Lost money on a Margin Call? You right to Compensation could be running out!

FOR MANY OF US, the Global Financial Crisis (GFC) of 2008 is now just a distant memory.

Although for many, especially the aspirational who invested heavily in the sharemarket with their life savings and suffered significant losses as a result, if they had managed to hold on to their stocks, the recovery since then would have all but erased those dreadful memories.

Of course, the GFC was about a lot more than just the value of shares, managed funds or superannuation.

It involved loss of jobs, defaulting on mortgages, losing your home, limited opportunities for those not in full-time work, reduced wages for many others, and the horrendous emotional turmoil that accompanied the limited finances and limited opportunities imposed on families by forces completely out of their control.

To suggest that many couples separated and divorced during this period, while other individuals fell into clinical depression, and others still committed suicide when they lost everything of value in their lives, is not an exaggeration. It is a hard-core reality for too many families.

However, it may be a surprise for many of you to read that many people are still living with the impacts of this period, even now, even today.

Less well-known however has been the investors who… due to computer glitches…. were informed with incorrect Margin Call details on their online accounts, dissuading them from settling their margin loan when it should have originally been “called”.

It is at this point, given that we are now approaching the 6 year mark when many were first confronted by the shocking implications of the GFC, that some people are finally gathering enough courage to explore the details of their losses, only to find out that for some at least, these losses were not caused by their own adventurous investment practices.

For an alarming number of people, especially those who took out Margin Loans during this period, much of the blame rests on the shoulders of financial institutions who engaged in misleading and unconscionable conduct, professional negligence, and at times blatant deception.

Many people may be aware of the recent Commonwealth Bank/Storm Financial government inquiry and legal proceedings, which have been exploring one set of circumstances where financial planners encouraged unsophisticated investors to borrow huge loans in the form of Margin Loans, which they were simply ill-equipped to understand, let alone service.

Delayed Margin Calls the results of Computer Glitches or Human Error

Less well-known however has been the investors who borrowed hefty sums as Margin Loans, but due to computer glitches, human error and possibly poorly developed policies and procedures, were either not informed, or in the case of others, were informed with incorrect Margin Call details on their online accounts, dissuading them from settling their margin loan when it should have originally been “called”.

Instead, these investors were informed that they were technically in default of their loan (ie, in Margin Call), not when their LVR (Loan to Value ratio) reached 75%, as per industry standard, nor even when it was 85%, but when it exceeded 100%, and in one case that we know of being up to 120% LVR.

In short, these investors, due to the negligence of the financial institution, were led to believe for up to 6 months in one case, that their investment was safe, despite the downturn in the sharemarket.

Some margin Loans were ignored even though their LVR’s exceeded 100%

Even if these investors did not trust what they were being told, when they would log-in to their online Margin Loan account, or even their online Managed fund account, they would have been assured by the same information being published online, that they were not in Margin Call and they still maintained an LVR on or about 75%.

Months later however, during a relatively stable period in the market, they would have been shocked to receive an email or a phone call from their Margin Lender, to either advise them that they now owed the financial institutional hundreds of thousands of dollars (or more), and that their managed fund was now worth nothing.

For those who dared to ask, “why did you not inform me when I first hit 75% LVR” they would have been lucky to get an answer.

The sad truth is that many investors would have saved up to hundreds of thousands of dollars if they were informed when they actually got into Margin Call territory, as they were led to believe when they took out their Margin Loan, instead of months later and in a significantly deteriorated market.

Now, some investors were already able to pursue these claims and resolve them, and unlike the Commonwealth Bank/Storm Financials proceedings which revolve around the less cut and dry “financial advice” to unsophisticated investors, these other cases are much more difficult for financial institutions to defend against.

Statute of Limitations Soon to Expire for Victims of GFC

But here’s the rub.

Investor’s have 6 years to lodge a claim, after which you lose your rights to litigate, in some states like NSW on an absolute basis.

If the above sounds like you, here’s what options you have available to you.

Prepare whatever material you have, including any evidence that the Margin Lending provider delayed informing you that you had reached a Margin Call (usually 75% LVR), and make a submission to FOS. (http://www.fos.org.au/).

FOS is the Financial Ombudsmen Service. It is free and has a good reputation as being an impartial arbiter of such events.

It however has limits on what claims it can pursue and how much in compensation it can claim (up to $280,000), but it is a worthwhile first step to review.

Secondly, you can contact us where we can share information about the likely success of potential litigation, and explain to you our discussion on the possibilities of a class action with a number of interested legal firms, who specialize in class actions.

Whether a class action proceeds or not depends on the number of people who can come forward with similar experience of professional negligence, so if this applies to you, even if you are not completely certain, please get in touch with us quickly.

By emailing us you are not making any commitments to proceed with litigation and neither will your information be shared with any person or organization without your prior express agreement.

But if you are going to act, do it today, because the Statute of Limitations, once passed, means you lose your rights to litigate, no matter how justified you may be.

To contact us and to consider joining a potential class action, please use the following margin call – potential class action form.