Australian (ASX) Stock Market Forum

Storm Financial Group

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Julia said:
Does anyone know what is happening with the court action(s)?
Is it ongoing?
Is there any suggestion of a date when a conclusion to the whole affair will be reached?
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Heard from a reliable source in court yesterday that the Levitt Robinson lawyers presented some "damning evidence" against Macquarie Bank...regarding special conditions Storm required if they were to supply margin lending services. Numerous email communications tendered as evidence, I gather.
 
matty77 said:
great post Bunyip, there are some things in there that I have done in the past, it was good to be reminded of those things so I dont do them again.

The above comments... may be relevant to a few people here.
Its easy in hindsight to say anyone could see Storm was a disaster that was always going to happen.. but would you have had the same opinion before it all turned to ****? And of course everyone will say yes, but we know that aint the truth.
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For the life of me I can’t see why some people continue to hold the view that very few people could have seen risk in the Storm model.

Apart from bull**** and promises, the Storm strategy was about debt, and lots of it.
There’s not a single one of us who isn’t wary of debt. And it didn’t take the Storm debacle or the GFC or the stock market crash to instill this caution in us. All of us were wary of debt long before we even heard of Storm, and long before 2007/08 when the economic crisis hit.
We’ve all taken out loans at one time or another, whether it was to buy a house or a business or a car or whatever. All of us considered the size of the loans before we applied for them, all of us were wary of taking on too much debt in case we ran into difficulty in meeting our loan commitments. The bigger the loan, the bigger the loan commitments, the bigger the risk of getting into trouble if something goes wrong.
Do big loans sound safe and conservative to you? Of course not – they’re exactly the opposite. Nobody has to be a sophisticated investor or a market wiz to work that one out....it’s just common sense.
Why then do some quarters continue to insist that very few people could have seen that Storm’s high debt model was just the opposite of the safe and conservative strategy it was claimed to be?

Storm recommended a strategy of taking out big loans.....a risky strategy in its own right. Then they compounded the risk by getting people to mortgage their homes so as to increase the size of the loans they could raise. They further compounded the risk by recommending this strategy to clients of all ages, including those near/at/past retirement age. In other words, people with limited time left to recover if things went wrong.
The risk was compounded yet again by recommending that clients sink all this borrowed money into the riskiest of all markets - the stock market.
But the risk didn’t stop there. In addition to borrowings, clients were advised to put all their own savings and super etc into the market as well.
Get the idea so far?.....risk was being heaped upon risk which was heaped upon even more risk, thereby compounding the overall risk situation enormously.
But it didn’t stop there. Clients were advised to liquidate homes and businesses and investment properties to generate more funds to sink into the stock market. And then to top it all off, once all these personal funds were combined with heavy borrowings, and the whole lot sunk into the market, the next recommendation was to use double gearing to hugely increase the already huge debt situation.

So to summarize.........Storm recommended debt upon debt upon debt upon debt, with all of it plus personal funds to be sunk into just one investment vehicle that has a long history of volatility and horrific crashes. Forget about diversification to spread the risk, forget about the old axiom of ‘don’t put all your eggs in the same basket’. Just shove the whole lot into the stock market, and then sit back and hope like hell it keeps going up. And God help you if it doesn’t!
Are you honestly telling me that it was difficult to see the risk in such a strategy??

Forget about those silly claims that the market crash and economic meltdown were unprecedented. How about 1987, how about 1929, how about at least a dozen or more major market plunges in the eighty odd years since then – that’s roughly one every seven years on average. How about the various economic recessions over the decades.
Unprecedented my foot!!! Of course the 2007/08 crash wasn’t unprecedented – it had all happened before and it was always going to happen again. And it will all happen again in the future.
And as for the nonsense that nobody saw it coming.....how about all the media outlets that warned us virtually every day for a good 12 months beforehand of the dire economic situation that was brewing. Against this background of ominous economic warnings, Storm kept recommending that their clients take step after step to further increase their investments by taking on more debt. I recall the newspaper report of the Townsville couple on limited income who increased their borrowings eleven times despite all the warnings in the lead up to the bear market.

