Storm Financial Group

Hi Harleyquin!

Still fighting for truth and justice, I see!

Doesn’t it seem odd to you that no one on this forum has actually asked us to explain what the Banks have done that is so wrong? Wouldn’t this be one of the first questions people would ask if they were really seeking out the truth? Doesn’t it seem strange to you that we Stormies and Storm Financial are being held largely to blame and the Banks (Doobsy suggested 5% based on no evidence whatsoever) are just the victims of their own generosity?

So what are these forum members trying to prove to us Stormies? That they have more gray matter than us perhaps. And who are "They" when you think about it? Everyone prefers to stay anonymous so it could well be Ralph Norris (CBA), David Liddy (BOQ) or some of their cronies for all we know!

Then again it could be that some may simply be trying to get the angst out of their system because Storm had been a thorn in their side for years. Such people are bound to have a jaundiced view. Throw some banking personnel into the mix on this forum and you have a cocktail for extreme prejudice. The mantra “The Banks are not too blame!” being spouted by many is proof of this.

We must also factor in a third element, namely the TPS (tall poppy syndrome) crowd that one finds everywhere. These are people that just hate to see their neighbours do well, or anyone for that matter. For one it makes their own efforts seem small by comparison. Therefore, when their neighbour’s house burns down or some other disaster befalls him/her, these TPS merchants are delighted – they dance around the flames while the victims that have lost everything weep. The reasons why the fire started are of no concern to them. The victims plight is of no consequence. All they can think of is, “They had it coming!”

Another thing that is prevalent on this group is the gift of hindsight. Julia has called Storm Financial a bunch of cowboys! Yet Storm had been around for some years, were members of the FPA, were routinely audited by ASIC, and were supported by major Banks? When I searched the Internet in 2006 prior to our going with Storm I must have missed their articles warning us about Storm. In fact I didn’t find one derogatory comment about Storm anywhere! If it were common knowledge that Storm were a bunch of cowboys, why didn’t anyone speak up at the time? “Good men are not good men because they do no wrong! Good men are those that see wrong being done and do something about it!”

I would suggest to those people that they were as much in the dark at the time as we were and are only now being wise after the event.

There are some forum members that cannot accept the fact that most people in Storm were successful people in their own right. They had acquired considerable assets over many years, and were, as a consequence, self-funded retirees. They certainly weren’t stupid as many are claiming. Many investors didn’t become rich by investing through Storm because they were rich beforehand. Storm and the Banks targeted them for this very reason.

We did the right thing at the time - we sought professional financial advice from a reputable financial advisory firm with a track record. We had no reason to doubt that advice because we paid them top dollar for it. Do people get second opinions every time they visit the doctor, obtain legal advice from a lawyer, or appoint an accountant? Why then should our obtaining financial advice from Storm be any different? Of course, now that I have been investigating the financial sector for nearly three years, I have come to realize that many people that call themselves financial advisers are nothing more than charlatans. However, at the time, none of us were aware of this.

Rather than examine our motives, why don’t forum members that work in the financial sector start asking themselves some hard questions instead. The blame for this financial debacle lies squarely with the financial advisory sector and the Banks that conspire with them.

It may be unpalatable to some forum members who insist otherwise, but the truth of it is that we Storm investors didn’t cause this mess. A reputable financial advisory Company in conjunction with certain major banks did! We, the victims, have had to pick up the pieces of our lives after Storm and these Banks fleeced us.

What then makes it all the more galling is that people are forever telling us that we are somehow to blame because we trusted in the system and those that operate within. Yet, on the other hand, those same people are also telling us that we shouldn’t tar all financial advisers and Banks with the same brush. Why not? If one of the biggest financial advisory firms in the country and some of the major Banks had a part in all this, why should we then place our trust in anyone anymore unless they take a lie detector test beforehand or we consult Cassandra.

Judd said:

Throughout this thread there have been claims that Storm was large a player in the financial planning world.

Was it? Can anyone verify that allegation? I've only been dabbling in the financial world since the mid-1990's but I never heard of this mob until it, and its clients, was on its knees.

It has been claimed that it had about 14,000 clients. Yet the firm which bought the fund book, on investigation, discovered that the claimed number of clients was largely a legacy one who had bought an insurance policy or such from the time EC was with MLC and had nothing to do with Storm since then. They finally whittled the active client base numbers down to 4,000 or so. That doesn't sound like a real big heavy hitter group to me. I could be wrong obviously.

It is simply that I am aware of other financial planning organisations, one with 14 planners across Perth, Adelaide, Melbourne, Sydney and Canberra, but Storm Financial never appeared anywhere in my travels.

I don't wish to appear to be rude but was it a firm with a client base concentrated mainly in the Townsville area and with a smattering of clients in other locations? If it was, then I can understand how those affected could make a claim along the lines of “It is (was) really big, you know.” I've encountered that concept before in large centres, such as Albury/Wodonga or Dubbo, whereas outside that community, an essentially local firm barely rates a mention, if one at all.

