Storm Financial Group

[Garpal Gumnut]

That's the critical thing, dear colleague. CONTROL! That element alone is empowering so it's important to keep hold of. The other thing a mentor taught me a long time ago is to focus only on those things that you CAN control.

That - and the fact that when you're in a pitched battle. Choose the right guys to be on your side. For mine, I choose you Stormers!!

I don't trust too many people these days, however I do trust my legal people as I know its disgraceful from the compiled evidence what has gone on.

jjtebj12,

Mate just follow Stumpy's advice. Stay in control. The legal people are last in line to take their bite out of Storm investors.

And read all the posts from the first on this thread, to this one.

gg

 

[Frank Ainslie]

I don't trust too many people these days, however I do trust my legal people as I know its disgraceful from the compiled evidence what has gone on.

Hi jjtebj12!

An interesting article by Chris Merritt – Legal Affairs Editor appeared in the THE AUSTRALIAN on 23rd April entitled ‘Chief justice blasts ethos of `the billable hour': This article outlines NSW Chief Justice Tom Bathurst's attack on Australia's largest law firms

I am not a subscriber to this newspaper and therefore could not provide an Internet link. I have therefore scanned it and have quoted it in full at the end of this posting.

GG has stated “The legal people are last in line to take their bite out of Storm investors.” His cynicism is not totally unjustified. The aforementioned article if nothing else highlights the fact that the Law is a business and lawyers are in it primarily to wring money out of clients. It is becoming even more so as time goes on. There are few if any lawyers that ply their trade for altruistic purposes because they need to make a profit.

I have had some unfortunate experiences with incompetent lawyers during the course of my business life which has left me just as cynical as GG. Like some doctors, they can be very condescending to their clients and many of them display a certain hubris – a “we know best” attitude when often times they don’t. Our experiences with Storm have made me even more mistrustful when dealing with so-called experts in any field.

Since this all began, we (Helen and I) have fired one law firm and have been let-go by another. We started off using a company called Holman Webb on the recommendation of our accountants. Unfortunately, they left me to do all the work whilst they did all the charging! When Slater & Gordon appeared on the scene, we thought that they were a more viable option and switched to them. It seemed a good idea at the time!

It became apparent to me sometime in 2009 that S & G who had been employed by many ‘Stormies’ to negotiate on their behalf with the CBA seemed to be acting in their own interests rather than the interests of their clients. I think this is one of the law firms NSW Chief Justice Tom Bathurst is referring to in the aforementioned article. To my mind, they fit the bill nicely!

When I wrote a letter of complaint to Damien Scattini pointing out that the CBA resolution scheme was a joke, listing my reasons in law for arriving at this conclusion, he responded as any good legal mercenary would by firing us as clients. Fortunately, Levitt-Robinson, who had always impressed me with their zeal, were on hand to catch our file. LR had, I felt, been making the right noises from the start whilst the others were going through the motions.

That doesn’t mean, however, that I am going to leave it entirely to them as our lawyers, because they are not sacrosanct and you should never treat them as such. If Storm taught us nothing else, it should have taught us to ask questions when we have doubts and ensure that we fully understand the answers provided. Fortunately, this time I know something about the law whilst I still know very little about investing.

Let’s not kid ourselves or underestimate the task ahead for any law firm we employ. This is going to be a “David and Goliath” battle! The Banks have the MIGHT because they have an inexhaustible amount of money (some of which is ours) and time means nothing to them. We on the other hand, whilst we have RIGHT on our side, are an exhausted people with limited means and time is not our friend. The Banks know this and they will do anything in order to try and weaken our resolve. They also know that they must break us or lose. There are billions of dollars at stake here and reputations to preserve so it’s going to be a fight to the bitter end.

There are some key elements that we do have going for us, and there is a smorgasbord of wrongdoings to choose from! Apparently, there are millions (Yes, I did say millions) of documents in existence and many of these evidence the machinations that ensued in the dealings between Storm and the Banks that worked in conjunction with them. Further, many that worked within those organizations have now come forward and will testify for our side. What’s more, our lawyers have recruited a formidable legal team including a former judge. Therefore, I am confident that we are now ready to meet any challenge the Banks will mount.

It’s not going to be cheap and it’s not going to be easy. Nothing worth fighting for ever is!

In the coming months our resolve will be tested fully so we need to remain strong at all times. Just maybe, this time, the Banks have bitten off more than they can chew! If so, let’s hope they choke to death from the result of their gluttony! But not before they pay us back first!

Here's that article!

CHIEF JUSTICE BLASTS ETHOS OF 'THE BILLABLE HOUR'

Law giants 'create

CHRIS MERRITI LEGAL AFFAIRS EDITOR

NSW Chief Justice Tom Bathurst has attacked the nation's largest law firms -warning that their emphasis on commercial success leaves lawyers and clients open to exploitation, creates tension with legal ethics and could limit them to recruiting "mindless drones".

He warned that the best law graduates were already avoiding "megafinms" that placed too much emphasis Ijn "billable hours",requiring lawyers to account for
their time in six -minute units.