Is there anyone on this forum who is seriously suggesting that most people couldn’t see the risk in continuing to borrow and invest heavily in the face of the impending disaster as the economic situation continued to deteriorate?

Forget the nonsense that very few could have spotted the risk. There are millions of investors in this country, many of them using a similar strategy to the Storm strategy of borrowing investment funds by using existing assets as collateral for loans.
Storm didn’t invent this strategy, it’s been around for centuries.
If so many people are using this strategy, why didn’t they all suffer the same fate as Storm investors?
Simple – they respected debt and they used it wisely by not taking silly risks and getting over-committed. Contrast these people with Storm investors who, because Storm told them to, took on massive debts which in many cases were completely out of proportion to their loan-servicing ability. Debts so large that the leverage made them massive gains while the market performed well, but wiped them out in quick time when the inevitable market collapse came.
Why did they take on such massive risk? Was it because the risk was almost impossible to see. No – in many cases they took on such risk because Storm told them it was OK to do so, and they believed it rather than thinking things through and properly evaluating the strategy, or by getting opinions from other planning firms.

The risk in the Storm strategy was glaringly obvious if only people had asked themselves two question as outlined by SJG in his recent post.......
1. Is investing is shares low risk?
2. Does gearing reduce the risk of investing in shares to a safe level?

It really was that simple.
 
bunyip said:
There’s not a single one of us who isn’t wary of debt. And it didn’t take the Storm debacle or the GFC or the stock market crash to instill this caution in us. All of us were wary of debt long before we even heard of Storm, and long before 2007/08 when the economic crisis hit.
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I agree with most of what you say, bunyip, but not this.

There were plenty who had grown overly comfortable with debt up until the GFC. Lots of credit card debt, redrawing on mortages to fund holidays, houses being bought at top prices with the minimum of deposit, booming business in margin loans etc etc. This was one of the main factors that brought about the GFC. It took the GFC to remind people how dangerous debt can be.
 
Ferret said:
I agree with most of what you say, bunyip, but not this.

There were plenty who had grown overly comfortable with debt up until the GFC. Lots of credit card debt, redrawing on mortages to fund holidays, houses being bought at top prices with the minimum of deposit, booming business in margin loans etc etc. This was one of the main factors that brought about the GFC. It took the GFC to remind people how dangerous debt can be.
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That’s fair comment, Ferret – I guess that attitudes towards debt have relaxed to some extent over the years.
All the same, most people give some consideration to how much debt they can handle and how they’ll service their loans. That’s why when they go to a motor dealer to buy a 35 thousand dollar car, they don’t allow themselves to get talked into a 250 grand Jag or BMW instead. They’d like to drive around in a prestige car as much as the next person would, but they know they could never afford the repayments.
Same story with houses. A young couple work out that they’ll be able to meet their loan commitments if they buy a house for 350 grand. Are they likely to go to the top end of town and buy a million dollar property instead? Of course not – they’re well aware that they’d never afford the loan repayments.
Of course, there are always some people who do buy cars and houses that they can’t afford, and end up getting them repossessed. And people who get into credit card debt too that they can’t handle. There will always be people like that. And in the years prior to the GFC, those people were certainly on the increase.

What intrigues me is why Storm investors appear to have thrown caution to the wind in relation to debt. Some of them were successful business people who had prior experience working with debt and investment.
Some of them were on the other end of the scale, with incomes far below the basic wage, yet they were granted loans that ran to seven figures. Sure it was immoral lending practice for the banks to grant them loans of that magnitude when they clearly had limited loan-servicing capacity. But why in the name of creation did investors accept those loans, without knowing how they were going to service them?
One Storm investor was asked by a reporter ‘Why did you accept such a big loan when you clearly had insufficient income to service it’?
His reply was ‘Storm told me it would be OK’.
 
Bunyip do you know what your problem is? You think everyone has common sense... from my experience a lot of people have none! Which may help explain a few things.
 
matty77 said:
Bunyip do you know what your problem is? You think everyone has common sense... from my experience a lot of people have none! Which may help explain a few things.
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I think everyone has common sense??
No mate, I think almost the opposite. Many people either have no common sense, or else they have their common sense switched off. I’ve given examples by mentioning people who swim in crocodile habitat, and pilots who fly in bad weather. I could fill a book with day to day examples of people who exhibit a lack of common sense.

