Storm Financial Group

[Julia]

Doobsy! With respect you may be well versed in financial matters but you know very little about the Law it would seem.

Equally, with respect, you may have auto didactically acquired some understanding about some legal matters (though you have no legal qualifications), but you probably should cede to Doobsy the expertise in investment and financial matters, these being, as I understand his comments, all he is quite reasonably commenting on.

 

[doobsy]

Apart from a personal interest and a professional interest for ex storm clients that are now with my firm I really don't care apart from a hope that EC and JC will get some sort of punishment that reflects the seriousness of what they put people through.

Frank my last few comments have had NOTHING to do with the overall case. They were a comment on the argument put forward in the Australian article which I truly believe has no legs at all. I am not taking away from any other aspect of the current case as has been discussed to death.

I will be clear. I do not believe that the argument put forward by Barrister Tony Morris, QC has any legs. That is not to say the overall case is invalid, it is to say that you can only draw the bow so long. Trying to say the banks should have "pre-warned" Storm clients about an "impending (maybe/maybe not) crisis that might/might not wipe them out because they were stupid enough to double gear into Australian shares and just happen to have chosen that bank to facilitate the borrowing (home, margin, both) when they have an adviser they are already paying tens to hundreds of thousands of dollars to monitor their investments is a MASSIVE stretch.

You keep going on about buyer beware. Every Storm client signed each page of the SOA presented. Surely the bank was allowed to figure they knew what was going on and that they as owners of the investment and responsible for the debt and their advisers would be on top of the markets direction.

This still to today amazes me that people that in the most part had been so responsible all their lives, had taken risks but had controlled those risks, had borrowed but made sure they could always pay it off, had known where and how their money was or was not working and made changes could possibly think it is a banks responsibility to tell them not to be dip****s

 

[doobsy]

Actually stuff it - they did pre warn you - when they gave you all a margin call. It is not their fault you did not have the capacity to meet it. If Storm had not re-invested all distributions, not offered clients 30-40% in living expenses more than they needed or wanted, had chosen "just in case of an inpending disaster" to cash some down at 6000, 5000, 4000 points, or maybe not capitalise the interest then all Stormies would still be invested and slowly be riding things back up.

Was it the banks responsibility to tell clients not to do all those STUPID things as well?

 

[pilots]

Actually stuff it - they did pre warn you - when they gave you all a margin call. It is not their fault you did not have the capacity to meet it. If Storm had not re-invested all distributions, not offered clients 30-40% in living expenses more than they needed or wanted, had chosen "just in case of an inpending disaster" to cash some down at 6000, 5000, 4000 points, or maybe not capitalise the interest then all Stormies would still be invested and slowly be riding things back up.

Was it the banks responsibility to tell clients not to do all those STUPID things as well?

The storm clients was happy to go on funded expensive weekends, now that the tables have turned they are crying its not fair, or it's not my fault. This whole nightmare was based on the ASX, what gos up, can also come down, I know, my super still has not caught up yet.

 

[Frank Ainslie]

“Let justice be done, though the heavens fall.” - (Fiat justitia, ruat coelum.) (Part 3)

Unconscionable Conduct

An article entitled “Commonwealth Bank knew of Storm losses” that appeared in the Australian has provided the catalyst for an awakening on this forum. The game is now afoot once again!

In this article it states that “LAWYERS say they have uncovered new information which proves the Commonwealth Bank knew Storm Financial investors would likely lose their money during the global economic meltdown.” It also goes on to state that “Mr Morris told the court he would be arguing during the trial in September that the bank had acted ‘unconscionably’ by keeping secret from investors details about the impending risk of the economic meltdown.”

Mr. Tony Morris incidentally is one of the barristers (QC) acting on our behalf. He is reputed to be one of the best in Australia so one would think that when he makes a statement about the possibility of the CBA acting in an unconscionable way he would be taken seriously by members of this forum. The CBA obviously did because they tried to close this avenue down. However, it appears that there are some here that think they know more than he does?