I suppose it doesn't matter really. Once litigation/mediation has been concluded and people are or aren't compensated, the whole issue will be consigned to the dustbin of history along with Cambridge Credit, Estate Mortgage, the 1973 oil shock and a variety of other financial traumas which come along from time to time.

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Helen

I think maybe I should clarify my position further. I am not saying the banks are not to blame. My other posts are clear on this. Their system failures to act correctly and swiftly through times where markets were swinging in excess of 5% on a daily basis is not questioned. My view is the banks should wear any losses above the 90% margin call mark for not acting as they should have.

My position is based as a practicing adviser. Storm sold a risky and dud strategy then failed to look out for the clients they were quick to rip tens and hundreds of thousands of dollars of fees out of. The only thing that makes me smile in this whole process was their share float (which was also pushed onto clients) did not get off the ground causing even more damage while the senior people pocketed millions.

When clients we took over got margin calls, they expected us to be the link between them and the provider. That is what they were paying us for. If a client had capacity to sort the margin call through the deposit of extra funds, providing extra security or any other means, we as the adviser would speak with the margin loan provider and advise them that it was being addressed. The provider then would put off any forced sale to give us a chance to deal with it. This was in the clients best interest because as was seen in the Goodridge case, the worst possible thing that can happen is for someone to be sold out when they could have fixed the margin call problem.

My educated guess is that Storm were on the phone telling the providers it would be actively working and they would be able to deal with it. As mentioned above, with markets in freefall through that period, 3 days meant another 10-15% drop in markets which in a geared sense means it is all over.

I know for a fact that advisers from Storm were looking to use personal funds and Storm approached CBA with a proposal to borrow money which they were looking to use to drop into clients accounts to stop the margin calls. They were thinking when markets recovered they would ask for these “loans” to be paid back to Storm. Manny was scrambling looking for any reason not to sell as his whole strategy was NEVER SELL. If he had pulled that stunt off god forbid because he would still be out there telling new clients how they never sold out through the crisis.This has also all come out in the discovery process. With all this moving and shaking from Storm, the providers sat on their hands waiting to see if it would pan out. By the time they acted the clients were past destroyed.

My argument is not a legal based one, it is based on my belief about my responsibilities to my clients and therefore Storm’s responsibilities to their clients.

The recommendation to borrow against the home – Storm. Any lending that can be proven should never have occurred to clients who did not have capacity should be forgiven. I have been clear on this. The banks can see this and it is cheaper to have a resolution scheme than play in court.


Had some clients not been able to borrow against their homes, Storm would still have utilised a margin loan. A fully legal strategy and one that the banks really don’t have anything to answer for. Therefore at best clients would have lost everything except the home.

The recommendation to stay in the market (in fact buy more) throughout the crisis in 2008 – Storm. Not once did they discuss taking some off the table, cashing in a little bit just to give themselves more room to move and reduce the chance of a margin call even further. NOT ONCE. As I said last time, this was based on the arrogance of Cassimatis. He was too busy telling clients about “averages” and how normally markets only fall 35% and how quickly they recover on the other side.

All of this could have been avoided had Storm provided prudent advice. Even as late as the Lehmann collapse - Give the advice, sell part to guarantee no margin calls and then get back in when markets were showing some signs of stability.

Clients expected Storm to act in their best interests, they did not. Clients expected Storm to do whatever was needed to make sure they didn’t lost their house, they did not. Had they done so, the bank and margin call issues are a non event.

I do not have any allegiance or alliance except to my own firm. Again as mentioned I loathe margin loans and agree with McLovin that they should never have been marketed to retail investors. Mind you, the same can be said about forex trading, CFD trading and property investing. The same problem occurs, a couple of bad apples, telling the story everyone wants to hear. How many people lost money in tech stocks? How many people lost money buying a unit (or 10) on the Gold Coast?

It is one of the great Australian examples of stupidity that people have been led to believe there is such a thing as “good debt”. No debt is good. It can be an essential in some cases (buying a home) but there is no “good debt”.

It makes me cringe when I hear ads on TV or radio by mortgage groups telling people to pull equity out because now is a great time to buy another property. There is every chance that should we see inflation take off and interest rates on variable loans sneak up over 8% that we will see the next great investor capital tear up. We can then all discuss how irresponsible it was of the banks to lend to them as well.

Judd said:

Throughout this thread there have been claims that Storm was large a player in the financial planning world.

Was it? Can anyone verify that allegation? I've only been dabbling in the financial world since the mid-1990's but I never heard of this mob until it, and its clients, was on its knees.

It has been claimed that it had about 14,000 clients. Yet the firm which bought the fund book, on investigation, discovered that the claimed number of clients was largely a legacy one who had bought an insurance policy or such from the time EC was with MLC and had nothing to do with Storm since then. They finally whittled the active client base numbers down to 4,000 or so. That doesn't sound like a real big heavy hitter group to me. I could be wrong obviously.

