected to face economic hardship; a survey of one group of 400 clients indicated two-thirds would be unable to purchase a home after the forced sale of their existing house.[23] The Commonwealth Bank held about 30 percent of the loan business when it collapsed.[23]

High-profile victims of the collapse include Australian cricketer Andrew Symonds, estimated to have lost approximately A$1.5 million in the company's failure. Former rugby league player Wally Fullerton Smith, an advisor working with Storm, lost his home and business.[24]

Inquiry

In 2009, the Parliamentary Joint Committee on Corporations and Financial Services conducted an inquiry into the collapse of Storm Financial and Opes Prime, as well as consideration of broader financial planning and governance issues. It released its report - Inquiry into Financial Products and Services in Australia - in November 2009.[26] The report made 11 recommendations including increasing the powers of the regulator but did not recommend banning commissions.[27] Storm Investors Consumer Action Group, which represents many of the victims of the company's collapse, blamed poor banking practices for the collapse and were disappointed that the inquiry did not bring bankers to task for their mismanagement.[28]

Government response

In April 2010, the Minister for Financial Services, Chris Bowen, announced the Government's response to the inquiry. He set out a range of reforms including, notably, going further than the Inquiry recommendations by banning commissions for financial planners giving advice on retail investment products including superannuation, managed investments and margin loans. Other reforms included instituting a statutory fiduciary duty so that financial advisers must act in the best interests of their clients, and increasing the powers of the corporate regulator; the Australian Securities and Investments Commission.[29] The reforms were partially a response to the Joint Committee's Inquiry, but also reflected global concerns with financial governance following the Global Financial crisis of 2007–2010.[30] The reforms are due to be fully implemented on 1 July 2012.

See also

References

  1. ^ "2010.01.18 Corporate history of Storm Finanical Ltd" (PDF). The Plain Truth. 18 January 2010.
  2. ^ a b c d "Storm Financial Prospectus s4 (Storm Overview)" (PDF). The Plain Truth. 14 Nov 2007. Cite error: The named reference "StormPDS" was defined multiple times with different content (see the help page).
  3. ^ Australian Securities & Investment Commission (20 December 2007). "Storm Financial Ltd FSL" (PDF).
  4. ^ a b "Storm Financial Prospectus s4.3.5 (choice of fees)" (PDF). The Plain Truth. 14 Nov 2007.
  5. ^ Worrells Solvency & Forensic Accountants (16 March 2009). Storm Financial Limited (Receivers & Managers Appointed) (Administrators Appointed): Report to Creditors (PDF). Brisbane: Australian Securities and Investments Commission / Worrells Solvency & Forensic Accountants.
  6. ^ Kirby, James (14 December 2008). "On the brink of collapse". The Age (Melbourne). Retrieved 15 January 2010.
  7. ^ a b "Storm Financial SoA (fees section)" (PDF). The Plain Truth. 01 May 2008. {{cite web}}: Check date values in: |date= (help)
  8. ^ "Storm Financial FSG 1st Sep 2008" (PDF). Storm Financial website. The Plain Truth. 01 Sep 2008. {{cite web}}: Check date values in: |date= (help)
  9. ^ a b "CBA notice of demand 1" (PDF). Commonwealth Bank of Australia. The Plain Truth. 29 Dec 2008.
  10. ^ "CBA notice of demand 2" (PDF). Commonwealth Bank of Australia. The Plain Truth. 31 Dec 2008.
  11. ^ a b "Commonwealth Bank resorts to lies too take out Storm". The Plain Truth. 29 Oct 2011.
  12. ^ "Storm Financials re-participation strategy: Did it exist? (conclusion)". The Plain Truth. 25 May 2012.
  13. ^ a b c "Commonwealth Bank- Determined to be different". The Plain Truth. 16 Apr 2012. Cite error: The named reference "CBA2008margincall" was defined multiple times with different content (see the help page).
  14. ^ "Evaluation of Storm client by Hon R Gyles AO QC (extract only)" (PDF). The Hon Roger Gyles AO QC. The Plain Truth. 18 Nov 2011.
  15. ^ "Letter to CBA Board of Directors" (PDF). The Commission on Banking & Financial Services. The Plain Truth. 15 Aug 2011.
  16. ^ "2008.12.08 CBA letter to Storm clients re negative equity" (PDF). The Commonwealth Bank of Australia. The Plain Truth. 8 December 2008.
  17. ^ "Ian Narev's Half-Truths unravel as Full Truth emerges". The Plain Truth. 15 November 2011.
  18. ^ a b c Russell and Company. The Plain Truth. 31 December 2008 http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.31.1-d-Court-summary-of-Judgement.pdf. {{cite web}}: Missing or empty |title= (help)
  19. ^ a b c d Federal Court of Australia. The Plain Truth. 24 December 2008 http://www.commonwealthbankdeception.com/wp-content/uploads/2012/04/2008.12.24-d-Justice-Greenwood-Judgment.pdf. {{cite web}}: Missing or empty |title= (help)
  20. ^ "2008.12.09 CBA letter to Storm clients re 90% sale" (PDF). The Commonwealth Bank of Australia. The Plain Truth. 9 December 2008.
  21. ^ "2008.12.17 CBA generic letter to Storm clients" (PDF). The Commonwealth Bank of Australia. The Plain Truth. 17 December 2008.
  22. ^ a b "Update for former clients of Storm Financial". Australian Securities and Investments Commission. Retrieved 15 January 2010.
  23. ^ a b c Osborne, Paul (10 August 2009). "Storm Financial collapse plan outlined". The Age (Melbourne). Retrieved 15 January 2010.
  24. ^ a b Leys, Nick (8 February 2009). "Roy loses $1 million on Storm". The Sunday Telegraph. Retrieved 15 January 2010. {{cite news}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  25. ^ "ASIC welcomes court decision on Storm". Media Release AD09-50. Australian Securities and Investments Commission. 26 March 2009. Retrieved 15 January 2010.
  26. ^ Financial products and services in Australia. Parliament of Australia: Senate: Committees: Corporations and Financial Services. Retrieved on 3 July 2011.
  27. ^ Chapter 7: Conclusion: Recommendations for reform. Parliament of Australia: Senate: Committees: Corporations and Financial Services. Retrieved on 3 July 2011.
  28. ^ Mark Bode (25 November 2009). Investors furious at Storm inquiry. Sunshine Coast Daily. Sunshine Coast Newspaper Company. Retrieved on 3 July 2011.
  29. ^ Chris Bowen (26 April 2010). Overhaul of Financial Advice. Media Releases #36. Retrieved on 3 July 2011.
  30. ^ Di Bain. (26 April 2010). Changes to financial planning laws will inject billions into the economy. PM. Australian Broadcasting Corporation. Retrieved on 3 July 2011.
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