“To suggest that banks kept this information 'secret' is nothing more than the legal eagles clutching at any straw in an attempt to smear mud on the banks.” Bunyip

“The article is interesting but will be a dud argument.” Doobsy

“The lawyer in question has a snowballs chance in hell of making this stick as what the bank thought of markets is immaterial unless they are the contracted adviser to the client. They weren't, Storm were.” Doobsy

Our case has long passed Storm by and it's time people realized this. The Banks are under the microscope now not Storm and that is where the focus should be. It’s all about the conduct of the Banks acting in conjunction with Storm and whether they were guilty of wrongdoing! I'm sorry to disappoint all the Storm knockers but that's where we are at the moment. The Courts will deal with the Cassimatises in due course.

Readers will note that Bunyip and Doobsy in their postings have not given any sound reasons for dismissing the comments of an eminent QC other than suggesting that this is mud raking or we were not paying the banks for financial advice. What that has to do with “unconscionable conduct” beats me? Why they feel that they know more than Tony Morris is beyond me but I have no doubt that they will be endeavouring to explain themselves shortly! Meanwhile, perhaps they would care to read the following and grasp what “unconscionable conduct” in the eyes of the law really means and how it may apply in our dealings with the banks.

Make no mistake, unconscionable conduct lies at the heart of our case, overlaps with some common issues such as contractual breach and if upheld, would be the worst possible result for the banks in terms of public relations. Will such be easy to prove? No it will not because there are a lot of grey areas when it comes to what is termed unconscionable conduct under the law. And ladies, you will not be finding it under "Fifty shades of Grey" which seems to be a very popular book at the moment.

Seriously though, if the CBA knew well in advance (and it can be proven) of an impending meltdown and it did nothing to minimize its Storm customers’ risks, then this fits quite nicely into the framework of “unconscionable conduct” under the law. It may be grey but it's not that grey!

Remember this! The margin loans extended to the CBA’s Storm customers had dangerously high ratios. Add that to the length of time it took the CBA to actually make margin calls (in many cases it didn’t) 10 – 11 weeks and you can arrive at only one conclusion. “Guilty as charged!” To try and fob it off as Doobsy has done by saying, “that it was immaterial” is completely and utterly wrong!

The impact of proving that “unconscionable conduct” existed for the CBA and others in terms of this case could be quite severe. The courts have long recognised the need to intervene to set aside transactions where one party has acted unconscionably.

What defines “Unconscionable Conduct” under the Law?
The courts have described unconscionable conduct as:
* serious misconduct or something clearly unfair or unreasonable
* conduct which shows no regard for conscience
* conduct which is irreconcilable with what is right or reasonable.

Three sections in Part IVA of the Trade Practices Act address unconscionable conduct. They are SECTIONS 51AA, 51AB and 51AC.

Section 51AB prohibits unconscionable conduct in consumer transactions”” that is, it relates to the supply of goods or services which are ordinarily acquired for personal, domestic or household use or consumption. It does not apply, for example, to goods acquired for resupply or to be used in a business capacity.Section 51AB provides that a corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable.

Factors that are taken into consideration:
§ the relative bargaining strengths of the business and the consumer
§ whether the business required the consumer to comply with conditions
§ that were not reasonably necessary to protect the legitimate interests of the business
§ whether the consumer understood any documentation that may have been used
§ whether the business used undue influence or pressure, or unfair tactics
§ the price and terms on which the consumer could have acquired the same or equivalent goods elsewhere.

However, the court can take into account any other matter it considers relevant.

So how does all this apply to the Banks involved with Storm?

As I see it the following actions or lack of may well constitute “unconscionable conduct” by the Court as well as overlapping with contractual breach:

(a) Unreasonable delays in effecting (and in some cases not effecting) margin calls.
(b) Completing banking documentation relating to loans that were designed to by-pass credit checks to the detriment of the borrowers.
(c) Pooling arrangements based on incentives that benefited the Banks and Storm rather than the customers/clients.
(d) Selling down shares without giving the Bank’s Storm customers the opportunity to meet margin calls.
(e) Increasing the risk to the Bank’s customers portfolios by leaving margin loan borrowers’ ratios at the high end in a volatile and falling market.
(f) Assigning rights and obligations to Storm that effectively destroyed their customers’ portfolios.