Those firms could "end up with a series of mindless drones adding six minutes here, six minutes there, to the general dissatisfaction of their clients and to the distress of the court when they bring litigation that shows no discernment to the matters necessary", Chief Justice Bathurst said.

He said the commercialisation of legal practice was not inherently evil, but the conflict between profit and ethics was at the core of the concerns over this development. The Australian legal market had been invaded or colonised by large overseas firms, mainly from the northern hemisphere.

The sheer size of the mega*firms, with hundreds of partners and thousands of employees, meant it would be difficult to assess the skills and qualities of individual lawyers, other than through revenue generation.

"This may not be a problem in a non-legal corporate entity but it creates serious ethical challenges for a law firm," Chief Justice Bathurst said. "1 regret that in some cases young lawyers are left with the impression that the be-all and end-all of legal practice is the billable hour.

"The ethical future of an industry in which young people are exploited and indoctrinated into a culture in which professional duties may be superseded for personal gain is of real concern."

Chief Justice Bathurst's critique came ahead of yesterday's announcement that one of the nation's oldest law firms, Allens Arthur Robinson, is entering a joint venture in Asia with British based global firm Linklaters.

The move by Aliens, which will be known in Asia as AlIens Linklaters, means Clayton Utz is the only large Australian law firm that has not formed an international business alliance, merged internationally or is negotiating the terms of an alliance with one of the global giants of the legal profession.

Chief Justice Bathurst's extraordinary attack was delivered at the Commonwealth Lawyers Association's regional conference in Sydney and has been rejected by Stuart Clark, who leads an industry lobby group made up of the nation's largest law firms.

Mr Clark, a senior partner at Clayton Utz, told the same conference that large law firms were relatively under-represented among the complaints lodged with the legal services industry's independent regulators.

They were also over represented in the provision of free legal services for public- interest cases.

"But for the economic strength of the large law firms ... it would not be possible to do anything like the level of pro bono work that is done in many countries, particularly the US, Australia and other parts of the Commonwealth," Mr Clark said.

However, Chief Justice Bathurst said young lawyers at large firms had little or no interaction with clients.

"Rather than taking carriage of a matter and seeing value for a client through work completion, they are motivated to bill as much as possible in the interests of career advancement.

"This leaves both client and young lawyer open to exploitation in the pursuit of profit."

 

[jjtebj12]

Thanks Frank for the article. Blind Freddy could see Slater and Gordon were always in it for themselves. They got paid from CBA how on earth could anyone think they were in it for their clients. This in itself was wrong but thats another story.

My legal fight started long before Slater & Gordon got involved and my advice has always been the same from day one. The only thing that has changed is the depth of deception. Some of the evidence would make a grown man cry. How do these people sleep at night.

Yes CBA has deep pockets but they need to fight or else they look silly on so many fronts.

 

[SJG1974]

Now that everyone around here is friends again, it has become a bit boring!!

A seriuous question though....does anyone know what Manny and Julie Cassimatis are up to these days? Will they be hauled before the courts to defend the provision of inappropriate advice and misleading investors?

 

[Mash]

https://storm.asic.gov.au/storm/sto...simatis civil penalty proceeding?opendocument

The above link is to the ASIC site with details of the proceedings and their next court appearance is scheduled for May 15 in Brisbane. Note these are only civil proceedings by ASIC. Unfortunately no criminal charges have been laid .....yet !

 

[Frank Ainslie]

https://storm.asic.gov.au/storm/sto...simatis civil penalty proceeding?opendocument

The above link is to the ASIC site with details of the proceedings and their next court appearance is scheduled for May 15 in Brisbane. Note these are only civil proceedings by ASIC. Unfortunately no criminal charges have been laid .....yet !

Hi Mash!

"Note these are only civil proceedings by ASIC".

We should all be mindful of the fact that these are civil proceedings by ASIC rather than criminal proceedings. Certainly, the C’s could also be charged later if actions of a criminal nature are revealed during these proceedings. In such circumstances, ASIC would then refer these matters to the DPP for further action.

“Unfortunately no criminal charges have been laid .....yet!”

We must not forget that the financial investment model offered by Storm was an investment scheme that on the surface was operating within the framework of the law. Of course, if “unregistered managed investment schemes” can be proven, the situation will altogether change. Therefore, anything I say now will carry this proviso.

If Storm and the Banks had acted appropriately in the latter part of 2007 and pulled us out when they had the chance, then I wouldn’t be sitting here today writing to you because the machinations of Storm and the Banks involved would never have come to light. We would certainly have lost a great deal of money, but so did many others that had investments at that time. Indeed, we have been constantly reminded of this fact by some on this forum and they are quite correct when stating this.

ASIC and our lawyers are now pursuing Storm and the Banks for civil law wrongs that have now been identified. The ‘Consumer protection and the Australian Consumer Law’ best sums this up:

“It is unlawful for traders to engaging in conduct which is misleading or deceptive, or which is likely to mislead or deceive. This covers conduct that is likely to create a misleading overall impression among the audience about, for example, the price, value or quality of goods or services. Failing to disclose relevant information relevant information, promises, opinions and predictions can also be misleading or deceptive. A trader’s conduct can be misleading or deceptive even if it is not intended to.

