Mr Reynolds lost his house in Townsville after being left with a $1.2 million debt. (ABC News: Rhea Abraham)
Emmanuel and Julie Cassimatis, the husband and wife founders of collapsed company Storm Financial — which left more than 3,000 clients destitute — are facing fines of $70,000 each under a Federal Court ruling.
The couple copped the penalty for giving inappropriate financial advice to vulnerable cash-strapped investors and have also been banned from managing corporations for seven years.
During Federal Court hearings in 2016, it was determined the pair had breached the civil, not criminal, duties of directors stemming from the Corporations Act.
But the fine is seen as a slap in the face to their former clients, who lost more than $800 million when the company went under.
Vietnam war veteran Stephen Reynolds was one of them, with the 70-year-old losing his house in Townsville after being left with a $1.2 million debt.
At the time he signed up for a Storm Financial margin lending loan he earned just $800 a fortnight.
“Is this fine enough? Because my legal bill trying to recover money from that was lent by dodgy banks was almost $80,000,” Mr Reynolds said.
“This does not make sense to me, this is a fine of only $70,000 when it appears it could just be pocket money for Mr and Mrs Cassimatis.
“Ten years on, with many families destroyed, marriage break-ups, suicides and lots of lots of stress, I cannot see after 10 years this amount of money is enough — it is a slap in the face.
“Many people have lost their life savings, lives have been destroyed — $70,000 is not much money at all.”
If he got to meet Mr Cassimatis face to face, Mr Reynolds said he would ask him if he was remorseful — if he understood what he had done to the lives of thousands of people.
He said he’d ask him: “Do you ever think of these people, what about them?”
Many investors were retirees
Townsville-based Storm Financial crashed in 2009 with losses of over $3 billion.
Storm Financial was placed into voluntary administration in January 2009. (ABC TV News – file image)
The Australian Securities and Investments Commission (ASIC) pursued the directors in civil proceedings, through the courts, alleging they had breached their fiduciary duties.
The Storm Financial investment model encouraged investors to borrow against their assets and buy indexed share funds, but the stock market collapse left them owing millions of dollars.
Most of the investors were retired, close to retirement, with few assets and little income.
They had little hope of rebuilding in the event of significant loss.
Mr Cassimatis fields questions from the media in Brisbane in 2009. (AAP: Dave Hunt – file photo)
Investors ‘Stormified’ to invest more over time
ASIC has argued that since 1994, Storm Financial has operated a system considered to be one-size-fits-all investment advice for all clients.
The advice recommended clients invest substantial amounts of index fund, using the what was called the “double-gearing Storm” model.
This approach involved taking out both a home loan as well as a margin loan in order to create a “cash dam” and pay Storm’s fees.
According to ASIC, once the initial investments took place, “Stormified” clients would be encouraged to take “step” investments over time.
By late 2008 and early 2009, many of Storm’s clients had suffered significant losses.
However ASIC did not allege the model was inappropriate for all investors, rather, flawed for investors who fell into a particular class — those with little or no income and few assets.
Mr Cassimatis has always maintained his innocence, claiming it was the global financial crisis (GFC) that led to his company’s collapse, not a flawed lending model.
But he told a hearing in 2009 he did accept moral responsibility.
“Whilst I believe it was not our doing, nevertheless it happened on our watch,” he said at the time.
He later told the ABC TV’s Lateline program: “Till the moment I draw my last breath we are going to work as hard as we can, I am going to work as hard as I possibly can to find justice for all of these individuals.”
Maximum fine for Cassimatis breach is $200k
In a statement today, the ASIC said Mr and Ms Cassimatis were penalised for not exercising their duties as directors with the degree of care and due diligence that a reasonable person would.
The maximum fine for that breach is $200,000.
ASIC began the civil proceedings eight years ago, with the trial finally taking place in 2016.
But during that time, ASIC entered into settlement agreements with some of the major banks, who signed off on the original loans.
In September 2012, the Commonwealth Bank of Australia made available up to $136 million as compensation for losses suffered on investments made through Storm Financial.
It had already provided $132 million to investors under the resolution scheme.
In 2013, Macquarie Bank agreed to pay $82.5 million and in September 2014, the Bank of Queensland signed off on a $17 million compensation deal.
Clients unlikely to recover any more funds
Today was the day for justice, but the thousands of clients who lost everything they owned, are unlikely to recover any further funds.
Mr Cassimastis said he too suffered, losing his own home.
He had run Storm Financial for over 30 years.
The once high-profile couple, known for their lavish lifestyle, used to commute via private jet from Townsville to their Brisbane acreage.
Today they are rarely seen in public.
Lawyers for ASIC and Mr and Mrs Cassimatis have one week to respond to Justice John Dowsett’s draft orders.
Mr Cassimatis (blurred in foreground right) is questioned at a hearing in 2009. (AAP: Dave Hunt – file photo)