I’m sure with a little more thought, further examples could be produced. However, this is enough to be getting on with!

There is another factor that may well feature when it comes to unconscionable behaviour and that is with regard to the age of the majority of people involved (about 75%) past retirement age. Did the Storm concept of which the Banks were a major part focus on a vulnerable sector of our society? The Court will not go lightly on the Banks if this can be shown.

I'll close this posting by saying this. The banks are not above the law although they often conduct their business as if they are! To believe that banks are white knights that do nothing wrong is naive in the extreme. Only last night a program on TV spoke about cities in America whose councils speculated with Barclays and five other overseas banks in 2008. The losses they incurred (Baltimore was a case in point) are in the region of 300 trillion which makes our combined losses of 3 billion seem like chickenfeed. Get a grip people! Banks are bad news and have been since they were deregulated. Unfortunately, they are a necessary evil but see them for what they are: rapacious wolves!

 

[bunyip]

So the banks should have informed Storm investors of the risk, should they? The responsibility for risk assessment lies with the financiers, does it, not with the investor?
Does that apply to every investment and every investor, or only to Storm investors?

Grain farming enterprises can be financially decimated by drought, excessive wet weather, heat waves, frosts, locust plagues, wild pigs, insects, poor grain prices, rapidly rising costs.....suffice to say that the risks in grain farming are many. Does a bank have the responsibility to point out all these risks to every grain farmer who applies for a loan? Is a bank being deliberately secretive if they don’t point out the risks?

A couple of weeks ago while holidaying in the Northern Territory, I drove out through the old Humpty Doo rice-growing fields on my way to the jumping crocodile cruise on the Adelaide River. The locals told me the fledgling rice-growing industry in the NT in the 1960’s was wiped out by millions of magpie geese, resulting in huge financial losses. Should the financiers of the project have been prosecuted for failing to assess the risk of farming in the top end? Or if they knew the risks, should they have been prosecuted for not making them known to the developer? How about the developer – did he have any responsibility to assess the risk, or was that the bank’s job?

Many houses were damaged or destroyed in the Queensland floods last year. Are the banks who financed those houses liable for prosecution for not pointing out the flood risk to the people who borrowed to buy the houses?
How about real estate investors in mining towns, many of whom are now in trouble on account of having paid inflated prices for houses that they’re now struggling to find tenants for due to mine closures and shrinking populations in some mining towns. Are the banks criminally negligent for not pointing out the risk of investing in a one-industry town? Were they being secretive if they failed to point out the risks? Or should the investors have assessed the risks for themselves?

Most of us on this forum have bought a house or two in our time. Did the bank who financed us point out the various factors that could adversely affect house values in future?
If you buy a house in Darwin or along the QLD coast, do you think the banks will point out the cyclone risk to you? Should they have to? Do you, as the investor, have any responsibility for risk assessment, or is it totally the bank’s responsibility?

I agree with Doobsy – I can’t see a valid argument that banks were involved in some sort of cover-up about the risks that a global financial meltdown would pose to an investor who heavily geared into the stock market.
Nor can I see a valid argument that the banks have a responsibility to point out the risks in an investment. Investors and their advisers are the ones who should assess the risk, not the financiers.
Every investment carries risk. Prudent investors asses those risks before proceeding with the investment. Careless and lazy investors do not.
After all that’s transpired in the Storm debacle, we still see an underlying attitude among some Storm investors and their lawyers that somebody else should have done their thinking for them.

Like Doobsy, I’m not commenting on whether the overall case against the banks is valid. My comments are solely in regard to the comments made by the lawyer in that article.

 

[Judd]

So let me get this straight. The argument is that the banks knew of the impending downturn and so were remiss in not advising clients of Storm Financial of this prediction, despite Storm Financial being paid by the clients to be their financial adviser.

I am a shareholder in various banks and in the light of the argument above, I am most grieved that the CBA and others did not write and tell me to sell their shares as “We're all dooooomed I tell ye.” And that applies to every other listed company to which the banks may or may not have been the financiers of any debt facility.

