Anthony Marx The Courier-Mail September 26, 2012
STORM Financial had such a tight relationship with banks that it was able to secure a range of discounts and even the waiver of credit checks for its clients, a Federal Court in Brisbane heard yesterday.
Barrister Allan Myers, QC, on behalf of the Australian Securities and Investments Commission, said Storm had developed very close ties with both Macquarie Bank and the Bank of Queensland to provide loans to investors.
In exchange for a guaranteed stream of loans, Storm was able to offer its clients fee waivers, cheaper management expenses, reduced entry costs and higher loan-to-value ratios with partnering banks, he said. It even boasted online of a "significant positive relationship" with banks.
Storm executives first met with BoQ in 2003 and guaranteed them $15 million a year in business in return for the discounts, Mr Myers told the court. BoQ's North Ward branch in Townsville eventually had 369 Storm clients with $158 million in home loans despite having little or no direct contact with the borrowers.
Mr Myers displayed internal Macquarie Bank documents to the court showing it viewed the relationship with Storm as a "significant, exciting" opportunity. The bank eventually provided margin loans to 1118 Storm clients.
ASIC alleges the banks operated an unregistered managed investment scheme in conjunction with Storm, which collapsed in 2009 after 3000 of its clients suffered $3 billion in losses in the sharemarket.
Mr Myers also told the court that the Townsville-based company required potential clients to attend 20 hours of seminars before securing bank loans to invest in its standardised scheme, which was recommended to all regardless of circumstance.
Seminars and scripted sessions with advisers were held in well-appointed offices to convey the impression of luxury and success, he said.
Clients felt they were getting unique advice but, in fact, the only variable was in the value of the investor's property and assets. Investors, most of whom had no experience with highly leveraged products, relied entirely on Storm, who repeatedly told clients not to worry, made it very difficult to pull out and also charged "very large" fees of 7 per cent of the capital invested.
Justice John Reeves said he will rule this morning on whether a class action against Macquarie Bank will run separately.
Another class action against the Commonwealth Bank is tentatively set to start on October 22, the court heard.