It is simply that I am aware of other financial planning organisations, one with 14 planners across Perth, Adelaide, Melbourne, Sydney and Canberra, but Storm Financial never appeared anywhere in my travels.

I don't wish to appear to be rude but was it a firm with a client base concentrated mainly in the Townsville area and with a smattering of clients in other locations? If it was, then I can understand how those affected could make a claim along the lines of “It is (was) really big, you know.” I've encountered that concept before in large centres, such as Albury/Wodonga or Dubbo, whereas outside that community, an essentially local firm barely rates a mention, if one at all.

I suppose it doesn't matter really. Once litigation/mediation has been concluded and people are or aren't compensated, the whole issue will be consigned to the dustbin of history along with Cambridge Credit, Estate Mortgage, the 1973 oil shock and a variety of other financial traumas which come along from time to time.

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Judd

You are correct in part. It was heavy Nth Qld. He was on a serious recruiting drive looking to either licence or purchase practices across Australia. He was promising cash once the "float" happened. So principals have lost everything as well by selling to him.

The figures you quote are also pretty accurate. As the process took them up to 6 months to go from 1st appt to getting people to sign off and get invested only about 4000 had been "stormified".

Hi Doobsy,

I would ask you to try and get away from your fixation with Storm for the moment and focus on the Banks. I know it's hard but do your best.

You state that, "The banks didn’t push this process on you, they didn’t run the smooth sales pitch outlined above, Storm did."

Your take on much of what occurred with Storm is correct to some extent but you left out the fact that Storm had partners, namely the Banks that dealt with it who, in your opinion, "were only some 5% to blame". I'll tell you just a little about your precious banks and I will then let you be the judge. Margin calls are a key issue so I'll comment on these.

In a previous posting you stated “…the margin calls were the advisers responsibility.” Who told you this, the Banks? This is an assumption some banks make rather than a fact and has no foundation in law. Margin loans are contracts between Banks and their customers. Under such contracts both the lender and the borrower have certain contractual obligations to one another that cannot be denied. It should be added that “obligations” cannot be assigned to any third party unless novation occurs. It didn’t!

The ‘Goodridge v Macquarie Bank Appeal’ clarified certain points in relation to assignment transactions, especially securitisations. However, the Appeal judges did not reject the primary judge’s remarks regarding the making of margin calls and the form in which they should be made. In fact there was little in the ‘Goodridge’ case that is detrimental to our case against the Banks. Rather, it reinforces the notion that the banks have an obligation to effect margin calls. The “reasonableness” element of contract dictates that such margin calls should be made in a timely manner. The law of “custom” that exists in the market place (margin calls in 5 days) also has a marked bearing on our rights as margin loan customers to be so advised within that time-frame.

But don’t take my word for it. I will now quote someone who should know; namely Mr. Paul Johnston who was head of Colonial Margin Lending from its inception in early 1996 until his departure from the company in 2003. Mr Johnston, who is known as the father of margin lending in Australia, advised SICAG in 2009 that he was responsible for growing the margin lending book from less than $1 million at the date of his appointment to $1.9 billion of loans. He was also responsible for the management of $918 million of lending through CBA subsidiary, Commsec.

Mr Johnston was responsible for producing, developing and implementing the rules, procedures and protocols for the margin-lending product, in addition to sales and distribution control. Who better then to know how it all should really work?

Mr Johnston makes the following points:

“An agreement entered into between CGI and Emmanuel Cassimatis in May 2007 provided for an upward movement in loan-valuation ratios exclusively for Storm clients. The agreement allowed for an increase in the buffer from 70% to 80% and from 80% to 90% for a margin call. There appears to be no evidence of any formal advice to advisers or clients of this variance.

The agreement was in fact not adhered to, as it talks about moving the buffer from 70% to 80% and the margin call from 80% to 90% for certain Storm funds, whereas in fact the real ratios sat somewhere in the low 80's for buffer and low to mid 90's for margin call.

From a risk management viewpoint, it seems an unnecessary risk to take, given the volume of business generated ... also if this was something I would do it would have happened back in 1996 so as to give me a superior competitive edge in the market.

The Loan agreement is and always has been between the client and the borrower, not the agent - in this case, Storm.

After consultation with a former IT colleague at the bank, I believe a margin loan facility could not go past 100%. If it did, it would be the bank's problem, not the borrower's.”

(Some went past 130%)

“The Lending parameters were set at 66%, giving the bank, the adviser and the client a level of comfort from a risk management stand point. To take the buffer to the low 80s and margin call to low to mid 90s is very risky.

