ASIC wins appeal in Storm settlement
The Federal Court of Australia has upheld the regulator’s appeal against the $82.5 million settlement deal between Storm Financial investors and Macquarie Bank, deeming the settlement unfair and unreasonable.
The controversial settlement deal, which was headed by Sydney law firm Levitt Robinson and approved by the Court in May this year, saw 315 class action members who funded the litigation receive approximately 42 per cent of their losses in addition to reimbursement of legal costs.
The remaining 735 investors - who did not participate in the funding of the class action - only received about 18 per cent of their losses.
The Australian Securities and Investments Commission (ASIC) appealed the decision, claiming the distribution of the settlement pool as between all group members was unfair.
The appeal, which prompted an outcry from the Australian legal community, was yesterday upheld by the full Federal Court.
Justices Peter Jacobson, Eric Middleton and Michelle Gordon said the Federal Court agreed with the corporate regulator.
“The unfairness arises in two ways. The first is the inequality of opportunity afforded to the group members to share in the funders’ premium on the terms offered to clients of Levitt Robinson,” the judgement read.
“The inequality was heightened by the ex post facto offer of highly attractive terms to a small group of Levitt Robinson clients after the settlement was announced on 15 March 2013.
“The second aspect of the unfairness is the calculation of the premium by reference to the success fees obtained by commercial litigation funders.”
The Justices added it was the Court’s role to “protect those group members who are not represented by Levitt Robinson and whose interests may be prejudiced by their absence”.
ASIC Chairman Greg Medcraft said the regulator welcomed the decision and reiterated that the proposed distribution of the money was irrational and unfair.
“The disparity between the compensation outcomes for the majority of class action members and the minority of class action members and how that was disclosed, was at the heart of our concerns,” Medcraft said.
The 315 litigation funders paid between $5000 and $25,000 - depending on the size of their losses.
The retainer agreement between Levitt Robinson and class action members estimated that, if the proceeding was successful, clients would recover approximately 70 per cent of their costs.
“Importantly, nothing was said in the retainer agreement of any possible uplift payable to those investors who paid the levy,” the judgement read.
Recommended for you
AZ NGA has entered into a strategic partnership with national advice firm MiQ Private Wealth, as a way to provide a succession solution, as well as career development opportunities for staff.
While the advice profession struggles under growing operating costs, Adviser Ratings has found more than half of practices – some 58 per cent – that generate less than $250,000 in revenue report no profit at all.
The Federal Court has ordered the freezing of assets and the appointment of receivers to two entities linked to Australian Fiduciaries, ASIC’s latest move in an ongoing investigation into the company’s managed investment schemes.
Off the back of the August adviser exam results, the profession has seen 17 new entrants hit the Financial Adviser Register (FAR) this week, helping numbers return to positive territory.
