ASIC recently filed proceedings in the Federal Court against Storm Financial Limited, the CBA, Bank of Queensland and Macquarie Bank. These proceedings were commenced as a result of ASIC’s extensive investigations conducted over the past two years. ASIC’s claim, very simply stated, appears to be that:

1. Storm ran an unlicensed investment scheme;
2. Each of the banks aided and abetted Storm to run the scheme (presumably by advancing funds to Storms clients secured against their homes or through a Margin Loan); and
3. If the banks are guilty as alleged then clients can claim losses from the banks.

ASIC’s argument is that the particular dealings between these parties (and others that are not part of this action) meant that that Storm was running a managed investment scheme as defined under the Act. They support this proposition by the flow and use or pooling of funds by Storm and the ‘financial benefits’ obtained by the investors.

In the end it will of course be up to the courts to decide what amounts to, and whether Storm was, running an ‘managed investment scheme’ and, if so, whether by lending money to Storm clients the banks aided and abetted the scheme. We naturally express no opinion on the matter.

Interestingly, given the wide publicity of the Storm liquidation and other investment schemes, and given the highly publicized stock market crash, the Global Financial Crisis, the problems investors encountered with Margin Loans and other investment products, it would be reasonable to think that this part of the industry would be rather quite for the foreseeable future.

I was surprised then to hear radio advertisements during December 2010 for ‘free investment seminars’ where mum and dad investors could “unlock the equity in [their] home” and use that equity to make their fortune in the stock market. They could tell you how to become rich.

Obviously the promoters believe that the general public has a short enough memory to forget the last two years and to once again believe that high-risk, high-leveraged investments secured on what is usually someone’s only real asset is the best way to become rich. And some ‘investors’ will have a very short memory.