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10-250MR ASIC announces intention to commence legal action
The Australian Securities and Investments Commission (ASIC) today announced that it will bring civil penalty proceedings against Emmanuel and Julie Cassimatis as directors of Storm Financial Limited (In Liquidation) (Receivers and Managers Appointed) (Storm) in relation to alleged contraventions of section 180 of the Corporations Act.
ASIC also announced that it will commence legal proceedings against parties, including Commonwealth Bank of Australia Limited (CBA), Bank of Queensland Limited (BoQ) and Macquarie Bank Limited (MBL) seeking compensation for investors arising out of the collapse of Storm. The compensation proceedings will not be filed immediately, in order to allow a short further period (no more than three weeks) for the commercial resolution discussions to continue.
ASIC’s Chairman, Tony D’Aloisio, said, “We have not, to date, been able to reach an acceptable commercial resolution with key parties on compensation which ASIC was prepared to recommend to investors. In the circumstances, it was not possible for ASIC to continue to defer the decision to commence legal proceedings. However, ASIC remains of the view that a commercial resolution is the preferable course”.
He went on to say, “The compensation actions we have decided to bring are complex, but we consider that it is in the public interest for ASIC to assist retail investors by bringing these actions. In addition to seeking compensation for investors, ASIC is pursuing regulatory outcomes in relation to those who implemented the Storm Model.”
Civil penalty proceedings against the Cassimatises
ASIC will allege that the Cassimatises breached their duty as directors by causing and permitting Storm to be exposed to legal liability arising from the implementation of a financial services business model (Storm Model) which involved providing commoditised financial advice to investors that failed to take into account the personal circumstances of individual investors.
The relief to be sought by ASIC will include orders that the Cassimatises each pay substantial pecuniary penalties which can be imposed in respect to each breach of duty, and that they be disqualified from managing corporations and be restrained from providing financial services.
Compensation proceedings against BoQ, Senrac and MBL
ASIC has decided that it will commence proceedings against BoQ, the owner and franchisee of the BoQ's North Ward branch (Senrac Pty Limited (Senrac)) and MBL. The proceedings are proposed to be brought by ASIC in its own name and on behalf of two former Storm investors. ASIC will allege primary causes of action against BoQ and MBL based on:
breach of contract (breach of Banking Codes of Practice);
contravention of the statutory prohibitions against unconscionable conduct; and
liability as linked credit providers of Storm under section 73 of the Trade Practices Act 1974.
The case against Senrac is based on its involvement in BoQ’s alleged contraventions.
ASIC will seek relief which includes declarations of unconscionable conduct, statutory and common law damages and compensation orders, and orders setting aside various loan transactions and securities.
Proceedings against CBA, BoQ and MBL – unregistered managed investment scheme
ASIC will allege that the conduct of the Storm Model amounted to the operation of a managed investment scheme that was required to be registered under the Corporations Act and was not registered. It will be alleged that CBA, BoQ and MBL participated in the operation of that scheme.
ASIC proposes to adopt a staged approach to proceedings in relation to the alleged scheme. ASIC will initially seek relief including declarations as to the existence of the scheme and the parties who participated in its operation.
If successful, ASIC will thereafter seek orders for the payment of 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 ‘no transaction’ case for compensation).
Timing of ASIC proceedings and future of confidential commercial resolution
As the Commission decisions have been made to commence proceedings, ASIC will now move to complete the processes leading to filing and service of the legal proceedings. However, the proceedings will not be filed immediately to allow a short further period to test whether the commercial resolution discussions can achieve an acceptable outcome.
Mr D’Aloisio went on to say, “The commercial resolution discussions have been conducted in good faith by all participants in those discussions. Given the age and financial means of many investors involved in the Storm Model, a speedy commercial resolution should be what ASIC and all involved should continue to seek to achieve”.
Other proceedings against other parties
ASIC’s enquiries with respect to whether parties other than BoQ, CBA and MBL also participated in the operation of any unregistered managed investment schemes continues, as does ASIC’s work in connection with other investigations into the collapse of Storm, preparation of further potential legal proceedings and possible administrative action against former Storm advisers.
As the Storm matter will be the subject of extensive legal proceedings, ASIC will not at this time issue a more detailed statement or report.