Cassimatises breached duties as Storm Financial directors

Storm Financial owners Emmanuel and Julie Cassimatis exercised extraordinary control, a court found.

Storm Financial founders Emmanuel and Julie Cassimatis.

Storm Financial owners Emmanuel and Julie Cassimatis breached their duties as directors of the company by tipping vulnerable people into their high-risk investment schemes, a court has found.

The Australian Securities & Investments Commission yesterday won a 5½-year legal battle against the couple, whose $3 billion investment empire collapsed in early 2009, wiping out the life savings of thousands of investors.

Federal Court judge James Edelman found the Cassimatises “exercised an extraordinary level of control and power over the Storm business and should reasonably have known that the consequences of inappropriate advice to any class of client could reasonably be expected to be catastrophic for Storm”.

“They used their powers as directors to create an environment in which (as they were aware) it was almost inevitable that the Storm model would be applied to people with a high degree of financial vulnerability,” he said.

So-called “double gearing”, where investors borrowed money to buy stock against their house, and then also took out a margin loan over the shares, was key to the danger of the Storm model.

It could not withstand the plunge in stockmarkets in 2008 as the global financial crisis devastated the world economy.

Justice Edelman found the couple’s submission, that there could be no breach of directors duties because they were the only shareholders in the company, was “unprincipled”.

“If Mr and Mrs Cassimatis’s submission were accepted, it would mean that directors could act in a manner which was intended, and known, to be in serious breach of the Corporations Act yet not be in breach of their duty of care and diligence for so long as they are the sole shareholders and the company is solvent,” he said.

“That proposition cannot be correct.”

However, he accepted that the couple acted honestly — and even told ASIC their clients were not all wealthy people.

“They did not attempt to conceal any information about Storm from any regulator or compliance professional,” he said.

He said they did take some steps to reduce risk, including taking out insurance, setting up an ­alternative dispute resolution scheme and keeping lines of communication open with ASIC.

But “in light of the likelihood of risk of contravention in relation to the class of investors pleaded by ASIC and the seriousness of the consequences of breach, these steps were nowhere near enough to minimise the reasonably foreseeable risk presented to Storm”.

ASIC Commissioner Greg Tanzer said: “This is an important decision which emphasises the importance of directors’ duties to ensure that they do not cause the companies that they control to breach the law.”

ASIC, which had repeatedly examined Storm’s business affairs since 1993, launched the lawsuit against the couple in December 2010, amid heavy criticism of its failure to take earlier action to stem Storm’s actions.

The couple fought every step, initially attempting to have ASIC’s lawsuit thrown out. They are likely to face a hefty costs bill.