Storm Financial directors escape maximum penalty
The Federal Court has slapped civil penalties on each of the directors of Storm Financial in the high-profile saga which saw SMSF investors suffer substantial losses, and it’s less than half of the maximum dollar amount that can be imposed.
The Federal Court has imposed civil penalties of $70,000 each on directors Emmanuel and Julie Cassimatis, after finding in in 2016 they breached their directors’ duties.
The maximum penalty for a breach of directors’ duties is $200,000.
The directors were also disqualified from managing corporations for seven years.
Today’s announcement draws the corporate regulator’s litigation involving Storm Financial to a close.
As ASIC explained, Storm Financial operated a system of advice in which clients were advised to invest substantial sums in index funds, using the “Storm Model” of double gearing.
Typically, clients would take out a home loan and a margin loan in order to purchase units in index funds, create a “cash dam” and pay Storm’s fees. Then, clients were encouraged to take “step investments” over time.
By 2008 and early 2009, many of Storm’s clients were in negative equity positions, and were sustaining significant losses.
As per the original judgment handed down in 2016, a sample of investors involved showed advice given in accordance with the Storm Model was inappropriate to their personal circumstances.
“Each of those investors were over 50 years old, 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 said.
The Storm Financial saga has often tainted borrowing in superannuation and using gearing strategies for retirement savings, which is a constant source of debate and friction between the SMSF and APRA-regulated sectors.
Total assets under limited recourse borrowing arrangements (LRBAs) have undergone substantial growth since their inception in 2007, but the SMSF profession is generally of the opinion that gearing strategies, used effectively, can be an appropriate income generator for retirement.
In late February, industry superannuation lobbyists noted a significant spike in total assets under LRBAs to $25.4 billion or 17.8 per cent, which is an 18-fold increase since June 2011.