Storm Financial settlement to cost Macquarie $82.5m
The investment bank has faced a class action over its role selling margin loans to the group of Storm investors, who say they lost up to $290 million in the financial adviser’s collapse.
On Friday, the parties reached a deal that effectively ends the financial cost of the Storm affair for Macquarie. It remains in a legal dispute with one investor and is facing a separate action from the corporate watchdog that is not expected to produce any financial costs.
A lawyer representing the investors, Stewart Levitt, said the case was significant because it was the first settlement with a Storm margin lender to involve legal proceedings.
Commonwealth Bank is also facing legal action over its role in Storm, which collapsed in 2009 after advising many clients to borrow against their homes and invest in the sharemarket.
The bank last year reached a deal with the Australian Securities and Investments Commission under which it agreed to provide $270 million to Storm customers.
But Mr Levitt, who is also leading a class action against Commonwealth Bank, argued the Macquarie settlement would put pressure on CBA. ‘‘This is the only settlement that’s resulted from legal proceedings. The other offers that came from CBA came from deals done behind closed doors between ASIC and the CBA.’’
The bank said it would defend the class action, which was misconceived as it was not responsible for advice provided by Storm.
Mr Levitt is also planning class actions against Westpac and Bank of Queensland over their roles lending to Storm investors.
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Macquarie Group reached a settlement with close to 1,000 Storm Financial investors for $82.5 million. The deal arose from a class action over Macquarie’s role selling margin loans to Storm clients and, according to the report, effectively ends the financial cost of the Storm affair for Macquarie, although it remains in dispute with one investor and faces a separate corporate-watchdog action.
Investors sued Macquarie because it sold margin loans to clients of financial adviser Storm Financial. Those investors say they lost up to $290 million in the collapse of Storm, and the class action alleged Macquarie had a role in the losses tied to the margin lending arrangements.
The article does not say Macquarie admitted fault. It reports the parties reached a settlement but also notes Macquarie has said it will defend the class action as misconceived, arguing it was not responsible for advice provided by Storm Financial.
A lawyer for the investors, Stewart Levitt, said the Macquarie settlement could put pressure on Commonwealth Bank (CBA). CBA has already reached a separate deal with ASIC under which it agreed to provide $270 million to Storm customers, and it is also facing legal action over its role in the Storm collapse.
Stewart Levitt is the lawyer representing the Storm investors in the Macquarie case. He said the Macquarie settlement is significant because it’s the first settlement with a Storm margin lender that resulted from legal proceedings, and he is also leading a class action against Commonwealth Bank and planning actions against Westpac and Bank of Queensland.
ASIC (the corporate watchdog) reached a deal with Commonwealth Bank under which the bank agreed to provide $270 million to Storm customers. The article also notes ASIC is pursuing a separate action against Macquarie that is not expected to produce financial costs.
Storm Financial collapsed in 2009 after advising many clients to borrow against their homes and invest in the sharemarket. The collapse led to large investor losses and subsequent legal action against several lenders involved with Storm clients.
The Storm saga highlights risks tied to margin loans and borrowing to invest, and shows that lenders can face legal and financial consequences years after an adviser collapses. For everyday investors, it’s a reminder to understand margin lending risks, to check who is giving financial advice, and that legal action and regulator involvement can result in compensation for some affected clients.
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