It is unlawful for a trader to make false or misleading representations about goods or services when supplying, offering to supply or promoting goods or services. There are some specific prohibitions against false or misleading representations.”

We have discussed some of these civil wrongs at length on this forum. Therefore, I will now focus on possible wrongdoings (yet to be proven) that may have repercussions in the criminal court. Let’s consider some such possible wrongdoings:

Fraud

“In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud.”

Can it be argued that Storm was guilty of “intentional deception” when procuring clients? Certainly, there is evidence to support this charge. The SOA’s for instance only supported the notion that investing solely in the share markets to the detriment of real estate was the way to go. It further suggested that it was a scheme designed to be conservative and therefore “low risk” and it was anything but that. It also stated that effective software systems were in place to protect clients’ portfolios when they were not. All of these factors were promoted to clients in order to reassure them and obtain their signatories. The only question remaining is, “Was it done intentionally?”

Again, I believe that it was because, I believe, that the evidence will show that it was done for the sole purpose of generating monies for Storm rather than protecting the interests of or generating material benefits for those clients.

“Someone who commits fraud has acted dishonestly or by omission to deliberately deceive someone. Fraud is regulated under various acts, including state and territory criminal legislation and under Australia’s common law. There may be overlap between misleading and deceptive conduct under the consumer protection laws, and fraud in criminal law.”

Forgery

“The creation of a false written document or alteration of a genuine one, with the intent to defraud is called ‘forgery’. It also includes filling in blanks on a document containing a genuine signature, or materially altering or erasing an existing instrument. An underlying intent to defraud, based on knowledge of the false nature of the instrument, must accompany the act. Punishment generally consists of a fine or imprisonment, or both."

Sifting through the evidence to hand, it is clear that “filling in blanks on a document containing a genuine signature, or materially altering or erasing an existing instrument” were among some of the activities that took place within Storm or the Banks involved or by both. The shenanigans within the Bank of Queensland in North Ward point to such malpractice.

In the end though, what those involved are charged with or the sentences they receive will make no material difference to us. Our sole aim should be to get our money back and leave their fate to the Law. Looking back now, I have no real hatred for the C’s or the financial advisers that misled us. Rather, I HATE THE SYSTEM that they were able to use for their own ends – a system that has been allowed to function because governments have been too indolent to protect us from those within the financial sector that have been ripping people off since Federation and before . There will always be those avaricious people among us who will spot loop-holes in any loose system, Whilst we have sloppy government controls, and silly people at the helm, we Australian will always suffer as a consequence. The system needs to be fixed but when is anyone's guess! Certainly, the new regulations do not go far enough and those in Government show little intent or commonsense for that matter to do anything constructive that will fully protect would-be investors in the future. Maybe, it's not in their interests to do so?!

The ultimate irony is that we now have ASIC charging the C’s with failing to abide by the provisions within the Corporations Act when ASIC itself failed so many times to ensure that Storm did just that. It’s a bit like the Gas Company suing Hitler for not paying the gas bill!

 

[StumpyPhantom]

Frank - re your ultimate aim of getting your money back. I take it it's the banks that hold the purse strings here? And further that there is a large divide between you (as a group) and the banks such that they are in defensive/confrontation/legal mode and won't budge an inch?

If this has been their position, has it been so all along and are there any sigs or strategy that has seen them soften at all along the way?

 

[Julia]

....it be argued that Storm was guilty of “intentional deception” when procuring clients? Certainly, there is evidence to support this charge. The SOA’s for instance only supported the notion that investing solely in the share markets to the detriment of real estate was the way to go. It further suggested that it was a scheme designed to be conservative and therefore “low risk” and it was anything but that.

Did the SOA's detail the strategy of borrowing to X% on the family home and then obtaining a margin loan on the shares purchased with that borrowed money?

You may have already addressed this previously and I have missed it.

 

[bunyip]

Gees it’s dull around here since you lot decided to kiss and make up...can’t somebody start another brawl or something to liven things up a bit!!

 

[StumpyPhantom]

Gees it’s dull around here since you lot decided to kiss and make up...can’t somebody start another brawl or something to liven things up a bit!!

The bunyip or kianpraty is a large mythical creature from Aboriginal mythology, said to lurk in swamps, billabongs, creeks, riverbeds. A mythical animal denizen of Australian swamps. Its ogreish reputation makes it a threatening figure to children.

There you go - in Western mythology, you are a TROLL!!

Happy now?

 

[Julia]

Gees it’s dull around here since you lot decided to kiss and make up...can’t somebody start another brawl or something to liven things up a bit!!

Imo it's a lot more constructive. The unpleasant personal insults and mudslinging were never going to do anything other than cause damage all round.

 

[Frank Ainslie]

Did the SOA's detail the strategy of borrowing to X% on the family home and then obtaining a margin loan on the shares purchased with that borrowed money?

You may have already addressed this previously and I have missed it.

