Storm Financial directors fined for breach of duties
23 March 2018, Written by David Simmons
The directors of Storm Financial, Emmanuel and Julie Cassimatis, have been fined $70,000 each by the Federal Court for breaching director's duties.
The two, who were previously found by the Court to have breached their duties as directors, were also disqualified from managing corporations for seven years.
The fines conclude ASIC's litigation of Storm, which has included investors receiving compensation in relation to losses suffered on investments made through Storm.
The corporate regulator commenced its civil penalty proceeding against the Cassimatises in late 2010, with the trail taking place between 30 May and 30 June 2016.
In August 2016, Edelman J handed down judgement in relation to liability against the Cassimatises, finding they each breached their duties as directors.
The breach of duties stems from a series of dodgy investments made by the Cassimatises on behalf of investors.
Storm Financial operated a system of advice, created by the Cassimatises, in which clients were advised to invest substantial amounts in index funds using 'double gearing'.
Storm clients would usually take out a home loan and a margin loan in order to purchase units in index funds, create a 'cash dam', and pay Storm's fees.
Clients were also encouraged to stake 'step' investments over time. As a result, many of Storm's clients were in negative equity positions by late 2008 and sustaining significant losses.
Justice Edelamn, in the original judgment, said that investors received financial advice that was inappropriate to their personal circumstances. Each of those investors were retired or approaching retirement, had little or limited income, few assets, and little or no prospect of rebuilding their financial position in the event of suffering significant financial loss.
Edelman found that the Cassimatises had each engaged in a course of conduct which amounted to one breach of the requirement that they exercise their powers as directors with the degree of care and diligence that a reasonable person would have exercised in that situation.
As part of ASIC's litigation of Storm a number of high-profile Australian banks became involved.
In September 2012, ASIC entered into a settlement agreement with the Commonwealth Bank to make available up to $136 million as compensation for losses suffered on investments made through Storm. In May 2013, ASIC secured $1.1 million in compensation on behalf of two former Storm investors, Barry and Deanna Doyle.
In May 2013, ASIC intervened in the application for Court approval of the settlement of the related class action brought against Macquarie Bank in respect of Storm as it had concerns about the fairness of the settlement arrangements. The Full Federal Court agreed that the distribution of the settlement sum was not fair and reasonable to all group members. Under a revised settlement, Macquarie Bank agreed to pay $82.5 million by way of compensation costs.
In September 2014, ASIC entered into a settlement agreement with the Bank of Queensland Limited to pay approximately $17 million as compensation for losses suffered on investments made through Storm.
Business News Australia
Author: David Simmons