ASIC clear to pursue banks over Storm

THE corporate regulator's damages case against Macquarie Bank and the Bank of Queensland on behalf of victims of Storm Financial will continue, after the Federal Court yesterday rejected the banks' bid to have the case thrown out.

By InvestSMART · 1 Dec 2011

By InvestSMART ·
1 Dec 2011

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Justice Lindsay Foster said he had not upheld the banks' main challenges to the Australian Securities and Investments Commission's power to bring the action under both the ASIC Act and the Trades Practices Act. However, he said ASIC would have to amend its pleadings in the case to conform with his judgment.

ASIC brought the proceedings on behalf of former Storm clients Barry and Deanna Doyle, "financially naive retirees". The Queensland couple approached Storm Financial in 2006 for advice as to how they should invest their assets for retirement.

Storm advised them to cash in their $650,000 in superannuation, borrow from the Bank of Queensland by way of an investment home loan, and borrow from Macquarie through a margin loan. The Doyles invested $2.26 million in a number of Storm indexed trusts. They lost all their superannuation and cash, and owed the Bank of Queensland $456,000, which equalled the value of their home.

In 2010, as a result of its investigations into Storm, ASIC resolved to bring proceedings against the banks, with the Doyles as the second and third applicants in the case. Storm Financial collapsed in 2008, costing its clients $3 billion in lost investments.

In dealing with arguments from ASIC and the banks about some of the provisions of the Trade Practices Act, Justice Foster noted: "The ultimate issue here is whether the [banks] in the present proceeding can be made liable through the strict liability pathway . . . for the alleged misrepresentations."

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Frequently Asked Questions about this Article…

What is the ASIC damages case against Macquarie Bank and Bank of Queensland about?

ASIC has brought a damages action against Macquarie Bank and the Bank of Queensland on behalf of victims of Storm Financial. The proceedings relate to alleged misrepresentations and the banks' roles in lending to Storm clients; the Federal Court has rejected the banks' bid to have the case thrown out and allowed the action to continue, with ASIC required to amend its pleadings to conform with the judgment.

Which banks are being pursued by ASIC over the Storm Financial fallout?

The two banks named in the Federal Court proceedings are Macquarie Bank and the Bank of Queensland.

Who are Barry and Deanna Doyle and why are they central to the case?

Barry and Deanna Doyle are Queensland retirees described as the ‘financially naive’ clients of Storm Financial. They are applicants in ASIC’s action after following Storm’s advice in 2006, investing heavily and subsequently losing their superannuation and cash when Storm collapsed.

What advice did Storm Financial give the Doyles and what were the financial consequences?

Storm advised the Doyles to cash in about $650,000 in superannuation, borrow via an investment home loan from the Bank of Queensland and a margin loan from Macquarie, and invest a total of $2.26 million in Storm indexed trusts. They lost all their super and cash and ended up owing the Bank of Queensland about $456,000, an amount equal to the value of their home.

What did the Federal Court decide about the banks’ request to have the case dismissed?

The Federal Court rejected the banks’ bid to have the case thrown out. Justice Lindsay Foster did not uphold the banks’ main challenges to ASIC’s power under the ASIC Act and the Trade Practices Act, but said ASIC must amend its pleadings to align with his judgment.

What legal issue did Justice Foster highlight about the Trade Practices Act and bank liability?

Justice Foster noted a central legal question is whether the banks in the proceeding can be held liable through the ‘strict liability pathway’ for the alleged misrepresentations. That issue — whether strict liability applies — is a pivotal matter for the ongoing case.

How large were investor losses from the Storm Financial collapse?

Storm Financial’s collapse in 2008 cost its clients about $3 billion in lost investments, according to the article.

What should everyday investors take away from the ASIC case involving Storm Financial, Macquarie and Bank of Queensland?

The case underscores risks highlighted by the Doyles’ experience: relying heavily on one adviser, using superannuation and borrowed funds (including margin loans) to invest, and the potential for large losses and debt if investments fail. It also shows regulators can pursue banks for their role in such client outcomes, and that legal questions about bank liability can take years to resolve.