Yes, it did! I don’t think any of us were unaware of Storm’s strategy at the time because anyone investing the kind of money that we did would have read the SOA from cover to cover. (I did a number of times!) We were trusting but not that trusting!

I agree with you that borrowing against one's house to invest in the share market is a risky business but it was one that was actively promoted by others as well as Storm.

Further, for us personally it didn't seem too much of a risk at the time because we had $1.3 million in assets aside from our house. It should be remembered that three months after joining Storm, we received $1 million from the sale of our shopping centre which was unencumbered money at that! In theory, therefore, we should have been safe from any type of market fluctuations and our house should have been secure too.

Actually, what blew us away and many more as well, I suspect, was the impact made to our assets by the costs incurred for adopting Storm's financial plan. Storm's fees, housing loan repayments, margin loan fees and a cash reserve rapidly ate into our asset bases. In a falling market, these assets were simply being eroded away. This continual fall was something that Storm's financial model was never designed to deal with in practical terms.

Unfortunately, the devil lay in the detail of the SOA itself. Storm's financial model was, I believe, akin to a Ponzi scheme rather than a genuine financial model designed to benefit us. In other words, Storm wound up using our money to service their own ends. Further, Storm had no effective systems in place to monitor our portfolio which was a prime element, and one of the main reasons why we personally went with Storm in the first place.

Are my words too harsh? I think not! I'll be doing a report for ASIC next week outlining why I consider Storm's financial model to be no more than a scam - at least as far as we were concerned. It was never going to benefit us because it created a treadmill of spiraling debt based on market projections that could never be sustained.

 

[Frank Ainslie]

Frank - re your ultimate aim of getting your money back. I take it it's the banks that hold the purse strings here? And further that there is a large divide between you (as a group) and the banks such that they are in defensive/confrontation/legal mode and won't budge an inch?

If this has been their position, has it been so all along and are there any sigs or strategy that has seen them soften at all along the way?

Stumpy! Yes! The Banks are the only game in town, I’m afraid! No doubt the Cassimatises have some loot stored away somewhere but finding it is another thing altogether. They may not look after other peoples' money too well but you can bet they know how to look after theirs! Where to look? Down some well in Mykonos might be a good start!

As far as the Banks are concerned, we did, of course, have a “mediation period” but nothing came of it. The CBA thought that when it came up with its “resolution scheme” basically giving back about one tenth of what it foisted out of its clients, this was all “done and dusted”. The other Banks, in particular, the BOQ and the Macquarie Bank have just sat back and waited to see what eventuated. Now, all three are trying desperately to limit any collateral damage because the trial is less than six months away.

As I see it the Banks are stuck between a rock and a hard place because they know full well that they have been involved in wrongdoing. Therefore, they are now presenting legal interpretive argument aimed at the provisions of the Corporations Act under which they are bound.

As I see it, they, the Banks, have three ways to go or three lines of defense: (1) Conditions of contract, (2) agency, and (3) provisions of the various acts that they will argue, preclude rather than include them.

At the end of the day, it should be noted that the CBA has already confessed and has negotiated under its resolution scheme. Does anyone really believe that it did this because it was feeling generous at the time? No! The Banks are worried alright but what can they do? If they concede, the costs to them will be considerable. If they hold out, they may lose anyway both in monetary terms and reputation wise.

For the Banks, the key issue is UMIS. This is the thing they fear the most because this will cost them the most. In my opinion, if the Banks believe they can successfully defend their positions in relation to UMIS, they will fight us all the way. However, if they think UMIS can be proven, I would expect them to make overtures to our lawyers between now and the trial date. I have heard nothing so far in this regard so I must presume nothing has yet been forthcoming.

That’s my reading of the situation as it stands. Whether it’s the right one is anyone’s guess!

 

[bunyip]

Imo it's a lot more constructive. The unpleasant personal insults and mudslinging were never going to do anything other than cause damage all round.

I agree with you, Julia.
My comments were made in jest.

 

[Frank Ainslie]

THE WAY AHEAD

Hopefully we have reached a point on this forum where we can all now consider the issues involved dispassionately without attacking one another. That doesn’t mean, however, that we are now all of one mind because there still remains a divergence of opinion as to what occurred and where the blame lies. That is perfectly understandable!

For my part, I have found some of the postings particularly frustrating because it is obvious that many members are not fully aware of all the facts and what really did take place. Indeed, until the trials take place, none of us will know the full story. However, the evidence to hand does enable us to gauge a good deal of what occurred and identify the shortcomings of those involved.

Between now and the trial dates, there will be a hiatus when little is happening and perhaps this period can be used to do a forensic analysis of the roles Storm and the Banks that worked in conjunction with that firm played which culminated in some of the worst investor losses seen in this country.

To date this forum has discussed various issues in dribs and drabs and I propose therefore that we go back to the beginning which begins with Storm’s ‘Statement of Advice’ which was the fulcrum on which everything else revolved. By isolating the faults of this documents, I believe the public at large will gain a greater understanding as to why so many investors that placed their trust in Storm were misled into believing that their money was safe from the vagaries of the share markets.

