Storm Financial's founder has denied the failed advisory firm justified its large upfront fees by promising clients ongoing monitoring of their investments.
Managing Director Emmanuel Cassimatis this morning took the stand for a second day of questioning in the Federal Court in Brisbane.
Liquidator Worrells is using the court examination to gather more information about the failed company, which was wound up in March with debts of about $80 million.
The court has heard the Townsville-based business advised clients to take out margin loans to invest in the stock market, which took a battering in the global downturn last year. The value of investments in some cases dropped below the loan amount.
Mr Cassimatis yesterday told the court computer software developed by Storm's research arm, Ignite, could not easily produce a list of clients whose loans were reaching margin call territory - when the banks should have warned investors some of their stock could be sold to improve the loan-to-value ratio.
Worrells lawyer Craig Wilkins this morning asked Mr Cassimatis to read from the company's prospectus which he said promised clients regular monitoring of their investments using "purpose-built" software.
However, Mr Cassimatis said it was up to the lending banks to issue margin calls to investors whose loan-to-value ratios had reached trigger levels.
"What's in the prospectus is subject to data coming to us. If the data is unavailable for whatever reason, then things break down," Mr Cassimatis said.
"We were not a margin lending business and we did not have the desire nor the capacity to completely manage the loans.
"An adviser could confront a client or a client could confront an adviser and the information about LVRs (loan-to-value ratios) would be there."
Mr Cassimatis was also quizzed about the minutes of a board meeting in October 2007 in which the risk of a "business downturn" was discussed. The minutes stated a sustained share market downturn would "inevitably come" and affect Storm Financial's business strategy. The minutes said careful monitoring of investments and loans would be undertaken, the court heard.
The questioning of Mr Cassimatis has now been adjourned to next month, and his wife and fellow Storm Financial Managing Director Julie Cassimatis has taken the stand.
One of the first questions she was asked was whether the company was ordered to be wound up in March.
"I believe so," she said.
The hearing continues.
