# Have you lost money through a margin loan?



## MarginLoanLoss (11 March 2009)

Have you lost money though a Margin Loan? 

I am looking to make contact with ordinary people who have lost money through a Margin Loan(s).  

I am gathering information with a view to launching a class-action against Australian-based banks/financial institutions and Australian Financial Advisors.  

At this stage, I just need basic information from people who have been affected by Margin Loan losses, to see if a solid “Cause of Action” can be established.  Unless there is very good grounding for a case, litigation will not proceed.

Please contact me with answers to the following:

·         Name of your bank/lending institution;

·         Name of your financial adviser;

·         Estimate of the amount you have lost;

·         Amount of your Margin Loan;

·         Your contact details please.

 Regards, Elizabeth

PS if you are fortunate, and have not been caught up in a Margin Loan loss, then please draw this to the attention of someone you suspect may have been, or will know someone who has been.

PPS If you are classified as a “sophisticated investor” {you know who you are} then unfortunately, I cannot help you, but I’m interested in hearing from your friends!

There is power in numbers!!!


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## beamstas (11 March 2009)

MarginLoanLoss said:


> There is power in numbers!!!




Hi Elizabeth.

Any chance you could get back the $150 i lost last night at the casino playing poker? Maybe we could start a case for that too!!


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## prawn_86 (11 March 2009)

LOL, when the markets were going up and your margin loan was magnifying your 'winnings' were you looking to start class actions?


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## BentRod (11 March 2009)

Amazing.

Liz...Do you sue the car manufacturers when you have a bingle too??:bonk:


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## beamstas (11 March 2009)

http://www.comsec.com.au/Shared/Pdf/MarginLending.pdf

Page 32 may or may not be of interest


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## jackson8 (11 March 2009)

MarginLoanLoss said:


> Have you lost money though a Margin Loan?
> 
> I am looking to make contact with ordinary people who have lost money through a Margin Loan(s).
> 
> ...





hi
probably notice that you will not get a lot of sympathy for your losses

everyone has suffered from the retraction of the worlds economy and i am sure that everyone wishes that they had someone to blame or some sort of recourse for the decisions that each individual has made

but lets face it we all make our own decisions sometimes based on fact sometimes fancy

taking out a margin loan is no different to putting your house up for collateral it can be very dangerous under the wrong circumstances but advantages in the right circumstances 

experience shows that the stock market has some very large risks involved and for those of the uninitiated the risks can be far greater...... the stock market has always been labeled as growing money on trees but it has a far darker side

i hope your venture is positive but i have grave fears that it will be unproductive


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## Macquack (11 March 2009)

Elizabeth, you may find some support on the Storm Financial Group Thread.


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## Julia (11 March 2009)

I hope no one offers 'Elizabeth' the information asked for before establishing her bona fides to a greater level than a name on an anonymous internet site.


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## jackson8 (11 March 2009)

Julia said:


> I hope no one offers 'Elizabeth' the information asked for before establishing her bona fides to a greater level than a name on an anonymous internet site.




after having read through the posting a few times it does sound a bit dubious , very officious

there are always those prepared to try and make a living out of other peoples misery


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## Tysonboss1 (11 March 2009)

I don't get it,... Is some one wanting to sue the banks because they lost money after borrowing money to buy into the share market.

What basis can there possibly be for this sort of action, 

what about the people that took personal loans and bought new cars only to have them go down in value, should there be a class action for this too,


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## Trembling Hand (11 March 2009)

OMG!! 

Well this is a ripper. Unfortunately we are only a small way through the scape goat chase. And thoughts like this one are going to grow. What a pathetic state we are in, when after all this mess, leveraging to the hilt is good on the way up and still someone else's fault on the way down.

Sorry sorry world we make for ourselves


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## Trembling Hand (11 March 2009)

Tysonboss1 said:


> I don't get it,... Is some one wanting to sue the banks because they lost money after borrowing money to buy into the share market.
> 
> What basis can there possibly be for this sort of action,
> 
> what about the people that took personal loans and bought new cars only to have them go down in value, should there be a class action for this too,




No. I got a better one. 

I want to start a class action to sue all the people who took out margin loans and then got margin calls and had to dump the stock which triggered more margin calls and dumping which triggered...... etc.

Lets sue these fools for not having the most basic money management abilities and passing there poor decisions onto people who had fully paid shares.


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## Bill M (11 March 2009)

Let the thread slip into oblivion where it should be, an insult to intelligence and a waste of time and band width.


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## AQR (11 March 2009)

Bill M said:


> Let the thread slip into oblivion where it should be, an insult to intelligence and a waste of time and band width.





Well said, I hope her 1st post is her last.

Geoff.


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## Rainmaker2000 (11 March 2009)

This is all a bit of a giggle but I think has a small serious side........

For example: obviously a lot of aussies would want to sue for negligent financial advice using margin........for example, towards the top of the boom, many were advicing margin as a way of 'minimising risk through diversification'

The problem of course would be the advisor and not the margin.......