Bugger, I'll need to start a class action now.

 

[doobsy]

Seriously though, if the CBA knew well in advance (and it can be proven) of an impending meltdown and it did nothing to minimize its Storm customers’ risks, then this fits quite nicely into the framework of “unconscionable conduct” under the law. It may be grey but it's not that grey!

I QUOTE CRAIG JAMES - SENIOR ECONOMIST at CBA

http://www.theaustralian.com.au/business/this-time-its-different-says-87-crash-victim-john-spalvins/story-e6frg8zx-1111114632595

http://www.theaustralian.com.au/business/bourse-gets-the-wall-street-blues/story-e6frgak6-1111115098151

http://www.news.com.au/business/share-market-expected-to-bounce/story-e6frfm1i-1111117029277#ixzz1U6ycyyPJ

Others can be found at http://www.simplesustainable.com/topic/4221-craig-james-predictions/

Not sure the muppets at CBA saw anything that was coming.

Lets for arguments sake look at what would have happened if they had advised clients:

1. Storm is pissed when they get 3000-4000 phone calls asking if they should be selling down. Based on advisers response during the crisis a graph is wheeled out showing markets heading north and clients accept the adviser knows best.

2. Clients sell out - what if the bank got it wrong and Craig James got it right. Class Action for lost growth anyone?

3. BY LAW - You cannot give advice in this area unless you meet the "know your client rule" and the client has engaged you as an adviser. ASIC charges anybody?


Remember this! The margin loans extended to the CBA’s Storm customers had dangerously high ratios. Add that to the length of time it took the CBA to actually make margin calls (in many cases it didn’t) 10 – 11 weeks and you can arrive at only one conclusion.

OK, sorry but pretty sure by the time clients hit margin call territory the market had already fallen 40%+. Not sure that comes under "impending". Pretty sure the crisis had arrived.

 

[bunyip]

So let me get this straight. The argument is that the banks knew of the impending downturn and so were remiss in not advising clients of Storm Financial of this prediction, despite Storm Financial being paid by the clients to be their financial adviser.

I am a shareholder in various banks and in the light of the argument above, I am most grieved that the CBA and others did not write and tell me to sell their shares as “We're all dooooomed I tell ye.” And that applies to every other listed company to which the banks may or may not have been the financiers of any debt facility.

Bugger, I'll need to start a class action now.

LOL....nice one Judd!
Let's all start a class action for all the times we've invested money and our horrible, nasty, sneaky, secretive financier has failed to inform us of the risk!
Hell, we're only investors - it's completely unreasonable to expect us to look into the risks before committing our and the bank's money. That's the bank's job, not the investor's.
As Frank pointed out in one his posts several months ago.....'Investors don't need to be prudent and cautious'!

 

[bunyip]

OK, sorry but pretty sure by the time clients hit margin call territory the market had already fallen 40%+. Not sure that comes under "impending". Pretty sure the crisis had arrived.

This pretty much fits in with what I've said previously......the aggressive levels of gearing ensured that Storm clients had already suffered catastrophic losses well before they got into margin call territory. Even if the margin calls been made on time by whoever had the responsibility to make them, the losses would have still be catastrophic. Once the market started heading decisively south they weren't facing an impending crisis, they were in the midst of a full blown crisis prior to margin call territory.
The much-vaunted 'safety triggers' that Storm supposedly had in place to protect clients were about as useful as a bikini in a snow field.
Storm investors might have figured this out for themselves if only they'd done the most basic risk assessment of looking at past market crashes.
Investors are on dangerous ground when they expect others to do the risk assessment for them.

 

[Julia]

There were probably hundreds of thousands of investors and traders with margin loans. Should they also be reasonably able to extract compensation from the banks who provided these margin loans for failing to warn them of the risks?

 

[maccka]

The storm clients was happy to go on funded expensive weekends...

Pilots,

I am not aware of any funded expensive weekends that were offered to Storm clients. Can you please elaborate as to when when you believe such a thing happened?