At all times during my tenure as head of margin lending, margin call notices were sent automatically to clients, in writing, with advisers copied in for reference. If a margin call was not rectified within five days I felt it was my right and duty to sell the client up (unless evidence was supplied that positive action was being taken to meet the margin call to protect the client and the bank's position. I believe I (on behalf of the bank) was liable for any shortfall if action wasn't taken at the end of five days or 24 hours if direct shares were involved. The five-day window was a generous tlme-frame compared to other margin lenders at the time. “

(Macquarie took 3 to 4 weeks and the CBA 10 to 11 weeks and even then, many margin calls were never made – customers’ share portfolios were simply sold out from under them!)

“The margin call was always automatically generated by a computer system used by the bank called original MLS, now known as 'EMPIRE'. A margin call notice could only be stopped through manual intervention.

I was instrumental in the writing of clause 4.2 of the terms and conditions which talks about 'you' receiving a margin call. My knowledge and practical application of that clause is that the bank contact the client in writing, then the client (in consultation with the adviser) rectifies the position. Again, I should stress that if the margin call wasn't fixed in the five-day period, I immediately sold the client down to protect BOTH parties (unless evidence was supplied that positive action was being taken to get the call fixed).” [End]”

It should also be added that documents have come to light during the discovery process that will show that margin calls were issued by CGI to other dealer groups in line with standard practice. Therefore, its practice in the case of Storm whereby it allowed Storm to set the parameters was outside the norm and not standard practice at all. This will equally apply to Macquarie Bank who was also in bed with Storm.

The Banks and some on this forum seem to be confused at times when it comes to regulatory obligations and contractual obligations. They are not one and the same! You have regulatory obligations under various Acts that the Banks need to fulfil in relation to Statute or Corporate Law. The Banks also have contractual obligations to their customers that they need to fulfil under Commercial Law. The Banks have failed on both counts!

I can tell you now that many of the misconceptions about the way Banks do business, and the assumptions they make in so doing will be challenged when this matter is finally heard in the Courts. Precedents will then be set that the Banks will not be able to wriggle out of. That is one reason the Banks do not want this to go all the way!

You have said that you only equate 5% of the blame to the Banks. Why, if the Banks are only 5% responsible, did Ralph Norris, the former CEO of the CBA admit partial liability, and that Bank subsequently pay out millions of dollars under its ‘resolution scheme’? Do you seriously believe that if the CBA had a leg to stand on (being as you claim only 5% to blame) that Bank would have settled? But then, I forgot, Banks are noted for their magnanimity.

If you or anyone else still wants to defend these banks after considering what I have just stated here, feel free. I should remind you all though that both the Banks and Storm set these parameters and omitted to inform their customers about them. This is known as deception in my book by all parties concerned. But then again maybe you are not reading the same book? It’s entitled, “Ethical Banking Practice”. What’s the name of yours?

Doobsy! You seem to be obsessed with Storm's role in all this and you also seem to have a blind spot where the banks are concerned. I have only discussed margin calls which sent us all into free fall because none were made. If you still aren't convinced, I'll also elaborate on the housing loans aspect for you!

Has the penny dropped yet! Storm and the Banks entered into secret agreements with one another. Why do you think ASIC is now charging them with UMIS? The Banks were with Storm all the way up and all the way down. “Bonking” rather than Banking is a more fitting description for what occurred between them.

Do you still believe now that the Banks were only 5% at fault? If you do, you are either a very hard man to please or related to a banker!

Frank Ainslie said:

But don’t take my word for it. I will now quote someone who should know; namely Mr. Paul Johnston who was head of Colonial Margin Lending from its inception in early 1996 until his departure from the company in 2003. Mr Johnston, who is known as the father of margin lending in Australia, ......

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A slight historical correction, Frank.

Margin lending was actually introduced to Australia by Chris Corrigan (he of the waterfront dispute fame) when he was with Bankers Trust Australia in the 1970's. So Mr Corrigan is the father of margin lending in Australia and Mr Johnston is therefore....don't know, maybe the son?

Hi Doobsy,

I got Helen (Janus) to send you the same posting to prove a point. When someone represents themselves as being one thing and they turn out to be something entirely different, even the best among us can be fooled. If you had done your homework before replying you would have linked us together. Enough articles have been written about us and enough information exists on the Internet to make the connection. I gave you a further clue with the name Janus but you also failed to pick up on this. You made an assumption which just turned out to be the wrong one! That’s just how easy it is to deceive. It hurts when you been misled, doesn’t it? How do you think we feel?

In much the same way, Storm represented a financial plan to us and then adopted one that was nothing like the one we agreed to! That still hurts! However, that’s firm’s duplicity is now beyond dispute. Your attempts to reinforce that fact are unnecessary.

Your response to Helen is a cogent one but again you have made some assumptions.

“My view is the banks should wear any losses above the 90% margin call mark for not acting as they should have.”

We didn’t agree to a 90% margin call. The Banks and Storm decided this between them and didn’t notify us. How could we agree to something that was not disclosed to us?

