COLLAPSED financial company Storm Financial targeted "baby boomers" at retirement age and used the lending power of Australian banks "motivated by profit", a court has heard.
Lawyer Allan Myers, acting for Australian Securities and Investments Commission, told the Federal Court in Brisbane how Storm Financial deliberately targeted "ordinary people" with little experience in the stock exchange and welcomed them into the "Storm family".
He said Storm founders Emmanuel and Julie Cassimatis described these people as an "untapped and unlimited market".
They told their clients it was more financially rewarding to invest in the share market than in real estate of cash deposits, urging them to double borrow against their assets.
The Cassimatises created an aura of success through photos of with the "rich and successful" such as James Packer and Bill Clinton, which were shown in court.
In his opening address, Mr Myers said Storm, Bank of Queensland and Macquarie Bank shared responsibility in these "ordinary investors" losing billions of dollars.
He said a year before Storm collapsed, the company had more than 3000 "Stormified" clients, was managing $5 billion worth of funds and had 14 offices along Australia's east coast.
"The Storm scheme caused loss to the many participants in it," he said.
"The banks, on the other hand, made large profits."
Mr Myers said ASIC sought to prove Storm was running a managed investment scheme which should have been registered under Australia's Corporations Act.
He said ASIC also sought to prove the banks were "knowingly concerned" with the scheme and were "motivated by profit".
"ASIC seeks declarations that Macquarie Bank and Bank of Queensland were involved in Storm's contravention of the registration position in relation to the managed investment scheme," he said.
Mr Myers said Storm's business model involved generating fees through promoting their standardised leverage investment program to the public.
He said investors would pay a "substantial upfront payment of 7% of the capital investment".
"Once you're in the Storm system, all you have to do, having ticked the boxes, is sit back and relax and wait until you got richer," he said.
"We all know what the end is, it's tears. Because having leveraged yourself, you are exposed to market volatility.
"They were back to where they started after 40 years of hard work."
Mr Myers said he aimed to prove the banks "knew what was happening" and "knew the risks" but they "were in it in order to make profits".
He said they did not have to help Storm arrange home or margin loans at reduced interest rates with higher borrowing limits.
"A person generally not experienced in financial matters but who is comfortably off, in a home not mortgaged or mortgaged to a modest extent and perhaps having other assets such as superannuation, is put into the Storm system," he said.
"The sorts of people we are talking about are generally ... persons who have retired or are reaching retirement age, they've worked and saved and they have a few assets behind them to support them in the later years of their life.
"Storm encouraged these persons to mortgage the assets they have and arranged for those borrowings.
"Then, funds having been liberated as a result of those mortgages, Storm arranges their investment in index funds promoted by Storm.
"In turn the investment in those index funds is mortgaged again by margin loans to increase the borrowings, so it's a double borrowing.
"All of this was based upon a notion those who controlled Storm had, that property was not a safe investment, was likely to decline in value and you should be in a share market."
The trial continues.
A class action involving Storm victims tied up with the Commonwealth Bank has been adjourned and will be heard separately.
Tony Morris, acting for victims, said this was the most "inexpensive and efficient way" forward so victims could properly assess a Commonwealth Bank settlement.
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