If you’d been reading my posts all along you would have seen me say many times that it was mainly a lack of common sense that started Storm investors on the road to ruin.
Of course I’ve been criticized no end for saying it, particularly by Frank. Interestingly, Frank later did a complete turnaround by admitting that a lack of common sense cost Storm investors everything they had in the end.
 
bunyip said:
I think everyone has common sense??
No mate, I think almost the opposite. Many people either have no common sense, or else they have their common sense switched off. I’ve given examples by mentioning people who swim in crocodile habitat, and pilots who fly in bad weather. I could fill a book with day to day examples of people who exhibit a lack of common sense.

If you’d been reading my posts all along you would have seen me say many times that it was mainly a lack of common sense that started Storm investors on the road to ruin.
Of course I’ve been criticized no end for saying it, particularly by Frank. Interestingly, Frank later did a complete turnaround by admitting that a lack of common sense cost Storm investors everything they had in the end.
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Thoughts from the darkside again

I think it was the scope of the falls most people didn't appreciate.

2007-2009 was a slow moving train wreck but I think people believed that governments, central banks etc would step in with fixes earlier than they did.

We were probably in the top 5% of conservative planners in Queensland and were concerned from early 2006 on where the market was at but even we thought that a fall back to 4200 - 4500 points was a worst case. If that had been the situation the Storm clients may have avoided the margin call and therefore still be in the market.

I have outlined how the strategy would have blown up anyway because with no growth in the following 3-4 years as we have seen it would have all unwound anyway but it would have been alot different to them getting sold out the way they were.

Talking to many with margin loans (friends, colleagues etc, thank goodness not clients) most held on and have continued to hold on. Now most avoided margin calls because the starting LVR was lower but they stuck it out so I don't know that Stormies should have been selling at 20% fall or 30% fall when no one else was.

Hindsight is a wonderful thing and dropping LVR levels and increasing cash might have saved a few from the devastation but when your adviser is telling you the last 5 corrections have been no more than 30% and the media is spruiking how good Australian mining is etc etc and you are only exposed to Aussie shares then I can see how they might have said it was best to hold on.

The funny thing I have seen is those who borrowed are now wanting to get out. We have taken over a few in the last 6 months with loans we are unwinding and they are ready to take a loss just to know the debt is gone because all the promises made by the previous adviser have come to nought as markets have been range bound for 3 years and down significantly over 5 years.
 
Frank Ainslie said:
Was Storm's scheme as daft as many on this forum profess. Of course it wasn't. Go to any bank site in Australia today and look at what those banks have to say about margin loans. Almost all of them without exception still talk about using the equity in one's house to buy shares.
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What you seem to have trouble comprehending, Frank, is that the strategy itself wasn’t the problem – the problem was in the reckless and imprudent way the strategy was used.

The concept of using equity in your home and other assets to raise loans for investment in shares or whatever is centuries old.
The concept itself is legitimate and it makes a lot of sense. In simple terms it enables you to get into a bigger investment than you could afford by using just your own money.

Nobody is saying it’s daft to use this strategy......as long as you use it sensibly and responsibly.
Driving a car isn’t daft either.....as long as you do it sensibly and responsibly.
But it’s certainly daft to drive at 100 kph in a 60 zone when you’ve got half a dozen rums under your tail.
Similarly, borrowing crazily against your house and plowing all the borrowed funds into the market, adding all your own money to the pool, then borrowing another load of money through double gearing and sinking that into the market as well, then taking step after step after step to increase the borrowings even further down the track.......now that really is daft.
Particularly when you’re at an age that allows you no time to recover if the share market runs out of steam and stays flat for years, or worse still collapses in spectacular fashion like it did in 1929, 1987, 2008 and at least another dozen times in between.
And particularly if you do it in the face of daily warnings about the dire economic circumstances that were brewing.
Even more daft is if you do it when you’re near retirement age and you’re already wealthy.

The Storm strategy was sold as safe and conservative.
It may well have been relatively safe and conservative if borrowings were kept to conservative levels. But there was nothing safe and conservative about heaping debt upon debt upon debt, with all of it plus personal funds being sunk into the riskiest market of them all.
That really was daft.
 