”When clients we took over got margin calls, they expected us to be the link between them and the provider. That is what they were paying us for.”

The link, yes, but that does not relieve the banks from making margin calls directly to their margin loan customers. This may be a common practice among financial advisers now but it leaves them liable if litigation arises. Mr. Johnston’s comments outline the Bank’s position fully in this regard.

”… with markets in freefall through that period, 3 days meant another 10-15% drop in markets which in a geared sense means it is all over.”

Banks cannot assign their responsibilities to financial advisers. In a volatile market they should be keeping their margin loan customers fully informed. Advising the financial advisers involved should be a secondary consideration. The Banks did it for everyone else, so they have no excuse where Storm customers are concerned.

“With all this moving and shaking from Storm, the providers sat on their hands waiting to see if it would pan out. By the time they acted the clients were past destroyed.”

That’s no excuse whatsoever and the Courts will also see it this way. We are not talking about a week or two here, we are talking about months. Banks cannot offset their responsibilities by saying, “We were waiting for Storm to give us the word!” They had contractual obligations to their customers, not to Storm who were not a party to the margin loan contracts.

What the Banks and Storm were concocting up between them at the time has nothing to do with anything. The Banks failed to make margin calls within a reasonable time and in most cases, never did.

“Clients expected Storm to act in their best interests, they did not.” No! Clients expected Storm and the Banks to act in their best interest, they did not!

The reason why neither the Banks or Storm acted in the clients’ best interests was because the Banks and Storm had secret agreements that benefited them and not the customers. The conditions of those agreements breached our agreements with the Banks because it altered them. This will all come out in Court in due course.

If this were a normal set of circumstances where the Banks had done everything aboveboard, we wouldn’t be taking action against them and neither would ASIC.

Frank Ainslie said:

I got Helen (Janus) to send you the same posting to prove a point. When someone represents themselves as being one thing and they turn out to be something entirely different, even the best among us can be fooled. If you had done your homework before replying you would have linked us together. Enough articles have been written about us and enough information exists on the Internet to make the connection. I gave you a further clue with the name Janus but you also failed to pick up on this. You made an assumption which just turned out to be the wrong one! That’s just how easy it is to deceive. It hurts when you been misled, doesn’t it? How do you think we feel?.....

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Hmm, fascinating. On one hand, an individual who feels grieved about being misled and yet delights in doing the same.

Frank,

Can I ask what you thought you were going to get for your 7% up front fees?

Noone has been able to answer this yet.

I can't for the life of me understand how or why someone would pay so much for something so basic?

How did they sell it to you? Surely it was more than being able to piss in their 5 star toilet, or enjoy one of their world famour cappuccinos. Was it the lure of working with a financial guru in emmanuel Cassimatis that tipped the scales.

I have read PJC submission where clients paid in excess of $100,000 up front. What did they sell you????

OK, my last post since I feel like a beer.

Assuming a client could cope with the home and margin loan (still working, plenty of assets, whatever) and using my example:

Super - $400,000 - told to withdraw
Home worth $500,000 - withdraw $400,000 in equity.

Invest that $800,000 and then apply for a margin loan of $800,000.

Result $1,600,000 at a 50% LVR.

2008 happens. Investment falls to $1,000,000 (37.5% fall) and the bank does the right thing, triggers the margin call like they should.

RESULT: $1,000,000 cash, margin loan paid out for $800,000 = NET $200,000.

You still owe $400,000 on the property.

You are still screwed. Storm screwed you. Because the banks didn't trigger the margin call correctly you are just more screwed. Finding the banks liable of doing something wrong the best you can hope for is to be treated the same as a normal margin loan customer. Still Screwed.

SJG1974 said:

.........7% up front fees..........

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doobsy

One additional factor in the equation which you may have overlooked.

As soon as I first learnt of the Storm model on this forum, that is the aspect which struck me with the Wow! factor.

What a jaw dropper! Borrow $100k against the house, borrow another $100k on margin, take a commission of $14k, leave the client with $186k invested but with loans of $200k on which interest is payable. I was, and still am, stunned by it all.

Enjoy the beer.

AGREEMENT BETWEEN COLONIAL GEARED INVESTMENTS & STORM FINANCIAL P/L

(Not relayed to the Bank's margin loan customers even though the margin loan contracts were between that Bank and its Storm customers, and not Storm)

18 May 2007

Mr Emmanuel Cassimatis
Storm financial Pty Ltd
Storm Financial Building
382-432 Sturt Street
Townsville QLD 4810

Attention; Mr Emmanuel Cassimatis

Dear Emmanuel

Re: Margin Lending for clients of Storm Financial

Following your discussions with Colonial Geared Investments we are pleased to provide the following terms for Margin Lending facilities for your clients.

