The major banks targeted by legal action brought against them by the Australian Securities and Investments Commission as part of the Storm Financial scandal say they will defend their involvement and that they are not responsible for losses caused by the company’s collapse.
The announcements come after the corporate regulator said yesterday it will take three banks to task for allegedly breaching contracts and managing an unregistered investment scheme. The action will also target Storm founders Emmanuel and Julie Cassimatis.
However, the Storm Investors Consumer Action Group has said it is disappointed that the banks have not developed a compensation plan of their own.
Macquarie said in a statement the “unsustainable and speculative” action was the result of a misunderstanding of the ”fundamental difference between the role of a margin lender and that of Storm, a financial adviser licensed by ASIC”.
The Commonwealth Bank also said that it had already negotiated compensation through its Resolution Scheme and that it “fundamentally disagree” with ASIC’s role of the banks in the scheme. ”It is apparent that because Storm, its principals and the Storm financial advisers are unable to provide compensation, the focus has moved to the banks.”
The Bank of Queensland also said in a statement that it would be irresponsible to “not fight this action”.
“We have every sympathy for customers who lost money through the collapse of Storm Financial; we too put faith in the regulatory system and can understand our customers’ frustration at the collapse of a financial planner that had the tick of approval from government regulators.”
The Bank argues that BOQ never provided margin loans, never promoted Storm products and never managed geared equities or took commission.
“There was no formal business relationship between BOQ and Storm Financial. BOQ was not a corporate banker of Storm Financial – BOQ was not involved in the establishment of the business or privy to inside knowledge regarding Storm Financial.”
“We would have liked to have been able to comment earlier, however have been legally prohibited from doing so by ASIC and given this matter will now proceed to court we won’t be able to comment going forward.”
ASIC alleges that these banks breached contracts and broke laws under the Trade Practices Act, and that action in the Federal Court will proceed. Civil penalty proceedings will also begin against Emmanuel and Julie Cassimatis.
But the Storm Investors Consumer Action Group has said this action isn’t good enough.
“The majority of investors affected are retirees. We’d hate to think it’s going to drag on for years and years because, frankly, some of us won’t be here,” co-chairman Noel O’Brien told Fairfax. “This will really drag it out. It’s extremely disappointing the banks have not taken on the responsibility to come up with a solution.”
ASIC has attempted to work with relevant parties to finalise compensation claims, but according to chairman Tony D’Aloisio, no agreement was reached.
“ASIC has maintained that a commercial resolution is the preferred approach. Unfortunately discussions did not result in a satisfactory outcome and it has been necessary for ASIC to bring these proceedings.”
Storm Financial was one of the first casualties of the global financial crisis in Australia. The company had over 13,000 clients who had invested billions, but were left stranded when the company collapsed due in part to over-ambitious growth plans, encouraging huge debt among customers and paying top dollar for multiple acquisitions.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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