19 When will payment be made? How do I find out if I am eligible for compensation?
19.1 On Wednesday 13 February 2013, CBA commenced sending notification letters making compensation available under this Settlement. CBA will also send to those investors who are not eligible for compensation a letter setting out that fact and explaining why.
19.2 CBA have informed ASIC that CBA intends to send notification letters to over 500 CBA customers in February 2013, and approximately 1,000 by mid-March 2013, and will continue sending the remainder of notification letters steadily. ASIC and CBA expect that all notification letters, including those to investors who are not eligible to receive any further compensation under the ASIC/CBA Settlement, will be sent within the next 2 to 3 months.
19.3 The notification letters will include a notice setting out the compensation, information about how ASIC reached the compensation figure (including an explanation as to the method and investor information relied upon by the ASIC compensation model to calculate the investor's compensation amount) and any documents required to be completed to accept the offer (where applicable). CBA will ensure that, where possible, notification letters are delivered to CBA investors personally.
19.4 ASIC can inform CBA customers who invested through Storm and who have inquired with ASIC whether or not they are eligible to receive any further compensation under the ASIC/CBA Settlement. Investors who seek this information should contact ASIC on 1300 300 630 or by email at firstname.lastname@example.org.
19.5 Please note that since ASIC took over carriage of the Business Names Register in 2012, ASIC has been receiving an unprecedented number of calls to our call centre. Callers may have to wait for an extended period to get through to the call centre. Accordingly, CBA borrowers are encouraged to email ASIC at email@example.com or write to ASIC at the below address:
Storm Investor Liaison team
Australian Securities and Investments Commission
GPO Box 9827
Brisbane, Qld, 4001
19.6 It would assist ASIC if, in any email or letter, each investor can complete the following table and provide the required information for proof of identity purposes:
[Current 27 February 2013.]
20 What if a CBA Customer’s margin loan is in negative equity?
20.1 If, after the ASIC Compensation Amount has been applied in reduction of a CBA Customer’s margin loan, and the margin loan remains in Negative Equity, CBA will write off remaining Negative Equity.
20.2 Negative Equity is:
- if the margin loan has a debit balance and no security is held for the margin loan, the debit balance of that margin loan; or
- where security is held in respect of the margin loan, the amount by which the debit balance of the margin loan exceeds the value of the security.
[Current 19 September 2012.]
21 What if a CBA Customer does not agree with the data held by ASIC which gives rise to the calculation of compensation for that Investor?
21.1 If a CBA Customer believes that the data used by ASIC and CBA to calculate that investor’s ASIC Compensation Amount is incorrect, the investor may notify ASIC. The investor will need to give ASIC documentation which can demonstrate that the data is incorrect.
21.2 The only matter that may be relevant to any review is whether the data used by ASIC to calculate the ASIC Compensation Amount for a CBA Customer is correct. Relevant data is:
- the details and cost of Units purchased;
- the origin of funds used for the purchase of those Units
- the date and amount of sale or redemption of all Units and payment of all amounts owing under margin loans (if applicable);
- the value of unsold Units as at dates relevant to the Model;
- fees and interest charged by banks in relation to Storm-related loans
- the amount of cash distributions in respect of Units;
- the face value amount of compensation provided by CBA pursuant, prior to or outside the CBA Resolution Scheme; and
- whether or not an investor accepted an offer from CBA pursuant to, outside or prior to the CBA Resolution Scheme.
21.3 The following are not relevant to any review, and ASIC will not consider any material or comment provided by CBA Customers in so far as it is directed to the following:
- the method ASIC has used to calculate loss;
- the method ASIC has used to allocate loss between banks;
- the provision by CBA of compensation for CBA Customers equivalent to 55% of the amount of loss allocated to CBA under the ASIC Compensation Model;
- the method of calculating interest (including moratorium interest); or
- the set-off of the ASIC Compensation Amount against any existing indebtedness of the customer to CBA.
21.4 ASIC will review the data. If ASIC believes that an error has been made in relation to any of the reviewable items leading to an error in the ASIC Compensation Amount, ASIC will refer the matter to CBA. ASIC and CBA will review the data and will seek to reach agreement regarding whether the ASIC Compensation Amount for that investor should be adjusted.