Subject to the expectations set out below, we will allocate a global LVR of 80% for those of your clients who invest in the following funds:

Chgr Australian Broadmarket Indexed Trust HOW0021 AU
Chgr Australian Industrials Indexed Trust HOW0022AU
Chgr Australian Resources Indexed Trust HOW0023AU
Chgr Australian Technology Indexed Trust HOW0024AU
CFS SFA Sharemarket Index Fund FSF0160AU
CFS SFA Industrials Index Fund FSF0161AU
CFS SFA Resources Index Fund FSFO I 62AU
CFS SFA Technology Index Fund CMIOII12AU
WC-Vanguard Australian Share, Index Fund MLC0014AU
Barclays Australian Equity Index Fund BGL0034AU

The expectations are:

Storm Financial continues to use the Funds listed to develop diversified investments that are expected to mimic the returns obtained through investment in the overall ASX 300 accumulation index. Funds invested an behalf of clients are apportioned amongst the funds in an attempt to produce an overall return that both outperforms and exhibits lower earnings volatility when compared with the reference index.

In that connection, a client's weighting in the Resources sector is not to exceed the greater of 130% of the weighting of Resources, as defined by Storm's Australian Broadmarket Index, or the current overall Storm portfolio technology weighting.

For example, if the appropriate market weighting is 22%, then the maximum client portfolio weighting is to be set at 28.6%

Also, a client's weighting in the Technology sector is not to exceed the greater of 300"/o of the weighting of Technology, as defined by Storm's Australian Broadmarket Index, or the current overall Storm portfolio technology weighting . For example if the appropriate market weighting is 2%, then the maximum client portfolio weighting is to be set at 6%.

As each fund may attract a different LVR on a stand alone basis from Colonial Geared Investments, Storm Financial must convey these individual LVR's to the client and advise the client that a departure from Storm's advised strategy will lead to a rebalancing of their facilities with Colonial Geared Investments (proper legal name)

· Additionally, other Storm recommended investment funds from time to time may be given the same maximum LVR and buffer for client, subject to prior approval by Colonial Geared Investments.

· We would also require that Storm Financial and Colonial Geared Investments meet monthly to ensure that the agreed approach, including observance of expectations is being maintained, and to facilitate any agreed changes which may be required in response to changing conditions. Naturally an extraordinary meeting can be called at any time by either party. Details of these meetings will be settled by both parties. We would further require that Storm Financial provide to Colonial Geared Investments before these meetings, acceptable reporting that confirms observance of these expectations. We will include a periodic update on trends in market volatility compared with our methodology.

· Colonial Geared Investments will maintain the 80% LVR and 10% buffer for existing business retained or newly written in respect of specific clients provided these expectations are met and Colonial assessment of the appropriateness of these loan conditions persist.

· Despite our allocation of a global LVR of 80% to your clients on the basis of our expectations being met, as set out above, nothing in this letter modifies or varies the obligation of any client borrower under clause 3.2 of the margin loan to pay us the amount owing under the margin loan if that client borrower is either in default or we send that client borrower a 5 day notice requiring payment of the amount owing.

· Storm Financial will not gear a client above 65%. Should a client find themselves at LVR of 65% or above, then any additional gearing will only occur if the client's buffer increases.

· In the unlikely event of a margin call, Colonial Geared Investments and Storm Financial will work in partnership to clear the margin call. Note however that Colonial Geared Investments reserves its rights under its Margin Lending Terms and Conditions.
· Acceptable cash securities to have an LVR of 100%

Yours faithfully,

Craig Keary - General Manager - Geared Investments

What this agreement did in effect was to create confusion among both parties as to their respective responsibilities rather than clarify them. At the end of 2008 both parties sat on their hands whilst we burned. One waited for the other to act, and we now all know what happened next!

I expect this document to figure prominently in ASIC's assertion that Storm and the CBA were effectively operating an unregistered managed investment scheme.

Judd said:

doobsy

One additional factor in the equation which you may have overlooked.

As soon as I first learnt of the Storm model on this forum, that is the aspect which struck me with the Wow! factor.

What a jaw dropper! Borrow $100k against the house, borrow another $100k on margin, take a commission of $14k, leave the client with $186k invested but with loans of $200k on which interest is payable. I was, and still am, stunned by it all.

Enjoy the beer.

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Judd thats the bit I can't get over. And still no Storm client is prepared to explain just what it was they were getting to justify these ridiculous fees.

And then there was their "system" whereby they were to ride the property bubble up, suggest to clients that nows the time to borrow more against the increased value of the house and then...you guessed it...another 7% fee in the pocket for Storm for this "complex financial advice".

It stinks.

doobsy said:

OK, my last post since I feel like a beer.

Assuming a client could cope with the home and margin loan (still working, plenty of assets, whatever) and using my example:

Super - $400,000 - told to withdraw
Home worth $500,000 - withdraw $400,000 in equity.

Invest that $800,000 and then apply for a margin loan of $800,000.

