ASIC clear to pursue banks over Storm

The corporate regulator's damages case on behalf of victims of Storm Financial will continue.

By InvestSMART · 1 Dec 2011

By InvestSMART ·
1 Dec 2011

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The corporate regulator's damages case on behalf of victims of Storm Financial will continue.

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.

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 ASIC's damages case against Macquarie Bank and the Bank of Queensland about?

The article reports that ASIC brought a damages proceeding on behalf of Storm Financial clients (including Barry and Deanna Doyle) alleging the banks were involved in advice and lending arrangements that contributed to investor losses after Storm collapsed; the Federal Court has allowed the case to continue rather than be thrown out.

Why did the Federal Court reject 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, so the court rejected the banks’ bid to dismiss the proceedings, although he said ASIC must amend its pleadings to conform with his judgment.

Who are Barry and Deanna Doyle and what happened to their investments?

According to the article, the Queensland retirees Barry and Deanna Doyle were Storm Financial clients who in 2006 cashed in $650,000 of super, borrowed from the Bank of Queensland via an investment home loan and from Macquarie via a margin loan, invested $2.26 million in Storm indexed trusts, lost their super and cash, and ended up owing the Bank of Queensland $456,000—the value of their home.

What role did Storm Financial play in the losses experienced by clients?

The article says Storm Financial advised clients to use cash and borrowed funds to invest, and that Storm collapsed in 2008, costing its clients about $3 billion in lost investments.

Does the case involve the Trade Practices Act and questions about strict liability for banks?

Yes. Justice Foster specifically noted the central legal question is whether the banks can be made liable under the Trade Practices Act through a strict liability pathway for the alleged misrepresentations, an issue the court will address as the case proceeds.

How were Macquarie Bank and the Bank of Queensland alleged to be involved in the Storm arrangements?

The article explains the Doyles borrowed from the Bank of Queensland via an investment home loan and from Macquarie via a margin loan as part of the Storm-recommended strategy, and ASIC has brought proceedings against those banks on behalf of the affected clients.

What immediate next steps did the Federal Court require after its decision?

The court ruled the damages case will continue but required ASIC to amend its pleadings so they conform with Justice Foster’s judgment before the matter proceeds.

What does this case mean for ordinary investors concerned about bank involvement in investment advice schemes?

The article illustrates that the corporate regulator can pursue banks linked to failed financial-advice models—highlighting that bank lending and margin arrangements can become central issues when adviser-led strategies collapse, and that investor losses from such schemes can lead to prolonged legal action.