STORM Financial induction sessions have been likened to Scientology or "other species of odd belief" on day two of a lengthy trial into the company's practices.
Barrister Allan Myers told the Federal Court in Brisbane how potential investors had to listen to about 20 hours of information related to the financial investment company's plan before having meetings with individual advisors.
Mr Myers, acting for the Australian Securities and Investment Commission, said the education sessions would be held in classy venues with lavish fittings, food and drinks "so as to exude a sense of luxury and financial success".
"They would be told they were part of the Storm family," he said.
Mr Myers said investors were made to feel the plans were tailored to their personal financial circumstances, but they were part of a standard model he compared to a "T-model Ford production line".
He said the only variable was the value of clients' personal assets.
ASIC is arguing Storm was operating an unregistered managed investment scheme.
Mr Myers said once investors signed up, Storm would assume financial control of all borrowings and investments on investors' "journey to capitalism".
He said they would arrange a home loan and then use that to secure a margin loan, in effect double borrowing.
"Storm had, in a real way ... the day-to-day control of its clients investments," he said. "(Investors) relied entirely on Storm to advise them as to the extent of their borrowings and investments.
"They were told repeatedly by Storm financial advisors not to worry about anything.
"Storm told clients there would be no need to monitor their investments because Storm would do it for them.
"It was very difficult for any investors, particularly inexperienced retail investors, who were dissatisfied with Storm to get out.
"You were either in completely or out completely. There was no notion of being partially in."
Mr Myers said this was why so many investors were overwhelmed when the market fell, detailing two case studies where couples were left with no assets through their involvement with Storm.
"One could go on dealing with persons who fell into the clutches of Storm and, with the knowing involvement of the banks, ... lost everything or practically everything," he said.
The court is expected to hear from about 20 of the investors who lost their assets when Storm collapsed in 2008 when the global financial crisis hit.
ASIC is also pursuing the Bank of Queensland and Macquarie Bank, arguing they were "knowingly concerned" with Storm's scheme.
"Bank of Queensland knew Storm was not a public company and therefore it couldn't have operated a managed investment scheme because that's one of the requirements," Mr Myers said.
Mr Myers showed the court a letter from an insurance company outlining the "catastrophic risks" of Macquarie getting involved with Storm.
The trial continues.
CASE STUDY 1
- Details: 75yo, retired, $14,000 income a year.
- Assets: $1.3 million including two residential homes, an investment property (all unencumbered), jewellery, cash and minor shares.
- Loans through Storm: BOQ home loan $429,000 and Macquarie margin loan $705,820 against a limit of $706,000.
- End result: One encumbered property with a $100,000 debt and living on Centrelink payments.
CASE STUDY 2
- Details: Couple, 66yo husband on $1000 a week income.
- Assets: $2.64 million including unencumbered house worth $1m
- Loans through Storm: BOQ home loan $763,000 and Macquarie margin loan limit $3.5 million drawn to $3.423 million
- End result: Sold their house, two cars, boat and caravan to pay off their loan. No assets left.
CASE STUDY 3
- Details: Couple aged 63 and 61, $100,000 a year combined income.
- Assets: $827,000 including unencumbered home worth $450,000.
- Loans through Storm: BOQ home loan $720,000 and Macquarie margin loan credit limit $800,000 with $740,000 drawn against it.
- End result: Nothing left at all including home.
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