Result $1,600,000 at a 50% LVR.

2008 happens. Investment falls to $1,000,000 (37.5% fall) and the bank does the right thing, triggers the margin call like they should.

RESULT: $1,000,000 cash, margin loan paid out for $800,000 = NET $200,000.

You still owe $400,000 on the property.

You are still screwed. Storm screwed you. Because the banks didn't trigger the margin call correctly you are just more screwed. Finding the banks liable of doing something wrong the best you can hope for is to be treated the same as a normal margin loan customer. Still Screwed.

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Exactly. Storm screwed them well before the margin call fiasco occurred.

You are still screwed. Storm screwed you. Because the banks didn't trigger the margin call correctly you are just more screwed. Finding the banks liable of doing something wrong the best you can hope for is to be treated the same as a normal margin loan customer. Still Screwed.

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SJG1974 said:

Exactly. Storm screwed them well before the margin call fiasco occurred.

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+1. Well described.

Frank Ainslie said:

What this agreement did in effect was to create confusion among both parties as to their respective responsibilities rather than clarify them. At the end of 2008 both parties sat on their hands whilst we burned.

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Frank

You forget to mention that another party, namely YOU, also sat on your hands while you burned.
It seems to me that you, as the owner of the business, should have stepped in and given specific instructions to your manager to take immediate defensive action once it was clear that your business was hemorrhaging badly. This should have been done well before your investment dropped to margin call level, because by the time your account went into margin call (even if you’d received the margin call in a timely manner) your losses at that stage would have been huge due to the magnifying effect of your high level of gearing.
Isn’t that what a prudent and astute business owner would do? After all, an astute business owner doesn’t just sit on his hands and do nothing while his business goes down the gurgler – does he Frank??
And you have, on a number of occasions as I recall, stated that you were astute.

Frank

Personally I think the increase in borrowing limit will be hard to get over the line in court. The reasons for this are:

1. Margin Lenders change the borrowing limits on individual stocks and managed funds all the time. Some stocks might start with a 50% borrowing limit and then as they grow / mature the margin lender might feel comfortable increasing this to 60% or 70%. That doesn't mean you have to take up to that limit, it is simply a maximum. Index funds have traditionally been 80%, in the case of the sub indexes storm flogged apparently 90% was ok.

2. I have a feeling it would have been advised through your margin loan statement. You wanted them to deal directly with you, the statement was a way of doing this. Most ML statements I have seen have the client's current LVR, the base LVR, the margin call LVR and also the borrowing limits per investment.

If on your statement it showed the borrowing limit (which it would have) and also showed you on a regular (monthly, quarterly) basis what your base, current and margin call LVR was I am not sure any judge will say that you were uninformed.

Even if you argue again that you should have not been getting special treatment, the best I can see is the judge looks at it and says "Yup, should have been an 80% LVR not a 90% LVR" This won't fix anything because we saw losses in the market that would have still triggered a margin call. Just means clients would have been less screwed.


I think you are barking up the wrong tree on that one sorry.

Harleyquin said:

Thanks DoK life is still good no matter what happens and we should all enjoy it. This has proved something which we knew all along anyway and that is that our families are far more important than any wealth and if wealth is measured by family and their support, I'll always be 'wealthy'.

Julia you and I think very differently in some areas however we'll just have to agree to disagree on some of these issues. I admire your investment skills however and wish I had them. Maybe some day I'll revisit the site you suggested a while back.

Bunyip the book I was talking about in a previous post is 'The Desert Column' by Ion Idriess, hope you enjoy it.

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Thanks HQ, hopefully my local library will have the book, or perhaps be able to source it from another library for me, which they’ve kindly done for me a few times in the past.

And may I endorse what others have said about the grace and dignity you’ve shown on this forum. To still have a positive outlook on life after what you’ve been through should be an inspiration to all of us.

Frank I think it's important that we don't let whoever created this storm to 'get away with it'. I enjoyed reading all of your posts and agree with you one hundred percent. The word 'assumptions' keeps coming to mind and understandable that other forum members have to assume what they know as they didn't walk in our shoes.

I'm trying to think how to explain storms fees and I'm struggling so here goes, hope I succeed. A storm advisors spiel would make far more sense of this than I possibly can. Let me say firstly, that in hindsight, I agree with you, storms fees were outrageous.

At the time the advisor explained their fee structure in such a way that it made sense to us. I asked a couple who we know with a financial plan and they said that they paid ten thousand dollars a year, another fellow we know said that he paid somewhere between two and three thousand a year. I have no idea if this is 'normal' or not.

With storm their spiel was that this was a one off cost for the life of the plan, and they quickly rattled off lots of figures to support this. At the time it certainly made good sense to us. There was a lot that they didn't tell us and granted we didn't ask, our fault, we accepted their word for this.

