This was published 13 years ago
CWA Global investors say they were never told of extra charges
By Stuart Washington
THE derivatives broker CWA Global never disclosed the company's in-built charge of 25 cents for every dollar of risky financial product it sold, a former customer said yesterday.
A South Australian investor, Andrew Smith, said a review of his trading documents only showed $5 fees for brokerage had been charged, with no other disclosure about charges.
''It was never, ever mentioned,'' Mr Smith said.
Mr Smith is among angry investors who have sustained heavy losses trading with CWA Global.
Slater & Gordon announced yesterday it would be investigating claims against CWA Global with a view to a possible class action by investors.
On Monday the Herald revealed documents, phone tapes and interviews with former staff showing CWA Global acted with apparent disregard to its clients.
In a 2007 phone call, the managing director, Peter McGuire, told his top broker, Ben Howarth: "Can you spend whatever you have got in your [customers'] accounts?"
Slater & Gordon's practice group leader, Van Moulis, said the law firm was investigating whether CWA Global's clients had received appropriate advice.
"Their profiles mean that the products they were put into were totally inappropriate; the professions are fitters and turners, carpenters and retirees," Mr Moulis said.
A CWA Global director, Keith Cullen, said in a statement on Wednesday: "CWA vigorously rejects any suggestion that it has a culture that has anything but the best interests of its clients at heart."
Mr Cullen said customers were always reminded they should seek independent advice as they saw fit. It was their decision alone to trade.
''At all times we advise clients that our recommendations are general in nature,'' he said.
The Herald has also revealed a pricing structure for the business's "warrants" that involved an exchange traded option price, which was then multiplied by 1.25 to give the price charged to the customer.
In its product disclosure statement, CWA states: ''Our profit margin is built into the terms of the warrant pricing, which is unknown prior to the date of issue, and cannot be properly determined until all related transactions are closed or have expired.''
A former CWA employee said yesterday brokers regularly explained the charge being deducted from the face value of the warrant as "time decay".
"Time decay isn't the issue because it's a natural part of an option product," he said.
"The issue is what CWA was doing was [with] the margin they in-built into the product.
"The brokers' explanation was basically a smokescreen - you could talk about volatility, you could talk about time decay; you would not talk about the margin."
BusinessDay has obtained a document sent to purchasers of warrants which explains why warrant values change, including time decay and its absolute value. It does not mention the margin within the product.
Mr Cullen said yesterday: ''Time decay is not used as a way of disguising anything.''