21.5 If ASIC and CBA are not able to agree, ASIC and CBA will refer the matter to an expert, to be appointed by the Chairman of the Institute of Chartered Accountants for determination. A determination of the expert will be binding on CBA and ASIC.
21.6 CBA and ASIC will be responsible for the costs of the expert.
[Current 19 September 2012.]
22 Can an investor refer a matter to the expert for determination?
22.1 Investors, or investor groups, do not have the ability to refer the matter to the expert for determination.
[Current 19 September 2012.]
23 What releases will CBA Customers have to give to obtain the compensation?
23.1 CBA Customers who have already accepted an offer from CBA which included the provision of a release to CBA will not be required to sign any further release.
23.2 For any ASIC compensation to be payable to a CBA Customer who has not already accepted an offer that included the provision of a release to CBA, that CBA Customer will be required to sign a full release in favour of the CBA Group.
23.3 The participation of any group members of the Sherwood Proceedings in the compensation made available as a result of the agreement reached between ASIC and CBA and may be subject to Federal Court directions or orders.
[Current 19 September 2012.]
24 Do CBA Customers have to continue to meet loan repayments now that a negotiated outcome has been reached?
24.1 Yes. Any ASIC Compensation Amounts may be offset against existing CBA loans, so in many cases CBA Customers may have the opportunity to make lower loan repayments. In some cases, the ASIC Compensation Amount may completely repay all of an investor’s CBA loans. However, if a CBA Customer has loans which remain outstanding after any compensation amounts have been applied, the CBA Customer will have to continue to meet loan repayments.
[Current 19 September 2012.]
25 Does a CBA Customer have to accept an offer? What happens if the Investor does not accept an offer from CBA?
25.1 CBA Customers who have not previously accepted an offer of compensation from CBA under the CBA Resolution Scheme, or prior to or outside of it, may choose whether or not to accept any ASIC Compensation Amount which may be offered as a result of the agreement between ASIC and CBA. If such a CBA Customer chooses not to accept any offer of compensation that may be made, the CBA Customer will be free to make or continue any claim or court proceeding against CBA.
[Current 19 September 2012.]
26 How do investors confirm their participation in the compensation arrangements? Do they need to register with ASIC?
26.1 Investors do not need to register with ASIC. Investors will be provided with a notification from CBA if they are to be provided with or offered compensation as a result of the agreement reached between CBA and ASIC.
[Current 19 September 2012.]
27 Who should investors contact for more information about whether to accept the proposal and what options are available to them?
27.1 Storm investors can visit the homepage of ASIC’s Storm investor website if they have questions about the settlement. Storm investors who are unable to access the website can also call ASIC’s Client Contact Centre on 1300 300 630 to request a printed copy of the information on the website.
27.2 Please note ASIC cannot give Storm investors legal advice, and Storm investors should seek their own independent legal advice about the settlement.
[Current 19 September 2012.]
28 What are the tax implications for investors who receive compensation amounts as a result of the settlement?
28.1 The payment of this compensation may have tax consequences. ASIC has asked for the Commissioner of Taxation’s views on the Australian income tax implications for investors who receive this compensation. The ATO has published on its website an information sheet Taxation issues for Storm Financial investors benefiting from the ASIC-CBA settlement which explains the Commissioner of Taxation's views.
[Current 29 November 2012.]
29 I have changed address since I last had contact with the CBA. Should I contact the CBA, or will the CBA use the contact details on ASIC's database?
29.1 Please contact the CBA via their Storm Financial customer information line on 1800 059 000 if your address details have changed. In addition, please inform ASIC of any change of address by providing the following: Full name and date of birth of each investor, old address, new address, and contact phone numbers (if applicable). ASIC can be contacted by calling 1300 300 630 or by email at firstname.lastname@example.org.
[Current 26 September 2012.]
30 Is it true that investors will only be compensated for the money they lost that was borrowed from CBA by way of a margin loan, and not money borrowed against their homes?
30.1 No, that is not true.
30.2 The ASIC Compensation Model calculates loss on an investor by investor, and investment by investment, basis. It does this by determining whether an investment (however funded, e.g. home loan, margin loan or Other Funding as defined in Question 12) made a profit, or a loss, after taking into account the cost of acquiring the investment (including borrowing costs described in Question 12) and the income from, and the realisation proceeds (or end value) of, that investment.