We're since finding out about extra fees, trailing commissions etc which were obviously and for 'good reason' as far as they were concerned, never mentioned. An expensive lesson learned and I'm sorry but I really don't know how to explain it any better than this. No doubt it was part of the 'con', lets hope that all of this comes out in the courts.

Documents will prove that storm and the major banks were allies in an unregistered scheme. I'm not prepared to comment further on this at this stage however.

The CBA’s intimate relationship with Storm

An extract from a submission made to the Parliamentary Joint Committee in 2009 by a former Storm employee:

• We currently have a CBA Better Business Loan provided to us by the CBA
prior to the proposed Storm Financial float.

• It was offered to some Storm employees after a CBA bank representative in
Townsville saw an opportunity for Storm employees to raise personal capital
for the then pending float of the company.

• They didn't want the money back when the float didn't fly - we were told we
could use it however we pleased.

• This is a $ lOOK unsecured Business Loan with a 3 year interest only period.

• The loan structure was not made available to the open public.

• It was also offered to Storm employees by the CBA as a sweetener to Storm
Financial in an attempt to win over their total corporate lending facility from
another banking competitor.

• Storm's corporate banking business was always with Westpac previously.

• I am aware that other Storm employees were offered and accepted the same
loan structure.

• Remember, these were business loans that the CBA provided, not home /
personal loans. You would expect the bank would want unsecured money
back pretty quickly under normal circumstances. It didn't seem to concern
them greatly - the relationship with Storm was solid.

• I have confirmed that special approval from CBA Brisbane / Sydney would be
required for an unsecured business loan for the lesser amount of $20K.

• Approval of these loans would also have required special approval/policy
from the bank's credit department.

• $1OOK unsecured business loans to wage earners just don't occur out there in
the corporate world.

• I was brushed by a Townsville CBA representative to another in Sydney. To
her, I had murdered someone. I expected as much. Being a former Storm
employee hasn't done me any favours.

• These loans would have only been offered because of the CBA's close and
vested interest in Storm Financial.

• They knew about the float, were very acquainted with Storm's business model
and Storm's profitability.

• They would have approved these loans as a 'special matter'.

• Put simply, it was a VAS loan in disguise.

As a wage earner or self-employed, try going into a bank and requesting a $IOOK
unsecured personal loan with a 3 year interest only period attached. You will still
here them laughing on your way out, as the electronic doors close behind you.

This person also states:

"This issue of negative equity on some Storm client portfolios is confusing at the very least. If all margin lending products around the country failed their investors at the height of market volatility in late 2008, then all advisory firms who recommended the gearing product predominantly in their client portfolios and who practiced the same strategy would now be in, or close to administration also. I know of no other clients external to Storm Financial who have even mentioned the words "negative equity"*and this is for one simple reason - if their buffers were being breached, then regardless of the market turmoil of the day, "their" margin lending provider acted appropriately on client portfolios and "their" margin lending product served the purpose for which it was intended. It's astounding that only Storm Financial clients had issues with negative equity and no other."

This same person sold his existing share in a Cairns financial planning firm to Storm in May 2007 (the same month as the CBA/Storm agreement oddly enough) and joined Storm as a financial advisor. Indeed, many such as Ron Jehlich did the same. People are now calling us gullible. Yet, there were many financial advisors working for Storm that also had money invested using the Storm model! If they, supposedly trained financial advisors couldn't see the dangers inherent in the system, how the heck could anyone expect us to?

Frank Ainslie said:

"It's astounding that only Storm Financial clients had issues with negative equity and no other."

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It is astounding. And the fact that this was the case would suggest the problem was with Storm and not the bank would it not???

With CBAs systems and processes seemingly functioning properly with all of the other advisers who used them, why was the data that Storm got "scrambled" as Manny would say, yet this wasn't a problem elsewhere? Why were clients of other advice firms receiving margin calls, yet Storm clients werent? Why were other people I know told by their adviser to lighten their share load prior to receiving a margin call, to give them some added breathing space, but not clients of Storm?

Was it to do with the special relationship they had, or was it because Manny and his salesmen decided to get clients to hang on for as long as possible and hope like hell a quick market recovery would save their bacon and cover up the shoddy advice and service they had provided their clients?

Storm advisers must have been blind not to have known that their clients would be approaching margin call territory when the market hit the skids in late 2011, scrambled data or not. They would have known how devastating a margin call would be to its clients, particularly given the increased LVRs on their badged funds. What stopped them from acting sooner to prevent this devastation? They didn't have to wait until a margin call to tell clients to cash up.

Oh thats right, they don't receive management fees if your money is in cash, and they couldn't afford that with new business and their 7% up front fees drying up.

Could it be that Manny and his crew of con men are trying to defelct blame away from themselves and onto the bank?

No, that couldn't be it. Manny is an honest man, he wouldn't do that to save his own neck. Remember, he is on a crusade to uncover the truth, although he seems to have been very quiet lately.