Anyone know when the court proceedings might conclude? A while back I heard that it was to be by Christmas.
 
We are now in the endgame of the Storm Financial Saga, when Judges, Barristers and Forensic Auditors make their quid from the misery of Investors.

Let us hope that some recover some of their equity.

To quote Shakespeare.

Brutus:
There is a tide in the affairs of men.
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.

Julius Caesar Act 4, scene 3, 218–224

gg
 
Wasn’t Cassamatis talking of personally suing the CBA a couple of years back?

Has anyone heard anything further on that?
 
Ijustnewit said:
Same to you GG , glad your back !! and I hope you don't get too burnt on The Strand and have a mud crab and a prawn for me.:)
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Thanks mate, and we have a Myer now in Townsville, since I've been away. I'll stick to Trade Secret though.

Just something I posted in relation to Banksia, another Financial Advising Outfit, which has gone **** up and taken many good peoples money as Storm Financial did.

I thought I's add it in here.

A good 2013 to all Stormies.

Another mob of muppets with a similar range of "expertise" have just opened a new financial centre on one of our major thoroughfares in Townsville, usual bling and awning out the front, and a webpage costing at least $120.

Next time I'm over that way I'll take some prunes before I go and visit the ablutions.

Some thankless bastard stole a gold tap from the mens' in the Ross Island Hotel.

I'd be sure to find a replacement.

There will be more, and more, and more Banksias.

ASIC are to blame in the end.

gg
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gg
 
Came across a couple of Storm stories that might be of interest..

In the Eye of the Storm: The Collapse of Storm Financial
Paul Barry

The Monthly | The Monthly Essays | February 2011 | Add a Comment
Emmanuel and Julie Cassimatis at one of the two Queensland mansions they owned in 2008, Brisbane. © Mark Cranitch / Newspix / News Limited
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By mid March, America’s champion fraudster Bernie Madoff will have served two years of a 150-year prison sentence for stealing billions of dollars from his rich and famous investors. As he chalks up the anniversary on his North Carolina jail wall, our corporate cop, the Australian Securities and Investments Commission (ASIC), will have barely begun its action against Australia’s champion wealth destroyer Storm Financial Ltd, whose reckless advice cost 3000–4000 investors in Queensland, New South Wales and Victoria around $3 billion.

Yet these financial collapses happened at almost exactly the same time: Bernie Madoff was led away in handcuffs in December 2008, just as Storm’s banks pulled the plug on the big Townsville-based financial planner and its unfortunate clients. There are, of course, huge differences between the two cases, not least that Bernie Madoff pleaded guilty and Storm’s founder, Emmanuel Cassimatis, didn’t steal investors’ money. But there are also strong similarities; these two super salesmen helped wreck the lives of thousands of elderly investors.

Cassimatis’ ex-partner, Ron Jelich, who sold his financial planning business on the Gold Coast to Storm and became a key player in the group, told a parliamentary inquiry in 2009 that the collapse had inflicted “total horror, emotional despair and psychological terror” on “thousands of loyal, innocent, trusting, decent Storm clients”, whose lives had “been shattered, in many instances, beyond repair”. Yet more than two years later, Emmanuel and Julie Cassimatis, the two principals of Storm, have not been punished, no adviser has lost his financial services licence – as far as we know – and the banks who put up the money for investors to gamble with have not been made to pay. Or, not by ASIC.
Click to expand...

http://www.themonthly.com.au/collapse-storm-financial-eye-storm-paul-barry-2980
\
http://www.moneymanagement.com.au/n...er-storm-financial-adviser-permanently-banned

Particularly nasty piece of work here.
 
More former Storm advisers being ordered by ASIC to undertake further training.
One of the buggers is manager of a private wealth firm, of all things! Let’s hope he doesn’t use the Storm strategy as his template for helping his clients to build their wealth.

Too little too late from ASIC....a classic case of shutting the gate after the horse got out.

http://www.moneymanagement.com.au/n...rm-financial-adviser-terence-edward-webb-asic

http://www.moneymanagement.com.au/news/financial-planning/2012/storm-financial-james-mousa-asic-eu
 

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