The Commonwealth Bank, Macquarie Bank and Bank of Queensland are now exposed to massive lawsuits after the corporate regulator announced it would take court action for compensation on behalf of Storm Financial investors today. The Australian Securities and Investments Commission also announced it would pursue a civil case against Storm Financial’s founders, Emmanuel and Julie Cassimatis. On top of the compensation actions against the banks, the regulator singled out Macquarie Bank and the owners of a Bank of Queensland franchise for additional actions. The corporate regulator said in seeking compensation from the three banks it would mount a court case alleging the banks participated with Storm Financial in offering investors an unregistered managed investment scheme.

If it proves its case, it will seek from the courts enough compensation to return investors to their original position as if they had never invested through Storm Financial. Given Storm Financial collapsed with reported losses of $3 billion – which included massive margin loans – compensation for investors’ original investments could easily top $1 billion. The regulator said it would not lay the cases immediately, but offered the three banks a maximum of three weeks to arrive at a negotiated compensation settlement. In a statement, ASIC chairman Tony D’Aloisio said a commercial settlement remained the preferable outcome if it could be achieved. “Given the age and financial means of many investors involved in the Storm Model, a speedy commercial resolution should be what ASIC and all involved should continue to seek to achieve,” he said. Mr and Mrs Cassimatis will face a case alleging they did not act with the proper degree of care and diligence as directors of Storm Financial. In the case, ASIC will seek fines and orders that they be banned from providing financial services.

The case represents a major milestone after almost two years of investigations into the collapse of the Townsville-based financial planner, which specialised in offering “double leverage” to many elderly and unsophisticated investors. “Double leverage” involved investors taking out a loan against their home, then using that as the basis for a second margin loan, which was invested into the stock market. More than 14,000 investors were hit when Storm Financial collapsed in 2008.