When the Australian Securities and Investments Commission (ASIC) announced it was appealing a Federal Court decision to approve a settlement between former Storm Financial clients and Macquarie Bank Limited, it broke new ground.
The appeal itself did not break that new ground.
Rather, the basis of the appeal was ground-breaking and should really have raised a few eye-brows within the Treasury portfolio about why a financial services regulator should find it necessary to expend public money contesting the equity of civil case heard before the Federal Court.
The essence of ASIC’s appeal is that under the settlement, around 315 investors who funded the class action which led to the Federal Court settlement will receive more than those who did not fund the action.
The ASIC announcement said the funder/investors would be reimbursed their legal costs and also compensated for approximately 42 per cent of their losses as estimated by law firm Levitt Robinson, while around 735 Macquarie borrowers will only get back about 18 per cent.
ASIC said that it had actually intervened in the Federal Court proceedings to “express concerns about matters affecting the fairness of the deal”.
ASIC said its appeal related to:
- the distribution of the money, which is not in proportion to losses suffered
- whether a funder’s premium for class action members who funded the action amounts to an unfair advantage for those members at the expense of the remaining 70 per cent of class action members, and
- whether inadequate notice was given to class action members of the prospect of payment of a funder’s premium.
ASIC deputy chairman Peter Kell then went on the record to state that “Settlement of a class action should be undertaken in the interests of the class action group as a whole”.
“ASIC’s appeal raises the question of whether this settlement was unfair to the 70 per cent of class action members who did not, or were unable to, contribute to the funding of the action.”
In other words, notwithstanding having already made its views known to the Federal Court judge hearing the case, ASIC wants to expend public funds seeking to have another court make a judgement as to the equity of the outcome.
At a time when the workload being imposed on the financial services regulators is high and Budget funding for their activities is tight, those who pay the Financial Services Levy would seem to have every right to ask why ASIC is expending money on what some might regard as a social equity objective.
There may be some difficult questions asked if ASIC’s appeal were to comprehensively fail.