For the record, I've always used margin and continue to love it, although I'll put my hand up and say that after a year in which the All Ords index reduced more than 50%!!!!!!!! and after adding the meager after tax interest rate (6.5%), I am less than satisfied with my use of margin in the last year!!!!!!!!!!!!!!!

I'm happy to cop it on the chin and look forward to many more tax beneficial years of margin

I would sure hate it if people like a lendor wanted to cut back the risks I take cause they are scarred of some frivolous lawsuit........that's not exactly a free market is it........or even investing


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## James Austin (12 March 2009)

does Elizabeth work in the legal profession?

anyway,

imagine trying to sue a bank! who succeeds at this?

firstly,
you sign a loan contract stating you fully understand what you are doing and that "you alone" are responsible for your investing; not to mention the contract you sign with your broker stating the same.

secondly,
even if it did get to court,
the banks legal team could drag it on for 3 decades if they wish, barely making a dent in their annual profits, the average aussie would be bankrupt in 3 months employing a comparative legal team


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## cutz (12 March 2009)

I think Elizabeth works in a circus,

There are always a few clowns that want to spoil it for everyone else.


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## tommymac (12 March 2009)

I've worked in financial planning for five years and I have to say these types of "claims" are common. I even heard of one client who tried to make a claim (I say claim because it wasn't suing) for losing $800. It turned out that he had withdrawn the money.


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## Awesomandy (12 March 2009)

I think her plan (assuming it is legit) is to launch a class action against the banks/financial planners who have recommended a margin loan inappropriately, without making their clients fully aware and understanding the risks of implementing such a strategy. Ordinary people have entrusted their financial planners as professionals in their trade, so if these planners have given blatantly inappropriate advices (and can also be proven so), then there may be grounds for legal actions.


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## gfresh (12 March 2009)

You can't expect FP's to wipe the **** of their clients.. the clients at least have some responsibility to learn about the products they are taking up themselves, reading the fine print, asking questions, and knowing the risks involved. 

In light of this action I'd also like to take action against THE PUB.. it has taken THOUSANDS of dollars of my hard earned money over the years and left me with NOTHING!! I walk in there, on the promise of a good time, and drawn by the lovely ladies to be found within, and most of the time all I have to show for it is a sore head, lost dignity, lost brain cells and an emptied wallet! How can this be allowed to go on? I have been misled!! 

Unfortunately, as an "unsophisticated drinker", how could I know this would happen? I want compensation!


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## Beej (12 March 2009)

gfresh said:


> You can't expect FP's to wipe the **** of their clients.. the clients at least have some responsibility to learn about the products they are taking up themselves, reading the fine print, asking questions, and knowing the risks involved.
> 
> In light of this action I'd also like to take action against THE PUB.. it has taken THOUSANDS of dollars of my hard earned money over the years and left me with NOTHING!! I walk in there, on the promise of a good time, and drawn by the lovely ladies to be found within, and most of the time all I have to show for it is a sore head, lost dignity, lost brain cells and an emptied wallet! How can this be allowed to go on? I have been misled!!
> 
> Unfortunately, as an "unsophisticated drinker", how could I know this would happen? I want compensation!




You sound like a "sophisticated" drinker to me! 

Beej


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## skc (12 March 2009)

gfresh said:


> You can't expect FP's to wipe the **** of their clients.. the clients at least have some responsibility to learn about the products they are taking up themselves, reading the fine print, asking questions, and knowing the risks involved.
> 
> In light of this action I'd also like to take action against THE PUB.. it has taken THOUSANDS of dollars of my hard earned money over the years and left me with NOTHING!! I walk in there, on the promise of a good time, and drawn by the lovely ladies to be found within, and most of the time all I have to show for it is a sore head, lost dignity, lost brain cells and an emptied wallet! How can this be allowed to go on? I have been misled!!
> 
> Unfortunately, as an "unsophisticated drinker", how could I know this would happen? I want compensation!




In this instance you don't sue the pub, but you need to sue your mates who asked you to go to the pub in pursuit of such good times. 

It will help to have a phone recording something along the lines of "Come out, it will be fun!". Unless of course your friend followed that with a disclaimer (muttered in a low voice at 100 words per second) like "Fun is not guaranteed. Past fun is no guarantee of future fun. Your own personal fun experience may differ....etc".


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## drsmith (12 March 2009)

Elizabeth,

How have you lost money through a margin loan ?

Have you,

1) suffered a capital loss due to a decline in the share portfolio, or
2) suffered a capital loss due to a decline in the share portfolio that has resulted in a margin call and required a reduction in the loan by selling shares or putting in additional cash, or
3) had the margin lender going belly up and the supporting bank(s) selling all the shares to cover their own exposure (Opes Prime), or
4) engaged in very high risk (high geared) leverage through margin lending that could include using the equity in your own home as a deposit (Storm Financial) ?


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## mattlaw (12 March 2009)

You definitely dont need a long neck!

What a goose!


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## SM Junkie (12 March 2009)

Come on guys, can we disagree with someone without resulting in name calling. 

It only reflects badly on this forum and its participants.


