Storm Financial Group

Monario · 5 August 2009

Judd said:
They were more than likely sold to no one in particular Monario.

The fund simply ceased trading and the underlying assets liquidated, ie sold on the market, with the proceeds going towards reducing the margin loan debt of individual Storm clients. Despite the market being in free fall, there were still buyers out there. Some big insto may have bought some of the underlying shares of the indexed funds. To them it is just a tranche of individual shares on offer at a certain price. If attractive, they'll buy. Same as any person would. When shares are on offer on the market, I don't know if the seller is a distressed one or not - and I don't need to know. It is merely a transaction. Money does not have emotion. Only people do.

Yes Judd I agree with what you have said here, and understand it..

My point however is the way the dealings took place, IMO and many others the institutions were looking at making profits, and what better way to make them than to scoop up these share parcels..

It is a possibilty that this happened IMO.. But we will never really know!!

The way some things took place was disgraceful, for instance fixed loans been forceably closed out by ht e banks, then having huge break fees applied. IMO that is pure profiteering!!!

Julia · 5 August 2009

cuttlefish said:
You don't typically go to jail for being bad at your job. Even if it can be shown that demonstrably erroneous advice was given its still not likely to attract criminal charges.

Jail is for criminal behaviour - fraud, insolvent trading if a director, missappropriation of funds etc. and it has to be proven beyond doubt in court. Prosecutions will only occur in situations where there is a strong case.

I suspect most individual advisors are unlikely to face charges except in the cases where there is clear evidence that they deliberately falsified documents.

I agree. Can't think of any example where someone giving dodgy advice has gone to jail. I stand to be corrected though. What about ventures such as Westpoint where FA's Australia wide recommended their clients invest?
I don't think there were criminal charges against any of them.

I've certainly been given bad advice in the past, ASIC have been involved, but no one went to jail.

Monario said:
Sorry Cuttle,Perhaps my post was not clear... Hwta I was mainly asking is could they be individually liable for the advise, sued for the advise? Were they not professionals conducting themselves in the matter of advice in the clients best interest... I believe my advisor knew what he was doing was wrong but did not act, and did not allow me to act in a timely manner to stave off disaster!!

Just try proving that he was malicious in intent rather than simply incompetent.

donteventryit · 5 August 2009

Julia said:
I agree. Can't think of any example where someone giving dodgy advice has gone to jail. I stand to be corrected though. What about ventures such as Westpoint where FA's Australia wide recommended their clients invest?
I don't think there were criminal charges against any of them.

I've certainly been given bad advice in the past, ASIC have been involved, but no one went to jail.

Julia,

Here you go - the adviser and westpoint in one:

http://www.investordaily.com.au/cps/rde/xchg/id/style/4403.htm

The District Court found the three defendants (licensee, corporate authorised representative and director of the business) had caused the client financial losses by reason of the defendants' negligence at common law, and a breach of section 12DA of the ASIC Act (misleading or deceptive conduct, or conduct likely to mislead or deceive).

And

[...as the law currently stands, if the adviser makes a misleading or incorrect statement to a client, that the client could reasonably be expected to act on, the adviser could be fully liable.

Solly · 6 August 2009

"Penitent yet defiant, CBA steers blame on to Storm"

"THE Commonwealth Bank is continuing to use the computer valuation system which, it admits, was partly responsible for irresponsible lending to clients of Storm Financial"

More by Jacob Saulwick in The Sydney Morning Herald is here;

http://business.smh.com.au/business/penitent-yet-defiant-cba-steers-blame-on-to-storm-20090805-ea4k.html

Solly · 6 August 2009

"Norris admits Storm failings"

"Commonwealth Bank of Australia chief executive Ralph Norris admitted yesterday the bank had failed to follow "our own policies and lending practices" when lending to clients of Storm Financial, which collapsed in January, resulting in expected losses for investors of more than $3 billion."

Read more by Duncan Hughes in The Australian Financial Review of Thursday, 06 August 2009.

Solly · 6 August 2009

"Storm Financial 'pressured' Commonwealth Bank staff"

"THE Commonwealth Bank has admitted some of its staff misused the bank's systems to write loans for Storm Financial customers that were larger than they should have been."

See more by Emma Chalmers in The Courier Mail here;

http://www.news.com.au/couriermail/story/0,23739,25888278-3122,00.html

Pindibog · 6 August 2009

Judd said:
They were more than likely sold to no one in particular Monario.