Cheers
Maccka

 

[Julia]

In this article it states that “LAWYERS say they have uncovered new information which proves the Commonwealth Bank knew Storm Financial investors would likely lose their money during the global economic meltdown.” It also goes on to state that “Mr Morris told the court he would be arguing during the trial in September that the bank had acted ‘unconscionably’ by keeping secret from investors details about the impending risk of the economic meltdown.”

The above is a quote from your lengthy post above, Frank.
Could you please answer one simple question? I would really appreciate your answer instead of your usual practice of ignoring some questions and just proceeding with another lengthy opinion piece.

If the bank was liable to inform Storm investors of "impending risk of economic meltdown" (and I've yet to find any justification that the CBA or any other bank had any such knowledge), would it equally be reasonable to assume they had the same obligation to so advise every single one of their customers to whom they had loaned money?

 

[Solly]

I have been a passive observer of this thread of late and have been hesitant in passing a view.

It amazes me that some participants of this thread display a lack of understanding of what are the current matters that are before the bench.

There has been no breach of any law, act, regulation or subordinate legislation by an investor who made the decision to invest in Storm.

What is being tested is not the investors decision to invest.

Opinions of what actions investors should have taken are of no consequence, carry no authority and are not enforceable in regard to the current actions that are underway.

I am of the view that it would be beneficial if matters do go to trial. It would also be extremely beneficial to observe the transparency and the body of evidence.

S

 

[bunyip]

I have been a passive observer of this thread of late and have been hesitant in passing a view.

It amazes me that some participants of this thread display a lack of understanding of what are the current matters that are before the bench.

There has been no breach of any law, act, regulation or subordinate legislation by an investor who made the decision to invest in Storm.

What is being tested is not the investors decision to invest.

Opinions of what actions investors should have taken are of no consequence, carry no authority and are not enforceable in regard to the current actions that are underway.

I am of the view that it would be beneficial if matters do go to trial. It would also be extremely beneficial to observe the transparency and the body of evidence.

S

And I’m amazed, Solly, by your apparent lack of comprehension that this is a forum whose purpose is to encourage and facilitate discussion on a wide range of issues. The issue of this particular thread is Storm Financial. Accordingly, when I and others have an opinion on any aspect of the Storm case, regardless of whether or not it relates specifically to the upcoming court proceedings, we’re at liberty to discuss it and give our opinions, with or without your approval.
Unlike you and Frank, some of us on here are not solely fixated on the coming court proceedings. That doesn’t mean that we have no understanding of the matters before the court, just that we’re interested in different aspects of the Storm situation to those that interest you and Frank.

 

[Judd]

.....I am of the view that it would be beneficial if matters do go to trial....

Absolutely. The outcome, whatever it may be for former clients of Storm Financial, will hopefully, in my view at least, have the beneficial results of determining the rights and obligations of all involved, ie lenders, borrowers and intermediaries such as financial advisers.

I am not particularly interested if former clients of Storm get any or no compensation. Either they will or they wont.

 

[Lone Wolf]

Opinions of what actions investors should have taken are of no consequence, carry no authority and are not enforceable in regard to the current actions that are underway.

Which is exactly why these opinions should be raised here in a public discussion forum rather than in the courts.

There are two main topics at hand. One is the investor mindset at the time, why did they decide to do what they did and how do others learn from it? The second topic is on the current legal proceedings. Which of the two do you feel is more relevant to discuss in a public discussion forum? This thread is a good place to keep people informed of the current legal situation. It's also a good place for those interested in the law to discuss how it unfolds. But at the end of the day the opinions of armchair legal experts on this forum are irrelevant to the final outcome.

Where this thread could be far more useful is in teaching new investors browsing the forum how to avoid going to court in the first place. Which is exactly what some of the participants above have been trying to do. The decisions of investors will not be discussed in court because it's not illegal to make bad investment decisions. This is something that should be discussed here as this is the only place it will ever be discussed.

 

[Ijustnewit]

Which is exactly why these opinions should be raised here in a public discussion forum rather than in the courts.

There are two main topics at hand. One is the investor mindset at the time, why did they decide to do what they did and how do others learn from it? The second topic is on the current legal proceedings. Which of the two do you feel is more relevant to discuss in a public discussion forum? This thread is a good place to keep people informed of the current legal situation. It's also a good place for those interested in the law to discuss how it unfolds. But at the end of the day the opinions of armchair legal experts on this forum are irrelevant to the final outcome.

