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Storm Financial directors breached their duties: court

The victims of Storm Financial Ltd  In 2008 Storm Financial Ltd collapsed, taking with it many of the futures of their customers. Originally produced by Fairfax media in 2011. The victims of Storm Financial Ltd In 2008 Storm Financial Ltd collapsed, taking with it many of the futures of their customers. Originally produced by Fairfax media in 2011.
Emmanuel and Julie Cassimatis, the founders of the notorious Storm Financial advice group, breached their duties as directors and provided inappropriate advice to clients, the Federal Court has found.

The Australian Securities and Investments Commission launched the civil case in 2010, alleging that as the executive directors of Storm Financial the Cassimatises breached their fiduciary duties under Australian corporate law.

Queensland-based Storm Financial, founded by the Cassimatises in the early 1990s, blew up in 2009 amid the global financial crisis, leaving many of its estimated 3000 investors destitute. It collapsed with debts of $88 million.

It was known for its "Stormify" investment method, in which clients "double-geared" by borrowed against their homes and then setting up margin loans to invest in index funds.
The Storm model was not in dispute during the case against the pair, Justice James Edelman noted. ASIC did not allege the model was inappropriate for all investors, rather, flawed for investors who fell into a particular class - namely retired or near- retired people with few assets and a limited income.

Mr and Mrs Cassimatis had an "extraordinary degree of control" over Storm, the court found.

"They used their powers as directors to create an environment in which (as they were aware) it was almost inevitable that the Storm model would be applied to people with a high degree of financial vulnerability," Justice Edelman said in his written judgement handed down on Friday.

"My conclusion is that Mr and Mrs Cassimatis each contravened section 180(1) of the Corporations Act by exercising their powers in a way which caused or 'permitted' (by omission to prevent) inappropriate advice to be given to the relevant investors."
Although the pair had breached their duties as directors, the court found their breaches involved only one contravention each.

Justice Edelman said simple precautionary measures could have helped avoid the application of the Storm model to the vulnerable class of investors.
Justice Edelman ordered the matter be listed for directions for a hearing on penalties and other relief at a later date.

The collapse of Storm sparked a marathon parliamentary inquiry into the company and the broader financial advice industry, the findings of which paved the way for industry reforms.

 "This is an important decision which emphasises the importance of directors' duties to ensure that they do not cause the companies that they control, to breach the law," said ASIC commissioner Greg Tanzer. "The decision also highlights the significant obligation on financial services licensees to provide financial advice that is appropriate to the persons to whom it is given.

This article first appeared on www.smh.com.au
Author: Ruth Williams

 

Last modified onSaturday, 27 August 2016 01:32

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