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Federal Court in Australia confirms Storm Financial directors breached duties

Publish date: 02 April 2020
Issue Number: 114
Diary: CompliNEWS
Category: Australia

In Australia the Full Federal Court has confirmed that the directors of Storm Financial, Emmanuel and Julie Cassimatis, breached their duties as directors. This according to a press release issued by the Australian Securities & Investments Commission (ASIC).

Since around 1994, Storm Financial operated a system created by the Cassimatises, in which 'one-size-fits-all' investment advice was recommended to clients. The advice required clients to invest substantial amounts in index funds, using 'double gearing' (Storm Model). This approach involved taking out both a home loan, as well as, a margin loan in order to purchase units in index funds. Once initial investments took place, 'Stormified' clients would be encouraged to take 'step' investments over time.

By the time of Storm's collapse in early 2009, approximately 3,000 of its 14,000 clients had been 'Stormified'. In late 2008 and early 2009, many of Storm's clients were in negative equity positions, sustaining significant losses. 

The case that ASIC advanced centered around specific investors who were advised to invest in accordance with the Storm Model. ASIC alleged that the advice Storm provided to those investors was inappropriate to their personal circumstances. The majority of investors were retired or approaching and planning for retirement, had little or limited income, few assets and had little or no prospect of rebuilding their financial position in the event of suffering significant loss. 

ASIC alleged that the Cassimatises were responsible for the day-to-day significant decisions in relation to the provision of financial services to Storm's clients and exercised a high degree of control over its systems and processes. Their failure to take reasonable steps to prevent Storm from giving this inappropriate advice meant that they had not exercised their powers as directors with the degree of care and diligence that a reasonable person would have exercised in that situation.

The Federal Court found that as directors of an Australian Financial Services Licensee the Cassimatis’ 'responsibilities included ensuring that investors obtained from Storm (and particularly retail investors exhibiting the five characteristics of vulnerability […]), consideration and investigation of the subject matter of the advice to be given to them (and given to them), as was reasonable in all of the circumstances and that, having regard to those matters, the advice given to those investors was appropriate to each of the 11 investors in question'.

Full ASIC media release

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