Court hears of Commonwealth Bank's part in Storm collapse

THE Commonwealth Bank provided the "fuel and oxygen" to the Storm Financial business and knew it was a "dangerous, risky investment strategy", lawyers for the class action against it have argued.

Robert Dubler SC asked the Federal Court in Brisbane to find the CBA was "much more than a mere lender" and was "the third spoke of the wheel" during his opening address this week.

Hundreds of investors are taking action against the bank after Storm collapsed in 2008 and sent many of them to financial ruin.

The Australian Securities and Investment Commission has calculated investors lost about $830 million after Storm's collapse.

"There was Storm, there were clients and then there was the bank," he said.

"Its facilitation of the Storm model was deep and involved.

"It provided fuel and oxygen to the Storm business by being its banker, and we say the evidence reveals it did so in part because of the expectation, which was fulfilled, of the referral of work in the form of loans.

"Mr Dubler said the CBA's Colonial First State arm operated four index funds that were Storm-badged and only available to Storm clients.

He said the bank provided investment home loans to give Storm clients the initial equity needed to invest and provided margin lending so clients could double gear.

"In a very day-to-day way, the bank assisted Storm in its operations with dedicated special application processes and dedicated officers whose sole job was to ensure the smooth running of the Storm loan processing and other aspects of its business," he said of the fifth way.

Mr Dubler argued the CBA was "a joint operator" of the scheme which went to the key question of unconscionable conduct.

He said the court must decide whether or not the bank, in lending money to Storm and bank clients, engaged in unconscientious behaviour and whether the bank's actions fell below the standard of a diligent and prudent banker.

"A risky product was promoted to the wrong people, who could least afford it, as a non-risky product," he said.

"The case against the bank ... is that it must have known it was likely that all of these Storm clients were not being properly advised.

"Nevertheless, it continued and acquiesced in requests from Storm for ever-greater fees and ever-increasing margin loans, to the point where obviously it ended in tears.

"We say the Storm model was a dangerous, risky investment strategy and that it was wrongly sold to ordinary Australians as an ordinary investment strategy.

"The bank knew all of that, is the case against it.

"Nevertheless, it wrote cheque after cheque on its customers' loan accounts, including cheques going from the bank direct to Storm for its inflated fees, and it did so essentially because the profits and the revenue from the large loan book of Storm were too great to simply turn away from it."



Coronial inquest into fatal light plane crash off Byron Bay

Coronial inquest into fatal light plane crash off Byron Bay

Inquest to hear details about crash that killed Lennox pilot

Alleged cocaine supplier hopes to defend pre-trial hearing

premium_icon Alleged cocaine supplier hopes to defend pre-trial hearing

The North Coast man has accused of supplying cocaine

Oldest retreat in the shire on the market

premium_icon Oldest retreat in the shire on the market

Slice of paradise on the market

Local Partners