This exercise should be of particular interest to people like ‘Doobsy’ who are involved in the financial sector and are dealing with would-be investors on a daily basis.

The Statement of Advice that Storm completed for us is 107 pages long. I will use extracts from that together with commentary from other sources such as the Worrells enquiry to draw a picture for those that were not caught up in this financial disaster. At the end of my commentary on the SOA, I will state the lessons that I believe can be learnt from our mistakes.

I hasten to add that I will not be trying to defend our position when so doing but rather say it as it was! In so doing, GG, I'm afraid that any in-depth analysis of something like this cannot be done in short postings which you prefer. However, we do have a delete button for anyone that has no interest in such matters. I must wonder though why such people are on this forum if they do not want to fully understand the ‘WHY’ and ‘HOW” of all this? We have been dealing in suppositions long enough. I think it’s time we examined the facts and got to the bottom of all this in an objective way!

The considerable role the Banks played in the Storm saga will be dealt with later.

 

[Frank Ainslie]

STORM'S STATEMENT OF ADVICE (Part 1)

Preamble

I have read back through Storm’s SOA a number of times since Storm collapsed. Of course, when reading it now, I am looking at it from a different perspective because its faults are somewhat more evident now whereas when I first read it, the strategy outlined in it seemed to make sense. I wasn’t to know then that Storm’s SOA was derived from a standard template and was a “one-fit” financial plan for all rather than one based on our own personal needs. I also didn’t know then that the information in this SOA had not basically changed since 2002 so the content in many places was some 5 years old when it was presented to us.

It is evident now that Storm’s SOA was comprised of a mishmash of information taken from various sources to support Storm’s notion that investing in the share market was the only way to go. It’s tendency to be contradictory in parts and only bring good news to the table, which was not obvious to us at the time, supports this view.

To fully comprehend why the Storm Financial disaster occurred and what caused it, I believe it is necessary to go back to the beginning and derive an understanding of what that company offered its clients and what those clients actually received. The ‘hype’ if you like versus the ‘reality’!

The way to do this is to examine the Statement of Advice in which Storm outlined what it was offering and see whether such claims and benefits contained in it were justifiable, viable or reasonable. This is what I now intend to do!

It would be fair to say that the majority of people that retire with money are basically looking for three things to ensure their future financial welfare. First and foremost, they want to protect what money they have worked all their lives to acquire. Secondly, they want to put their money into something to offset inflation and promote growth, and thirdly, they want to be able to draw down enough to live in comfort and do those things that freeing up their time now allows them to do such as travelling and the like. Certainly, these were our aims, and I would think the majority of people (75% or so being past retirement age) that signed up with Storm had similar goals.

I will therefore deal with these three key issues first, namely, ‘Security’, ‘Growth’ & ‘Viability’ when conducting this exercise, and then examine other elements of the SOA such as ‘Cash Reserves’ and so on that played a key role in Storm’s clients’ losses

In so doing, I will endeavour to deal only with the known facts, not assumptions or suppositions, leaving all emotional issues aside, so that objective and reasoned conclusions BY ALL can be drawn from these findings.

 

[bunyip]

It would be fair to say that the majority of people that retire with money are basically looking for three things to ensure their future financial welfare.
First and foremost, they want to protect what money they have worked all their lives to acquire.

I look forward to Frank’s extracts from Storm’s SOA – hopefully his insights will provide answers to a question that’s perplexed me ever since I first heard of the Storm debacle, that question being...

Why on earth did people at or near retirement age think that the best way to protect the assets and money they’d worked all their lives to acquire was to mortgage their homes to raise large margin loans to combine with their own savings to sink into the most volatile and risky of all markets, and then use double gearing, and later on ‘steps’, to further increase borrowings to sink into the market?

I’ve read every single post of this thread, but for the life of me I just haven’t been able to see how people were justified in committing their life savings and assets, plus huge sums of borrowed money, to such a high-risk strategy.

So I welcome Frank’s insights into the details of Storm’s SOA if it can help me to see something I’ve previously missed that might justify the decisions and actions of Stormers.

 

[Frank Ainslie]

STORM’S STATEMENT OF ADVICE (Part 2)

Security

The most important consideration of all for us when investing using the services of Storm was that our investments would be protected from fluctuations within the share markets. Therefore, we relied completely on Storm’s assurances that systems were in place to monitor our share portfolio and take concerted action when situations arose that could possibly endanger our investments.

There are two elements of Storm’s SOA that need to be examined in this regard, namely (1) monitoring and (2) trigger-points.

1. Monitoring
The SOA was contradictory at times in respect of this. In parts of the SOA, it seemed to put the onus back on the clients whilst in other sections, it accepted that Storm would carry out this task?

In my fax to Storm dated 27th July 2007 I asked Stuart Drummond, our Storm Adviser, to give me a written confirmation of Storm’s responsibility regarding trigger-points as nothing had been forthcoming.

In point 2 of my fax it was quite plain what I was asking for, “State clearly in writing that the statement contained in your SOA on page 62, namely ‘If the market index moves through your trigger-point, simply call us and we will review your position in light of the new market conditions’ is correct? During a meeting prior to our signing the SOA, you assured us that Storm, not we, would be monitoring this. Bear in mind that we decided to use your services on the basis that you would confirm this in writing.”

