CBA facing $200m class action for 'bad advice'

"At no stage did the CBA, or anyone else, advise them that they were dealing with anyone other than CBA.": Lawyer Sasha Ivantsoff. Picture: JESSICA SHAPIRO

"At no stage did the CBA, or anyone else, advise them that they were dealing with anyone other than CBA.": Lawyer Sasha Ivantsoff. Picture: JESSICA SHAPIRO

Commonwealth Bank of Australia could face a class action brought by thousands of disgruntled investors who lost millions following bad financial planning advice and systemic manipulation.

If an action is brought, the bank could face a damages claim of up to $200 million following an investigation by plaintiff law firm Shine Lawyers.

The allegations were revealed earlier this month in a joint Fairfax and Four Corners investigation which laid bare the conduct of banned financial planner Rollo Sheriff, and the millions lost by his clients.

Following the press coverage Shine was approached by a number of investors who had lost money through the financial planning arm of the bank due to "bad financial advice", according to Shine partner Sasha Ivantsoff.

"Shine is now investigating a potential class action on behalf of up to 3000 investors whose money was placed into Commonwealth Bank of Australia products through its wholly owned subsidiaries Financial Wisdom, Commonwealth Financial Planning, Colonial Life Insurance, CommInsure and Colonial First State Investments," Mr Ivantsoff said.

If a class action were to be brought it would solidify the fears of corporate Australia and non-executive directors that negative press has the ability to translate into a damages suit, creating exposure for the company and a diversion of management time as well as reputational damage and ongoing legal costs.

In the case of CBA, the compensation figure of $200 million would be harmful to the company in itself, as well as the lost business associated with the financial planning arm and the negative publicity associated with alleged systemic manipulation.

A spokesperson for the bank said CBA does not comment on rumour and speculation.

Liability under licence

While no exact case has yet been formulated, Mr Ivantsoff said the investigation will focus on the liability of CBA for the advice given to investors in relation to its Australian financial services licence and the responsibility which flows from that. It is expected to take about one month.

A number of clients who lost money believed they were dealing with CBA, Mr Ivantsoff said, and "the products sold to them were by and large CBA products, particularly CBA margin loans, CBA insurance products or other CBA investment products".

"At no stage did the CBA, or anyone else, advise them that they were dealing with anyone other than CBA," he said, which is most likely to amount to a misrepresentation or product liability case.

CBA owns Financial Wisdom, which held the financial services licence for Meridien Wealth, out of which Mr Sheriff practised until 2010 when he was banned by the Australian Securities and Investments Commission (ASIC), and was therefore could be liable for the standard of advice dished out.

"This liability could include breaches of fiduciary duty, breach of the duty to use reasonable care and skill in providing the advice, misleading or deceptive conduct or unconscionable conduct," Mr Ivantsoff said.

The crux of the claims against Mr Sheriff that form the basis of the investigation are that he cultivated investors who agreed to invest their life savings with him in safe products, before later advising them to shift to high-risk, high-fee paying CBA products. This, it is alleged, was inappropriate advice causing clients to lose millions of dollars.

An allegation which has the potential to be extremely damaging is the ­suggestion that manipulation of clients risk profiles was systemic, and planners were able to override the profile in order to invest in riskier products.

An inter-company memo allegedly "contains a direction to staff on the basis that all plans including a proposal for a margin loan are to be prepared on the basis that the client would be servicing the loan 'irrespective of the actuality'," Mr Ivantsoff said.

"This was the way in which the rogue planners beat the system to put clients into geared products when such products were unsuitable for those clients."

Compensation 'not adequate'

CBA has since sold the subsidiary Meridien Wealth, which is now owned by Premium Wealth Management and headed by David Adiseshan, who is assisting Shine Lawyers with their investigation.

It is not the only litigation Commonwealth is ­facing over its financial planning business: the bank has also come under fire for rogue financial planner Don Nguyen, who allegedly lost clients millions of dollars.

Maurice Blackburn launched a class action on behalf of investors against the bank, alleging breach of contract and misleading and deceptive conduct under ASIC legislation, but the claims were resolved out of court once a favourable compensation regime was offered by the bank.

A senate inquiry was subsequently commenced with hearings taking place last year.

Some clients in both Mr Sheriff's and Mr Nguyen's schemes accepted compensation offers and are now bound by confidentiality, but Mr Ivantsoff said there are plenty who have not taken up those offers.

Ninety-eight investors who bought into an unsuccessful biodiesel scheme run by Mr Sheriff have been compensated to some extent, "but we are not convinced that the compensation was adequate and there may be a basis to set aside settlement agreements on a Contracts Review Act or unconscionable conduct basis", Mr Ivantsoff said.

Others who were advised into double- or triple-gearing assets, or who entered into margin loans, had not received any money.

The biggest limit to the class action is expected to lie in the statute of limitations which is six years, meaning claims before 2008 are not actionable.

smh.com.au

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