Broker 'failed in duty of care'

The clients lost all the capital they vested with advisers in Macquarie's Adelaide office and each has incurred huge losses against margin loan accounts this year as the sharemarket slumped.

In total, the investors' losses run to $6.8 million. But they want the Federal Court to award substantial, unspecified exemplary damages and to make declarations that the broker breached its duty of care.

They argue that Macquarie Equities engaged in reprehensible and unconscionable conduct, disregarded what was best for the investors and generated excessive brokerage fees and commissions for its own benefit.

In turn, Macquarie Equities is believed to be suing some of its clients to recover sums it claims they owe on deeply indebted margin loan accounts.

Macquarie Equities declined to comment on the Federal Court case. It also declined to say if the advisers named in the case were still employed by the broker, and declined to comment on any legal action against its former clients.

The investors include Peter Bavistock of Adelaide, described in court documents as a "moderate risk investor", who committed $320,000 to the care of Macquarie adviser Paul Kennedy in 2006. His losses total $2.3 million.

Most of the investors, however, are described in court documents as "risk averse". One invested $35,000 and lost that initial sum plus $24,000 another invested $100,000 but lost the capital plus $600,000.

Robert and Maria Hutchings of the Yorke Peninsula invested $1.4 million with Macquarie Equities and, after incurring hefty losses on options written against blue-chip stocks such as BHP, Oxiana and Zinifex, they are $3 million in deficit.

The Hutchings claim that $514,000 of their losses was due to Macquarie's "fundamentally flawed analysis, strategy and advice" about trading BHP shares and options.

A couple who invested $86,000 claim that, in early July, Macquarie suggested they make up a shortfall of $260 in their cash management account by "closing out" their BHP positions, a move that led to a $60,000 loss. Macquarie offered to reverse the trade but, the clients claim, they ultimately lost all their capital and incurred losses of $39,900 more.

The investors were former clients of Bell Potter Securities, where Mr Kennedy and his colleague, Brad Dohrmann, worked until December 2006.

In a 167-page statement of claim filed in the Melbourne registry of the Federal Court, the clients claim the Macquarie advisers lured them with promises that the company's options trading system was better than Bell Potter's and that Macquarie had internal systems to reduce risk and increase profit.

But they say Macquarie failed to exercise reasonable care, s and diligence. They argue that a flawed internal accounting system, implemented late last year, contributed to their losses.

The system allegedly subdivided client accounts and mistakenly double-counted the equity a client might have in margin loan accounts. The investors claim that Macquarie failed to correct the problems when it became aware of them.

They claim Macquarie conducted excessive trades on their share and options accounts between May and July - in one instance churning up to 10 times the value of the initial capital - and failed to activate stop-loss systems to contain or halt client losses. The clients also say the broker failed to give a full account of their positions, increased their credit limits without full informed consent - in one case from $250,000 to $3 million - and failed to conduct the obligatory inquiries to ensure the broker understood the investors' personal circumstances. The Hutchings claim that Macquarie Equities' Jed Richards told them on July 12 that Mr Dohrmann was "too aggressive and high risk as an adviser".

The case is scheduled for a preliminary hearing before Justice Michelle Gordon on October 21.