Although confirmation of this was never sent by him to us, I later received a letter dated 30th April 2008 from a Storm employee, one Jodie Geissmann, in Storm’s compliance section thanking me for my input into Storm’s proposed new ‘statement of advice’. Her letter was in response to my letter dated 13th December 2007 containing my views on the new SOA - (Bear in mind that I was only commenting on its structure rather than on any advice contained therein because I am not equipped to do so where the financial strategy was concerned.) In this letter, I again requested that Storm confirm that it was they, not us, who were responsible for monitoring. Again, my question was ignored.

Incidentally, we were overseas from 15th April 2008 until the 20th July 2008 so I did not read this letter until after we returned. By then this matter was being overtaken by world events that would shape our future.

Looking back now, it seems ludicrous that to me that a company that had been in existence for many years would issue a ‘Statement of Advice’ that was both ambiguous and misleading with regard to monitoring. Surely, someone else must have spotted this anomaly before me? After all, I assumed that such wording was a standard part of Storm’s SOA and a legal eye had been run over the SOA before it was first implemented?

It’s interesting to note the Cassimatises' attitude to monitoring when they were questioned at length about this during the Worrells’ enquiry.

On Page 46 to 49 of the Worrells Report it deals with this aspect which I will now quote at length:

“THE EXTENT TO WHICH STORM INDICATED TO CLIENTS THAT STORM WOULD ACTIVELY MANAGE THEIR INVESTMENTS

In the prospectus issued by Storm the following statement relating to monitoring and managing clients debt positions was shown:

“Storm recognises the need to preserve its clients' core assets and lifestyle and takes an active approach to monitoring its clients' financial situation. Consequently, Storm establishes what it considers to be conservative MLVRs for clients and actively manages client debt positions (including maintaining and managing cash reserves as appropriate) to avoid margin call events and other risks associated with using leverage”.

NB: This statement is an important one because it states within, (including maintaining and managing cash reserves as appropriate) which I will be referring to again later in this SOA exercise.

"Also the prospectus stated:

Storm monitors the MLVR position of its clients on an ongoing basis, and Storm is able to actively manage its client's portfolios by using a purpose built software system called Phormula, which enables Storm to efficiently assess and monitor each client’s borrowing and investing capacity.

It is of course likely that clients of Storm did not rely on statements contained in the prospectus when making investment decisions. Nevertheless, the contents of a prospectus are usually subject to close scrutiny by directors, and it may therefore be assumed that by authorising the inclusion of that statement in the prospectus the directors believed it to be true.

In the liquidators' opinion, the statement included in the prospectus regarding monitoring and management of client debt positions (including maintaining and managing cash reserves as appropriate) must include monitoring of the worth of the client investment if the aim" to avoid margin call events and other risks associated with using leverage was to succeed. Indeed the use of the term "manages it
clients portfolio" reflects that.

The standard SOA issued by Storm dealt with what clients received in exchange for what was acknowledged to be higher than normal upfront fees. One of the things which clients were said to receive for the higher than normal upfront fees was:

‘Regular monitoring and updating of your investments’

The statements included in the prospectus and in the SOA may be contrasted with a statement which Emmanuel Cassimatis included in an affidavit sworn in December 2008 and which was filed in the Federal Court. That statement was:

‘As appears from the affidavit of my wife, Julie, Storm's business did not involve providing, monitoring or management for its client's margin loans, at least in the usual situation. An integral part of Storm's business model was the education of clients in relation to their own personal situations and investment profiles suitable for their own individual circumstances."

Mr Cassimatis was then questioned with regard to the apparent contradiction between what was stated in the prospectus and Storm's standard SOA, and what was sworn to in the affidavit.

It concluded with the Liquidator's Barrister saying to E. Cassimatis, “I suggest to you that it would be a fair reading of these pages that I've been showing you that Storm Financial promises in return for its large up-front fees that one of the things that it will do for the client is to monitor the client's investments You'd agree with that, wouldn't you?”

E Cassimatis responded by saying, “Yes!”

Worrells' conclusions were as follows:

“The liquidators find it difficult to say with certainty what was the true position regarding Storm's ability and practice to monitor and manage clients' debt and portfolios, and also what was told to clients about this.

It seems possible that a client reading the SOA received by them might well conclude that, in return for higher upfront fees, his or her investments would be actively monitored and managed. Such a view would no doubt be reinforced in the event that the client read the prospectus issued by Storm. One client who assisted the liquidators by agreeing to appear at the public examination put it this way in his evidence:

Liquidator's Barrister: And you mentioned a couple of times that people from Storm - Drummond told you this, and I think you may have also said Mr Cassimatis told you as well, but I will ask you who told you these things - but you mentioned that you were told things about the computer program, the software Storm was using. Can I just get you to try and remember it and put a bit more detail on the things that you were told about the computer program?

Client: Emmanuel Cassimatis always maintained between themselves and the lenders, they were in touch with our position at all times. They had the software that could - was capable of doing that, which was part of the trust that we invested with both companies.”