Where this thread could be far more useful is in teaching new investors browsing the forum how to avoid going to court in the first place. Which is exactly what some of the participants above have been trying to do. The decisions of investors will not be discussed in court because it's not illegal to make bad investment decisions. This is something that should be discussed here as this is the only place it will ever be discussed.

I think the Bad Investment decision could be placed at the feet of the so called Professional Advisers that gave the Financial Advice and those who funded it. It should be illegal to make bad investment decisions with clients monies. However it is not illegal to make an Unlucky investment decisions . The clients I believe were Unlucky to choose Bad Financial Advisers. That's why they are before the Courts and not us. This Forum and all it's various opinions is fantastic. If it saves just one person the same grief and stress it's worth it.

 

[Judd]

I think the Bad Investment decision could be placed at the feet of the so called Professional Advisers that gave the Financial Advice and those who funded it. It should be illegal to make bad investment decisions with clients monies. However it is not illegal to make an Unlucky investment decisions . The clients I believe were Unlucky to choose Bad Financial Advisers. That's why they are before the Courts and not us. This Forum and all it's various opinions is fantastic. If it saves just one person the same grief and stress it's worth it.

Indeed. One of the factors as to why the court outcomes will be very interesting.

As I understand it, currently a financial adviser provides advice or recommendation to the client who makes the decision whether or not to accept that advice. Will it now be that the advice is the decision and, if so, is the client obliged to accept that even if he or she disagrees with the advice/decision? Especially so since the financial planner has formal qualifications and the client none even if the client has, say, 20 years of investment experience and has only consulted a planner to establish an SMSF. Fascinating stuff.

 

[Lone Wolf]

I think the Bad Investment decision could be placed at the feet of the so called Professional Advisers that gave the Financial Advice and those who funded it. It should be illegal to make bad investment decisions with clients monies. However it is not illegal to make an Unlucky investment decisions . The clients I believe were Unlucky to choose Bad Financial Advisers. That's why they are before the Courts and not us. This Forum and all it's various opinions is fantastic. If it saves just one person the same grief and stress it's worth it.

I don't intend to fight about it. I just thought Solly was a bit off the mark criticizing others for discussing matters unrelated to the legal case. Yes, the Storm model was flawed and the advisers should have known that it was flawed. The storm model was their bad decision. But clients made their own bad decisions that new investors can learn from. The three things most Storm clients did that I believe make it a bad investment decision:

1. Trusting someone else to manage your life savings without understanding / monitoring their actions is a bad decision. - Everyone knows that there are bad people out there. To the best of your ability you need to mitigate the risk of loss should you encounter one of these people.

2. Investing in something you don't understand is a bad decision. If you don't understand how the underlying investment operates then you can't know the risks involved and you can't monitor the performance of your investment. Others will say that this was their advisers job - See point number 1.

3. Using a financial product you don't understand is a bad decision. People often take out loans without understanding the repayments required, the effect of leverage on their capital or the risks associated with the loans. Once again, see point 1.

So blindly trusting someone else to invest your money in something you don't understand using borrowed money on terms you don't understand is a bad investment decision. Not all storm clients did all three of these things, but most did at least one. If the advisers and lenders did do wrong then it will all come out in the wash and they will hopefully get a deserving punishment for their crimes. But even if they are found guilty and made to pay, that doesn't change the fact that the three things I listed above are bad decisions which should and could be avoided.

Remember that this forum is primarily here to educate people on financial matters, not to make people feel better about their mistakes. If I was having a private conversation with an ex storm client I'd never point out their mistakes to them unless they asked. There's no point rubbing salt into the wound. But this is a public forum that new investors come to learn form. Every time you try to lay 100% of the blame at the feet of the advisers and lenders it sends a message to new investors that it's unnecessary to monitor your own investments. That's not a message we should encourage. Unless of course you want someone else to get caught in the next flawed investment scheme that pops up, because I guarantee you there will be another.