Directors of Storm Financial penalised for breach of duties
The Federal Court has imposed civil penalties of $70,000 each on the directors of Storm Financial, Emmanuel and Julie Cassimatis.
The pair were previously found by the Court to have breached their duties as directors. They were also disqualified from managing corporations for 7 years.
This draws to a close ASIC's Storm-related litigation, which has included investors receiving compensation in relation to losses suffered on investments made through Storm.
Storm Financial operated a system of advice, created by the Cassimatises, in which 'Stormified' clients were advised to invest substantial amounts in index funds, using 'double gearing' (Storm Model).
Clients would usually take out a home loan and a margin loan in order to purchase units in index funds, create a 'cash dam' and pay Storm's fees. Clients were then encouraged to take 'step' investments over time. In late 2008 and early 2009, many of Storm's clients were in negative equity positions, sustaining significant losses.
In the original judgment, Justice Edelman had found that a sample of investors who were advised to invest in accordance with the Storm Model, received advice that was inappropriate to their personal circumstances.
Each of those investors were over 50 years old, were retired or approaching and planning for retirement, had little or limited income, few assets and had little or no prospect of rebuilding their financial position in the event of suffering significant loss.
Justice Edelman found that the Cassimatises had each engaged in a course of conduct which amounted to one breach of the requirement that they exercise their powers as directors with the degree of care and diligence that a reasonable person would have exercised in that situation.
The maximum penalty for a breach of directors' duties (s180) is $200,000.
ASIC commenced this civil penalty proceeding against the Cassimatises in late 2010. The trial took place between 30 May and 30 June 2016. In August 2016, Edelman J handed down judgment in relation to liability against the Cassimatises, finding that they had each breached their duties as directors.
In September 2012, ASIC entered into a settlement agreement with the Commonwealth Bank of Australia to make available up to $136 million as compensation for losses suffered on investments made through Storm. The $136 million was in addition to payments of approximately $132 million, and other benefits that CBA had already provided to Storm investors under its Resolution Scheme.
In May 2013 ASIC secured $1.1 million in compensation on behalf of two former Storm investors, Barry and Deanna Doyle.
In May 2013, ASIC intervened in the application for Court approval of the settlement of the related class action brought against Macquarie Bank in respect of Storm as it had concerns about the fairness of the settlement arrangements. On 12 August 2013, the Full Federal Court agreed that the distribution of the settlement sum was not fair and reasonable to all group members (refer: http://storm.asic.gov.au/settlements/richards-settlement/). Under a revised settlement, Macquarie Bank agreed to pay $82.5 million by way of compensation and costs.
In September 2014, ASIC entered into a settlement agreement with the Bank of Queensland Limited to pay approximately $17 million as compensation for losses suffered on investments made through Storm.
24 March 2018.