I have already mentioned Drummond’s duplicity where we were concerned. This client’s statement gives further weight to this!

“The liquidators understanding of the evidence given by Mr and Mrs Cassimatis on this topic is that, despite the statement made in the SOA and the prospectus, Storm never had the capacity, or the intention of closely monitoring and managing client's debts and portfolios. It seems that the monitoring that did occur was undertaken primarily to identify opportunities for Storm to persuade clients to take further "step" investments (as mentioned in section 7 of this report) rather than in pursuance of a policy of ensuring that the clients loan to security ratio was not placed at risk. Further, it seems Storm was totally reliant on receiving accurate "data feeds" from at least one major source to carry out even the limited monitoring role mentioned.”

I think there is little more to say as to whose responsibility it was for monitoring Storm’s clients’ investments because it is clear that Storm was responsible for carrying out this role and failed to do so. Further, the software that Storm were using to do so was inadequate for this purpose and the directors of Storm must have been aware of this when offering this facility.

No doubt, this will be part of the ‘misleading and deceptive conduct charges’ case that ASIC is now bringing against the Cassimatises.

(To be continued )

 

[bunyip]

I think there is little more to say as to whose responsibility it was for monitoring Storm’s clients’ investments because it is clear that Storm was responsible for carrying out this role and failed to do so.

Frank

I don’t think anyone on this thread doubts that Storm had a responsibility to monitor and manage your investments. Indeed, that’s exactly what they stated they would do on their website.
Clearly they failed in that responsibility.
However, investors also have responsibilities, one of them being to keep their finger on the pulse by keeping themselves in touch with what’s happening to their investments, and with what their manager is doing, and just as importantly, isn’t doing.
I know a number of business owners who employ managers for their business, in fact I employed a manger myself in one of the businesses I owned, but none of them ever gives his manger free rein to do whatever he pleases, without any input from the owner.
Since your investment was solely in index funds that mirror the performance of the market, and since the market figures are broadcast several times a day in the media, it was a simple matter for Storm clients to have an overview at all times of the performance of their investments.

I note, as has been noted before by others in this thread, that you still went ahead with Storm despite your concerns about the contradictions regarding whose responsibility it was to monitor your investments, and despite Storm ignoring your letters requesting clarification on this point.

 

[Frank Ainslie]

STORM’S STATEMENT OF ADVICE (Part 2) (Continued)

Security

2. Trigger-points

The system Storm claimed was in place to safeguard our investments, namely “trigger-points” that would be activated if the loan to value ratios set by Storm were exceeded was another prime reason why we signed up with Storm. No doubt, it was also the motivating force for many others to do likewise.

Page 29 of the SOA – “Trigger Points far Next Stage of Investment
As has been explained 'during our discussions, our procedure for reviewing your Investment is primarily driven by changes to' the value of your Investment, and this is related to' movements in the Sharemarket.”

Page 30 of the SOA – “lt is important to recognise that the real trigger point is determined by the loan to value ratios (LVR).”

Page 62 of the SOA – “You will be informed of your trigger points on implementation of the plan, and at each step in your Journey to Capitalism. If the market index moves through your trigger point, *simply call us and we will review your position in light of the new market conditions. If there is no activity on the portfolio for any significant length of time, we will arrange to review your position to ensure that the plan is still optimal for your financial and personal circumstances. Of course, you can request a review of the portfolio at any time, or you are always welcome to discuss any issues impacting on your finances with us.”

*I have dealt with this issue in my previous posting!

This is all well and good but any trigger-points can only work if (1) they are activated when need be, and (2) they are based on a TRUE loan to value ratio over the total portfolio accounting for ALL borrowings made by clients in such calculations. We now know that Storm’s software system did not take into account the borrowings clients had made for house loans and margin loans – such information being sourced from the Banks making these loans. In order to establish the “big picture” Storm’s software would have required a facility to tap into the Banks involved so that housing and margin loans could be included in the LVR calculations.

You are reminded of what the Liquidator said in this respect: “The liquidators understanding of the evidence given by Mr and Mrs Cassimatis on this topic is that, despite the statement made in the SOA and the prospectus, Storm never had the capacity, or the intention of closely monitoring and managing client's debts and portfolios. It seems that the monitoring that did occur was undertaken primarily to identify opportunities for Storm to persuade clients to take further "step" investments (as mentioned in section 7 of this report) rather than in pursuance of a policy of ensuring that the clients loan to security ratio was not placed at risk. Further, it seems Storm was totally reliant on receiving accurate "data feeds" from at least one major source to carry out even the limited monitoring role mentioned.”

If this situation existed (and I for one believe it did) then one must question how Storm expected to establish true loan to value ratios if a vital component such as a housing loan were missing? We all know how difficult it was for Storm to establish its clients’ positions at the end of 2008 when they were using spreadsheets to do so and were reliant on the Banks concerned to fill in the gaps. So how they expected to activate accurate “trigger-point” alerts for individual clients when that client’s LVR ratio was deemed to be exceeded is beyond me!