The fund simply ceased trading and the underlying assets liquidated, ie sold on the market, with the proceeds going towards reducing the margin loan debt of individual Storm clients. Despite the market being in free fall, there were still buyers out there. Some big insto may have bought some of the underlying shares of the indexed funds. To them it is just a tranche of individual shares on offer at a certain price. If attractive, they'll buy. Same as any person would. When shares are on offer on the market, I don't know if the seller is a distressed one or not - and I don't need to know. It is merely a transaction. Money does not have emotion. Only people do.

If individuals new (CBA) that they were going to sell off all these shares I would think being human nature the way it is that some would have been tipped off to reap rewards of a bargain?!!!

Judd · 6 August 2009

Pindibog said:
If individuals new (CBA) that they were going to sell off all these shares I would think being human nature the way it is that some would have been tipped off to reap rewards of a bargain?!!!

I know from where you are coming but conspiracies are too complicated to organise effectively. The dealer desk will simply ring a counterpart offering say a block of 1.5M BHP at $xx.yy. Since the NAB options trading fiasco, banks have up the ante across the board on the trading actions that their dealers take. System is not perfect by any means however.

Pindibog · 6 August 2009

Pindibog said:
If individuals new (CBA) that they were going to sell off all these shares I would think being human nature the way it is that some would have been tipped off to reap rewards of a bargain?!!!

Sorry for the spelling : I meant Knew but went to edit and too much time had gone past.

bunyip · 6 August 2009

Monario said:
GG

I am familiar with Stuart Prison, sometimes referred to as that farm or creek... I did some work there once on the security systems, lets hope the quality of my work will hold the little buggers nice and tight!!! LOL...

On a serious note though, do you really think that individual advisors could do time I asked the question a few pages back (133 I think) that if advisors new they were giving bad advise not in the clients best interests that would they liable and could be sued for Professional Misconduct? Can anyone shed some light?

I believe I have some damning evidence from my advisor in the form of email and phone message that would confirm this!!

Monario

I have my doubts that ex-Storm advisers will do time over this, the reason being that incompetence is not illegal.
As for suing them for professional misconduct, I'm not sure if that would do any good either - I mean, you're hardly likely to get any money out of them even if they're found guilty.

Nevertheless, if you believe you have damming evidence from your adviser then I suggest you pass it on to the authorities.....you just never know, it might be instrumental in getting a conviction that results in punishment for the person concerned.
I'd certainly be giving it a shot if I was in your position.

Judd · 6 August 2009

SICAG's submission to the Parliamentary Inquiry.

http://www.aph.gov.au/senate/committee/corporations_ctte/fps/submissions/sub276.pdf

Nothing to do with Storm as such but I note that quite a number of the submissions imply that because the Index could not collapse, index funds were totally safe and the banks "should be nice and have seen us through this minor setback." Maybe but in two days, 6 and 7 October 2008 (around the time the Storm funds were going under) it is estimated that $US6.5 trillion was wiped off global sharemarkets. Given that credit was totally frozen for two or so months, there was the distinct possibility of complete financial meltdown in which case there may not have been sharemarkets period.

Julia · 6 August 2009

donteventryit said:
Julia,

Here you go - the adviser and westpoint in one:

http://www.investordaily.com.au/cps/rde/xchg/id/style/4403.htm

The District Court found the three defendants (licensee, corporate authorised representative and director of the business) had caused the client financial losses by reason of the defendants' negligence at common law, and a breach of section 12DA of the ASIC Act (misleading or deceptive conduct, or conduct likely to mislead or deceive).

And

[...as the law currently stands, if the adviser makes a misleading or incorrect statement to a client, that the client could reasonably be expected to act on, the adviser could be fully liable.

Thanks donteventryit. I have had a quick glance through that article and don't see anywhere that anyone went to jail. Did I miss it?

donteventryit · 6 August 2009

Julia said:
Thanks donteventryit. I have had a quick glance through that article and don't see anywhere that anyone went to jail. Did I miss it?

Touche - no jail time. Posting more than once a day is obiously above me.

Here is a link to the original case: http://www.austlii.edu.au/au/cases/qld/QDC/2007/165.html. What was important about this case, was that the individual adviser was found liable for the entire investment amount plus interest.

