12-227MR ASIC and CBA reach Storm Financial settlement
Friday 14 September 2012
ASIC Chairman Greg Medcraft today welcomed an agreement between ASIC and the Commonwealth Bank of Australia (CBA) for CBA to make available up to $136 million as compensation for losses suffered on investments made through Storm Financial Limited (receivers and managers appointed) (in liquidation) (Storm). The compensation will be available to many CBA customers who borrowed from the bank to invest through Storm, including CBA customers who are members of the Sherwood class action that has been brought against CBA.
The $136 million is in addition to payments of approximately $132 million, and other benefits, CBA has already provided to Storm investors under its CBA Resolution Scheme.
ASIC has developed a compensation model (in conjunction with external forensic accountants) to calculate Storm investors' losses. That model has calculated the estimated loss for each investor (or investor group, where two or more investors invested jointly in the Storm model). It has also allocated each investor's loss between the banks which funded investments in the Storm model.
CBA's $136 million of additional compensation is intended to ensure that each CBA investor (or investor group) who takes part in the settlement will get compensation of approximately 55% of that part of their total loss allocated to CBA under the ASIC compensation model. This calculation takes into account the compensation CBA already provided to investors under its Resolution Scheme. In determining the aggregate amount of compensation, allowance has also been made for the period that has elapsed between the time that Storm investors suffered loss and the time of receipt of compensation.
Today's agreement provides other benefits to Storm investors who borrowed from CBA:
if, after compensation is applied to an investor's outstanding Storm-related margin loan, the investor is still in negative equity on their margin loan, the balance of the loan will be written off, and
an investor granted an interest-payment moratorium by CBA will have that moratorium interest written off.
Subject to the Court dismissing ASIC's claim against CBA, this agreement will bring to a close the legal action against CBA in ASIC's unregistered managed investment scheme proceedings which were brought in the Federal Court of Australia in Brisbane in December 2010. Today's agreement was reached as a culmination of discussions between CBA and ASIC about whether it was appropriate to provide additional compensation, over and above that already provided under the CBA Resolution Scheme, and was reached without any admission of liability by CBA. ASIC will request the Court to dismiss its proceedings against CBA and the agreement will become effective upon that occurring.
ASIC will continue the unregistered managed investment scheme proceedings against Storm, Bank of Queensland and Macquarie, which are scheduled to start on Monday 17 September 2012. ASIC estimates the total loss suffered by all investors who borrowed monies from banks to invest through Storm to be approximately $830 million.
Mr Medcraft said today, ‘ASIC's objective of obtaining compensation for Storm investors has been achieved today for CBA customers, without the need for a long, costly legal process that brings with it a level of uncertainty.
'Today's compensation deal is a timely, fair and certain outcome for Storm investors who borrowed from CBA.
'Storm investors can be confident we would not have agreed to a settlement unless we thought the compensation was appropriate.
'ASIC recognises CBA's earlier Resolution Scheme was a constructive response by the bank to the hardship of its customers who invested through Storm. ASIC welcomes CBA's positive engagement in resolving this matter and its responsible approach in dealing with its customers.'
CBA is developing processes to implement the settlement arrangements. Once those processes are developed, CBA will notify Storm investors who may receive compensation as a result of the agreement reached today. For each investor or investor group, the notification will set out the compensation payable, and the time frame and mechanics of participation in the settlement. CBA investors who have not previously provided a release to CBA will be required to do so if they wish to take part. Arrangements with a CBA customer who is a member of the Sherwood class action may require further Court order or direction.
Storm investors can visit ASIC’s Storm investor website if they have questions about the settlement. Storm investors who are unable to access the website can also call ASIC’s Client Contact Centre on 1300 300 630 to request a printed copy of the information on the website.
Please note ASIC cannot give Storm investors legal advice, and Storm investors should seek their own independent legal advice about the settlement.