30.3 The ASIC Compensation Model then allocates each investor's loss between the banks which funded their investments through Storm, whether by way of home loans or margin loans, according to the method explained in Question 12.
30.4 If a Storm investor only borrowed from CBA to invest in Storm and that investor participates in the settlement, they will receive 55% of their Storm related losses. If a Storm investor borrowed from CBA and other banks to invest through Storm and that investor participates in the settlement, they will receive 55% of that part of their Storm related losses allocated to CBA in the way described above.
30.5 See question 7 (in particular paragraphs 7.1, 7.3 and 7.4) and question 12 (in particular paragraphs 12.1 and 12.9-12.12) for further information.
[Current 4 October 2012.]
31 Is it true that investors who already received some compensation from CBA through the CBA Resolution Scheme cannot receive any further compensation under the ASIC settlement?
31.1 No, that is not true.
31.2 Investors who received some compensation under the CBA Resolution Scheme may, depending on the amount of that compensation, still receive further compensation under the ASIC/CBA settlement.
31.3 See question 8 for further information.
[Current 16 October 2012.]
32 Will investors be compensated for capital losses, such as savings or superannuation?
32.1 Yes, the ASIC Compensation Model does compensate for losses of an investor's capital invested through Storm, including an investor's savings or superannuation.
32.2 The ASIC Compensation Model calculates loss on an investor by investor, and investment by investment, basis. It does this by determining whether an investment (however funded, e.g. home loan, margin loan or Other Funding as defined in Question 12, such as savings or superannuation) made a profit, or a loss, after taking into account the cost of acquiring the investment (including borrowing costs described in Question 12) and the income from, and the realisation proceeds (or end value) of, that investment.
32.3 The ASIC Compensation Model then allocates the loss (including capital losses) suffered by each investor between the banks who funded that investor's investments through Storm, according to the method explained in Question 12.
32.4 See Question 12, in particular paragraph 12.5(a) and 12.9-12.10 for further information.
33 Who should I contact if I am an executor or administrator of a deceased estate of a person who was a Storm investor, or if I invested jointly in Storm with someone who is now deceased?
33.1 Please contact the CBA via their Storm Financial customer information line on 1800 059 000. CBA staff will be able to assist you with the appropriate procedures to enable the estate to deal with CBA in relation to the ASIC Settlement.
[Current 16 October 2012.]
34 I have read in the media and elsewhere that Storm investors suffered aggregate losses of around $3 billion. Is that true and, if so, why did ASIC settle with CBA for only $136 million?
34.1 ASIC does not consider that the $3 billion figure is correct.
34.2 ASIC engaged a firm of external forensic accountants to calculate losses arising from Storm, based primarily on Storm's own records and information obtained from banks and fund managers.
34.3 Those external forensic accountants calculate the aggregate losses suffered by Storm investors to be approximately $830 million. This figure encompasses all Investors and their borrowings from all the various banks, not just Investors who were customers of CBA.
34.4 The amount of approximately $136 million paid, or available to be paid, by CBA under the ASIC Settlement, when added to the compensation previously provided under the CBA Scheme of approximately $132 million, totals approximately $268 million. This amount is 55% of the loss attributable to CBA under the ASIC Compensation Model. ASIC considers this to be a fair and reasonable compensation outcome.
34.5 ASIC does not know of any reliable source for the $3 billion loss figure.
34.6 The following figures (drawn from information available to ASIC and its external forensic accountants) indicate that the $3 billion figure is unlikely to be an accurate assessment of loss:
- 34.6.1 the total value of all investments made in the Storm investment model in Storm associated index funds at the height of the market (1 November 2007) was approximately $2.524 billion;
34.6.2 the total amount invested over the life of the Storm investment model (including through reinvested distributions and fee rebates) was approximately $2.930 billion;
- 34.6.3 the total amount returned to investors who invested in the Storm investment model (through redemption of units, distributions and the value of units still held at the end of the Storm investment model) was approximately $2.677 billion.
34.7 ASIC does not consider that loss can be assessed solely by reference to the unrealized value of an investment at the top of the market (that is, the amount in paragraph 34.5.1). ASIC considers that any assessment of loss has to take account of the amounts returned to investors, among other factors. The way in which the ASIC Compensation Model assesses loss is set out in question 7 and question 12.
[Current 16 October 2012.]