The judge commented that I am satisfied that the plaintiff would not have invested if such a warning has been told to him by the first defendant. Similar to the Storm case, the clients were not adequetely warned of the risks (losing capital, margin calls) ... many people have stated to Storm that they did not want to lose capital, they wanted a low risk investment, that they wouldn't receive a margin call and that is what they thought they were getting.

Surely dragging the advisers through court and going through some distress is better than letting them walking away ...

Monario · 6 August 2009

donteventryit said:
Touche - no jail time. Posting more than once a day is obiously above me.

Here is a link to the original case: http://www.austlii.edu.au/au/cases/qld/QDC/2007/165.html. What was important about this case, was that the individual adviser was found liable for the entire investment amount plus interest.

The judge commented that I am satisfied that the plaintiff would not have invested if such a warning has been told to him by the first defendant. Similar to the Storm case, the clients were not adequetely warned of the risks (losing capital, margin calls) ... many people have stated to Storm that they did not want to lose capital, they wanted a low risk investment, that they wouldn't receive a margin call and that is what they thought they were getting.
...

Thanks for this Donteventryit, I will be looking further into this.... All the way down i was asking my advisor the typical question, and before things got bad I was informing him of my wishes, to which I was continually been talked out of and actually stopped at times from doing!!! I will be taking him for as much as I can get, just the way he took me!!!

One of the things I never understood with storm is why they were against diversification, but the way they explained it to me made it sound like a dirty word. I was so naive, and for this to have been my first experiece into investments has been both bad and good.

Good that I have learnt a tough lesson and that I will have time to recover..

Bad that it cost so much and has caused such distress amongst the community,and will continue too!!!

I think from this it is clear to many that the regulations need a stringent upgrade, and that the requirment to obtain a FP/FA or even become one need a overhaul...

Pindibog · 6 August 2009

Judd said:
SICAG's submission to the Parliamentary Inquiry.

http://www.aph.gov.au/senate/committee/corporations_ctte/fps/submissions/sub276.pdf

Nothing to do with Storm as such but I note that quite a number of the submissions imply that because the Index could not collapse, index funds were totally safe and the banks "should be nice and have seen us through this minor setback." Maybe but in two days, 6 and 7 October 2008 (around the time the Storm funds were going under) it is estimated that $US6.5 trillion was wiped off global sharemarkets. Given that credit was totally frozen for two or so months, there was the distinct possibility of complete financial meltdown in which case there may not have been sharemarkets period.

I can't open it. It says "file is damaged". Even when I go to the submission site. Anyone else experiencing difficulties?

Monario · 6 August 2009

Pindibog said:
I can't open it. It says "file is damaged". Even when I go to the submission site. Anyone else experiencing difficulties?

Opens for me Pindi....

Julia · 6 August 2009

donteventryit said:
Surely dragging the advisers through court and going through some distress is better than letting them walking away ...

Certainly. I'm pleased to hear what happened. It's still quite different from going to jail, though, which is what Cuttlefish and I were saying.

Monario said:
.... and that the requirment to obtain a FP/FA or even become one need a overhaul...

Can you clarify what you mean about "the requirement to obtain a FP/FA"?

cuttlefish · 6 August 2009

donteventryit said:
What was important about this case, was that the individual adviser was found liable for the entire investment amount plus interest.

Reading through the analysis of this case you posted earlier - you are right that it is an interesting case and does set some interesting precedents. It would be enough to make me scared to work as a Financial Adviser thats for sure!

Certainly it does not look like in that case that there was deliberate fraud, and there were plenty of disclaimers given to the investor that they were responsible for their own decisions and weren't being given financial advice - but still the advisor was found liable due to mistakes they made.

So maybe there is a reasonable chance that Storm advisors will come under the gun if the right pressure is applied.

Monario · 6 August 2009

Julia said:
Can you clarify what you mean about "the requirement to obtain a FP/FA"?

What I mean is the requirments obtain a licence to become an advisor!!

Mofra · 6 August 2009

Monario said:
What I mean is the requirments obtain a licence to become an advisor!!

Generally an adviser operates under the AFSL of their employer - technical a Dipl. of Fina Serv (FP) is enough to meet the minimum qualifications to be a FP, although generally higher qualifications & experience are asked for by reputable firms.

The industry itself seems to be pushing for greater regulation, as real FPs don't want their reputations sullied by the industry cowbows.

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