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## Grinder (12 March 2009)

Keep it in the US thanks.


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## prana (12 March 2009)

Hai - me noh un-der-sten inglish. U wan bank arkount ditail to gif to Naigeria skam or Pawnzi skim?  I awredi haf deh Yoo Ess Federel Risev foh dat puhpos


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## MarginLoanLoss (17 March 2009)

STORM INVESTORS MAY NOT BE ALONE
By Tony Martin SC

Mr Martin is an experienced commercial barrister practising at the Sydney Bar

The hapless plight of the Storm clients is distressing.  They are facing significant losses and, in many cases, financial ruin as a consequence of an aggressive gearing strategy recommended to them by their financial adviser, Storm.

If the reported settlement with the margin lender, CommBank, proceeds, hopefully that will restore some sense of financial stability and dignity in their otherwise shattered lives.

But is this disaster confined only to the Storm investors?  Probably not. 

The core problem is to be found in the aggressive gearing strategy promoted by Storm that involved margin lending.  A margin loan enables you to borrow money to invest in shares, using existing investments as security.  Borrowing money to invest in shares in this way, also known as “gearing”, can result in higher returns relative to your equity in the share portfolio, but it can also magnify the your potential losses if the value of the share portfolio falls.

When an investor enters into a margin loan to buy shares, the margin lender takes security (i.e. a mortgage) over the share portfolio so that in the event of default the shares can be sold to repay the loan.  The investor is exposed to the risk the shares might fall in value because the share market can rise and fall frequently and rapidly.

If this happens, as it has occurred in the current financial crisis, the shares would be worth less than the loan creating a shortfall in the security for the margin lender.

To protect themselves against the possibility of a shortfall, margin lenders limit the borrower’s level of gearing to a set percentage (known as the loan-to-value ratio or LVR) of the value of the share portfolio.  Usually, the LVRs are set at a maximum of 70%.  This means that the borrower has to contribute the difference (i.e. 30%) from their own money.  This difference is called the “margin”.

The aggressive gearing strategy employed by Storm amounted to “double gearing”.  It involved the investor borrowing to buy shares using the equity in their homes as the security for that loan.  They would then use those shares as security for entering into a margin loan to buy additional shares; that is, to effectively “double up” the gearing.  This had the effect of further increasing the gains and further magnifying the losses that would otherwise have been obtained under a normal margin loan.

The strategy worked like this: an investor would borrow $50,000 to buy shares using the equity in their home.  They would then use those shares as security to take out a margin loan for another $50,000 to buy further shares.  As a result, they would have shares at a value of $100,000 but funded by a corresponding debt of $100,000, which required servicing. 

To say the least, this “double gearing” strategy was inherently risky.  It was riskier than just entering into a normal margin loan. By increasing the “gearing” level, the “risk” of the investment was also correspondingly increased. These increased risks were at least threefold. 

Firstly, there would usually be no equity in the investment from the outset.  The investor would have usually borrowed 100% of the value of the share portfolio.  This meant that the investor was exposed to the risk that any fall in the initial value of the shares would put the investor immediately in a “negative equity” position.

Secondly, the “double gearing” strategy increased the risk for the investor of their losses being magnified in a market downturn beyond that which they would have suffered if they had just entered into a normal margin loan.

Thirdly, the “double gearing” strategy increased the impact on the investor of a margin call received in the event of a market downturn.  The investor would need to meet the call from their own additional financial resources or otherwise sell part of their underlying share portfolio.  The selling of any part of their portfolio in a falling market would immediately crystallise their losses.

ASIC has recently stated that it believes that the “double gearing” strategy used by Storm has “not been widely used”, but nonetheless is “directing resources to assessing other planners and advisers” to confirm this.  Perhaps it will be found that there are relatively few investors in the position of the Storm clients who had margin loans using the “double gearing” strategy.  However, in the light of past experience in circumstances where opportunities for financial gain existed in an unregulated market, it would be surprising if these gearing practices were not more widespread than is currently apprehended. 

The fundamental problem in Australia is that margin lending is unregulated as a financial product.  However, what is clear is that any investor embarking upon a margin loan needs to be fully aware of the risks involved before entering into that transaction.  When the risks of the margin loan are further compounded by the use of the “double gearing” strategy, the need for the investor to be aware of the additional risks associated with that strategy is exacerbated.

In Australia, a large number of investors who entered into margin loans did so on the advice of their financial advisers.  As part of their obligations to their clients, the financial advisers must warn the investor of the risks involved before entering into such a transaction.  This is particularly so when the investor employed the “double gearing” strategy.  The investor must warn of all of the additional risks associated with such a strategy.  The investor must also be advised that they should have available other financial resources to meet any margin call in the event of a market downturn.  If those other financial resources were not readily available, this type of investment would probably not have been suitable for that particular investor.  
If the financial adviser did not give these warnings, that would probably constitute a breach of their duty of care to the investor. In those circumstances, the financial adviser would be liable to compensate the investor for any losses that result from that breach. The question now is how long it will take before these actions begin to surface for determination in the courts.


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