35 Some questions arising from an "Information Bulletin" distributed by Levitt Robinson Solicitors in October 2012
35.1 Is the amount of total loss suffered by all investors $3 billion?
35.1.1 The information bulletin from Levitt Robinson says that the Parliamentary Joint Committee (PJC) on Corporations and Financial Services in their November 2009 Report on the Inquiry into Financial Products and Services in Australia estimated that total loss suffered by all investors who borrowed money from financiers to invest through Storm was $3 billion.
35.1.2 This is incorrect. The PJC report dated November 2009 did not provide any estimate of total losses suffered by all investors who borrowed money to invest through Storm. As set out under Question 34, ASIC's estimate of Storm investor losses is around $830 million, and ASIC does not know of any reliable source for the $3 billion loss figure.
35.2 Did ASIC and CBA use the same accountants?
35.2.1 The information bulletin from Levitt Robinson says that "ASIC and CBA approached the matter by having their common accountants" calculate losses. This is incorrect. ASIC and CBA did not have "common accountants". As set out under Question 7 and Question 12, ASIC developed the compensation model, in conjunction with external forensic accountants. Those external forensic accountants were engaged, briefed and paid for by ASIC, not CBA. In performing their work, the accountants owed obligations to ASIC, not CBA.
35.3 How is loss calculated for investments funded otherwise than by a margin loan or home loan? For these investments, is my compensation limited to only 5.5% of the money I invested?
35.3.1 The information bulletin from Levitt Robinson says that "to the extent that you put in your own money – e.g. super or cash – you only get acknowledgement for 5.5% per annum from ASIC/CBA" and that "this 5.5% for "Other Funding", which is all that is taken into account in calculating your loss, is to be set-off against the 5.5% "Opportunity Benefit"..."
35.3.2 This statement is incorrect. As set out in Question 12, paragraph 12.5(a), the calculation of loss under ASIC's Compensation Model takes account of the purchase price of units from an investor's own assets, such as cash or superannuation (called Other Funding). Further, any losses incurred in relation to the purchase of Units funded by the investor's own money e.g. superannuation or cash (Other Funding) are allocated between the banks who lent money to that investor to fund investments made through Storm. Consequently, the type of losses allocated to CBA will include losses incurred on investments funded by the investor themselves, as is explained in Question 12.
35.4 How are losses made on investments funded by my own cash or superannuation allocated to the banks?
35.4.1 The information bulletin from Levitt Robinson says that ASIC's calculation of loss "is then reduced to the extent your loss can be apportioned between CBA and any other banks to which you owe money, and 'Other Funds'".
35.4.2 The preceding statement is inaccurate, and it fails to properly explain how "Other Funding" is allocated among the banks. Other Funding, as explained in Question 12, is assumed to be any funding which is not able to demonstrated to have been funded by a margin loan or home loan, such as cash and superannuation.
35.4.3 The Model calculates loss by determining whether an investment (however funded, e.g. home loan, margin loan or Other Funding) made a profit, or a loss, after taking into account the cost of acquiring the investment (including borrowing costs described in Question 12) and the income from, and the realisation proceeds (or end value) of, that investment. The Model then allocates that loss, including loss incurred on investments funded by Other Funding, between the banks which funded their investments through Storm, whether by way of home loans or margin loans, according to the method explained in Question 12.
35.4.4 The key point is that losses made on investments funded by Other Funding are allocated to the banks that lent money to that Investor.
35.5 Is the example given by Levitt Robinson a correct application of the allocation method in ASIC's Compensation Model?
35.5.1 The information bulletin from Levitt Robinson gives the following example to explain the calculation and allocation of losses:
"As a simple example, with respect to monies invested in Storm, if you sourced 10% of the money from [Bank A] and sourced 40% from Other Funds (i.e. your own cash and superannuation), CBA would only contribute the other 50% towards what ASIC and CBA has, in a very limited way, defined to be your loss and then, only 55% of that 50%, which bring CBA's contributions down to 27.5% of your "loss" according to ASIC/CBA's very restricted and self-serving definition"
35.5.2 This is not correct. The starting point is that losses made by an investor on investments funded by Other Funding are allocated to the banks that lent money to that investor, and that CBA will compensate CBA Customers for 55% of losses allocated to CBA.
