Banks hit by Storm

A suit filed in Brisbane by the Australian Securities and Investments Commission claims that Bank of Queensland, Commonwealth Bank and Macquarie Bank knew that the Townsville financial planning group was operating an unregistered managed investment scheme.

The commission also filed a claim in Sydney on behalf of a husband and wife who were Storm clients, alleging that Bank of Queensland and Macquarie Bank were "linked credit providers" to Storm and therefore jointly responsible for Storm's misleading and deceptive conduct, breach of contract and breach of warranty.

The couple, Barry and Deanna Doyle, also make direct allegations against Bank of Queensland, which lent them money secured against their Townsville home after Storm advised them to invest aggressively in the sharemarket, and against Macquarie, which provided them with margin loans.

Their suit alleges that Bank of Queensland "knew that the Doyles were in a position of special disadvantage and could not judge or protect their own interests".

It engaged in unconscionable conduct by protecting itself against risk and earning fees and interest while taking advantage of the vulnerability of the Doyles, the claim alleges.

There is a similar claim that Macquarie acted unconscionably because it was "aware of the possibility that each of the Doyles may have been in a position of special disadvantage".

Storm collapsed in January 2009, leaving investors nursing losses of about $3 billion.

Of Storm's 14,000 investors, about 3000 were, like the Doyles, advised by Storm to "double gear" to invest in shares.

Before visiting a Storm financial planner in Townsville in 2006, the Doyles, now both aged 67, owned a home worth $450,000, had $640,000 in superannuation and had no debts.

They borrowed against their home and took out margin loans to invest $2.2 million in units in trusts linked to the sharemarket.

When the global financial crisis hit, their investments were sold for $1.7 million, leaving them with a mortgage on their home of $456,000.

If their claim succeeds, it would set a template for further individual suits.

The Brisbane suit is broader than the claim on behalf of the Doyles and aims to recover compensation for all investors by seeking a court declaration that the three banks were involved in Storm's unregistered managed investment scheme.

If it succeeds, the commission will ask the court to order compensation to investors to place them in the position that they would have been in now had they not invested in the Storm scheme.

The three banks issued statements yesterday saying they would defend the cases.

Macquarie said the "unsustainable and speculative" action misunderstood the "fundamental difference between the role of a margin lender and that of Storm, a financial adviser licensed by ASIC".

Bank of Queensland said it "has had the benefit of extensive legal advice and believes it has not acted illegally or dishonestly". Noting that Storm held a financial services licence issued by the commission, the bank said "we too put faith in the regulatory system".

Commonwealth Bank said its negotiated compensation scheme, unveiled 18 months ago, had provided certainty to 85 per cent of those participating, or almost 2000 customers. It "fundamentally disagreed" with the commission's view of the role of banks because the losses were caused by Storm's financial advice, it said.

"It is apparent that because Storm, its principals and the Storm financial advisers are unable to provide compensation, the focus has moved to the banks."

A third suit, also filed in Brisbane, seeks fines and bans from company directorship for Storm's principals, Emmanuel and Julie Cassimatis.