30/07/2012

Investors should be warned that Trio and Storm and Westpoint-type disasters could happen again.

Although we welcome the full report of the PJC on its Trio inquiry. We do not believe that regulators or Government fully understand the potential for another fraudulent MIS offering in the future.

There has been no real change to rules making early detection and pre-emptive enforcement easier against flawed schemes or fraudulent management. Awareness and action after the fact are swifter than earlier times but I can’t see evidence that early enforcement is materially tighter or more effective.

Ripoll’s reviews of Storm and advice processes etc has built better investor protection around making class actions easier to mount AFTER the event has happened. This is laudable but truly having legislation that would stop it happening again by malicious advisers is not yet a reality.

It is worth remembering that Storm clients had full documentation outlining all the risks associated with growth assets/gearing but this did not protect them. Advisers were involved in recommending Storm services but there was no protection for their clients from regulators.

Please don’t think that ‘Fee for Service’ will automatically end the rorts offered by some commission-based schemes of the past. Unreasonably large fees for the service provided are still possible.

If you have any questions in relation to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.