35.5.3 The correct application to the given example of the method of calculating and allocating loss (as explained above in Question 7 and Question 12) is as follows:
- Out of the total amount of the investor's funding for investments made through Storm, 60% of that funding was from banks, while the other 40% was from their own cash or superannuation (Other Funding).
- Out of the investor's total funding from banks:
i. the proportion of that funding from Bank A was 1/6th (or 16.7%); and
ii. the proportion of that funding from CBA was 5/6ths (or 83.3%).
- The investor's losses on investments funded by loans from Bank A will be allocated to Bank A.
- The investor's losses on investments funded by loans from CBA will be allocated to CBA.
- The investor's losses on investments funded by the investor's own cash or superannuation (Other Funding) will be allocated between CBA and Bank A, in proportion to the amount of funding provided by each bank, based upon the proportions set out in (b) above. In other words, 1/6th (16.7%) of the losses incurred on investments funded by the investor will be allocated to Bank A, while 5/6ths (83.3%) of the losses incurred on investments funded by the investor will be allocated to CBA.
- So, the investor's losses allocated to CBA are:
i. the losses made on investments funded by CBA; plus
ii. 5/6ths (83.3%) of losses made on investments funded by the investor's own cash or superannuation.
[Current 31 October 2012.]
36 How does the settlement compare with outcomes under CBA's Resolution Scheme?
36.1 The information bulletin from Levitt Robinson includes the heading "How people who have accepted settlements and have signed a Deed of Release in favour of CBA through the CBA Resolution Scheme are affected by the offer". Under that heading, Levitt Robinson say that, from their "knowledge of a similar offer being formulated a month ago, [they] doubt that there would be very many people who will receive a significantly better outcome from the ASIC/CBA Offer than under the CBA Resolution Scheme".
36.2 This statement is inaccurate. ASIC's Compensation Model includes around 2,000 investors or investor groups who borrowed from CBA to make investments through Storm. Out of those 2,000 investors or investor groups, around 1,200 of them received payments under CBA's Resolution Scheme. Out of those 1,200 investors or investor groups, around 700 of them will receive an ASIC Compensation Amount. The remaining 500 or so investors or investor groups will not receive an ASIC Compensation amount, because:
- they have already received, under CBA's Resolution Scheme or another previous settlement, compensation equal to or higher than 55% of their losses allocated to CBA;
- in aggregate, and over the life of their Storm investments funded by CBA, they made profits; or
- in a small number of cases, they are Excluded Persons (as described in Question 11).
36.3. Out of the 2,000 investors or investor groups in the Model who borrowed from CBA to make investments through Storm:
- around 1,400 can receive an ASIC Compensation Amount; and
- around 600 will not receive an ASIC Compensation Amount, because of the reasons set out in paragraph 2(a)-(c) above.
[Current 19 November 2012.]
37. Correction of some inaccuracies in an “Information Bulletin” distributed by Levitt Robinson Solicitors in February 2013
37.1 Levitt Robinson Solicitors distributed an information bulletin dated 28 February 2013 titled "Information Bulletin No. 111".
37.2 The bulletin says that:
“Flaws have been identified to us in the ASIC/CBA offer calculations. In the calculation of losses on the cost of units, based on the date of purchase, reliance has been placed squarely by ASIC and CBA on Storm's records, now with the liquidator. They have both said so.
Storm had insisted to its clients that distributions paid by the various fund managers, needed to be reinvested into "the plan" and used for the purchase of additional units. By any measure – whether technical taxation or accounting – these reinvested distributions were actually new purchases of additional units. This was never recorded by Storm because of logistical difficulty, even though additional units were purchased using each client's own individual cost base.
Therefore, losses on those purchases should be taken into account in determining compensation. By relying upon Storm's records, this will not occur and is sadly lacking from the ASIC/CBA deal”.
37.3 The bulletin is inaccurate:
37.3.1 The ASIC Compensation Model does take into account the purchase of units using reinvested distributions. This is outlined in Question 12 at paragraph 12.5(e), as well as in the worked Example of the ASIC Compensation Model.
37.3.2 Storm recorded the purchase of units, including purchases using funds from reinvested distributions.
37.3.3 ASIC does not rely solely on Storm’s records. As outlined in Question 7 and Question 12, the ASIC Compensation Model uses information obtained from Storm’s customer database, as well as banks who lent funds to investors to finance investments through Storm, and from certain managers of index funds.
[Current 8 March 2013.]