I think we all agree that it is vital for any investor to be able to establish at all times how their investments are fairing. If a financial advisory firm has been entrusted with that task, it is crucial that the systems it employs can establish a true picture of an individual’s financial position quickly and that position should be an accurate one.

The harm that ensued to Storm’s clients from this defect in Storm’s system cannot be emphasised enough! I have extracted the following from a submission made to the PJC (person’s name not submitted to the public) which is one of the best submissions I have read and explains the situation in relation to LVR inaccuracies in a very succinct way:

“The Loan to Value Ratio - The LVR Deception

The main indicator of our debt/asset position was the gearing level or LVR which was available via Macquarie Margin Lending Summary.

During any advice session this was always a reference point. Whenever our advisor reviewed our position, the Macquarie Margin Lending L VR was always referred to and used as a key and current indicator of our true position and whether further investment should be undertaken.

Sadly it is only now and in hindsight that we have come to understand more exactly the degree of obfuscation that clouded our understanding and judgement in relation to the all important LVR (Loan to Value Ratio) which was used when planning our 'Next Steps' i.e. additional investments. The LVR was so critical in determining whether the step was judicious.

When advising us our level of debt was always represented only by the LVR as per
Macquarie Margin Lending's Summary.

There was no account taken of the $380,000.00 loan from the Bank of Queensland which was derived from the debt against the house.

This was hot 'visible' as part of the debt/loan balance/LVR of our Margin Loan and was not ever referred to in discussion about our LVR.

Perhaps this was not Macquarie Banks's responsibility to separately flag the $380,000 debt from the Bank of Queensland which was drawn against equity in our house. But perhaps it should have been.

However we now realize that it certainly should have been STORM and our advisor's
duty to take account of this additional borrowing by incorporating this into the account alongside Macquarie Margin Loan LVR so that we had a true and accurate picture of our total debt level when considering the next investment step. This was never done.

This omission and failure to consider the WHOLE debt position obviously gave a false and misleading reading of our actual investment situation.

So we are now of the view that every investment step we took was actually based on a false statement of our real debt position as only the Macquarie Margin Loan LVR was used as the debt indicator.

Consequently we were being put further and further into debt that we were not actually being made aware of, a debt that could not possibly be safely supported by the investments.

It now seems to us that from very outset we were advised to invest more and more based on the 'visible LVR' alone, when in fact our real debt level ( i.e. the L VR as per our Macquarie Margin Lending Summaries + the $380,000.00 derived from home loan) should have signalled otherwise.

A real example of the misleading LVR is as follows:

In the period from October to December 2007 our "Current Gearing Level' was showing as: 61.54% (Current Loan Balance $1,686,153.00: Market value $2,739,735.00) which, according to STORM and our advisor, would represent a very acceptable situation - a safe gearing level, a no worry situation and an ideal time to further invest.

In fact we took another 'step' and invested a further $66,000.00 in December 2007.

BUT it seems to us that what really should have been not only visible, but also added to the loan balance to see the REAL LVR and true level of debt, was the additional $380,000.00 debt of borrowings against the house. This was after all borrowed along with the Macquarie Margin Loan with the sole purpose for investment into the Indexed Trusts.

Thus in the period from October to December 2007 the real LVR was in actual fact 75.06% i.e. Current Loan Balance: $1,686,153.00 + Home Loan of $380,000.00 = $2,066,153.00 versus Market Value $2,739,735.00. It was not the touted acceptable 61.54% - Current Loan of$1,686,153.00 versus Market Value $2,739,735.00.

Why then were we advised to invest when the gearing level, taking into account the real level of debt, was in fact at a very dangerous and unacceptable level of 75.06%

So, even when matters were under control and markets were still behaving in early 2007 and our 'visible' yet 'deceptive LVR' was showing on our MML Summary at a mere and supposedly safe and conservative 46.02%. the 'real and actual, but invisible and not taken account or LVR i.e. the one taking into account the home loan debt (invested into the market) should have read as 64.4% i.e. Loan value of $950,818.00 + Home Loan of $380,000.00 = 1,330,818.00 versus Market value $2,066,077.00 and not as 46.02% i.e.

Loan Balance of $950,818.00 versus Market Value of $2,066,077.00”

It seems inconceivable to me that a firm like Storm that was handling thousands of client accounts worth hundreds of millions of dollars would have software systems that were so woefully inadequate and incapable of producing a client’s true financial position quickly and accurately. Further, how could its financial advisers be expected to give good advice when Storm's systems were so defective?

In the end days, how could Storm’s clients be expected to know what their true position was if Storm was incapable of establishing such?

To summarise, any security that Storm professed to offer in its SOA in relation to our investments was non-existent because Storm had no effective controls in place to ensure such.

When two parties enter into a contract there has to be a clear understanding of the duties each party has to one another. Anything that is inserted into an agreement that is incapable of being fulfilled and is a prime condition of contract subjects that contract to breach.

Again, this falls under “misleading and deceptive conduct” or contractual “misrepresentation". Take you pick! Either way, Storm did not deliver. STRIKE ONE!