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JOINT COMMITTEE ON CORPORATIONS AND FINANCIAL SERVICES
03/09/2009
Financial products and services in Australia

CHAIRMAN —Welcome. Please make your statement.

Mr McArdle —I have had massive losses realised by the Commonwealth Bank through inappropriate actions. I have prepared an eloquent and wonderful speech to give you but, given the time considerations, I think I will cut straight to the chase. I implore all members of the committee to get hold of Mr Tony Fitzgerald QC’s royal commission report into the Queensland Police Service. Do not bother reading the whole thing—you will find out that all Queensland police were dummies and that there were problems with the police service—but I implore you to read the introduction.

The problem with the Queensland Police Service, as identified by Mr Fitzgerald and by some diligent reporters from Four Corners, was one of institutional corruption, where there was a systemic problem within the culture of the Queensland Police Service that led to inappropriate alliances and inappropriate actions. Read the introduction and everywhere that you see ‘Queensland police’ slot in ‘bank’, slot in ‘financial planner’. You could take that document and drop it on the Hon. Mr Rudd’s desk and I fail to see how he could not understand what has gone wrong in this situation.

I mean no disrespect to the members here today who are aligned with the Labor Party. However, the circumstances by which this parliamentary committee was established—and I repeat, I say this with the greatest respect—were that it was brought to the Senate, I believe, by Senator Williams, although I may be wrong on that, and at that time it very much included the banks. Squarely lined up in the crosshairs were the banks. Unfortunately, the circumstances dictate that the biggest bank in Australia, our national icon of lending and financial institutions, was solely at the centre of allegations. It very quickly became a joint parliamentary committee and the banks were not part of that inquiry—certainly not to the same extent as they again are today, thanks to the Senate again assuming power and insisting that the banks be incorporated.

I am hesitant to bring it up, but I am extraordinarily interested to find out why the banks were afforded that exclusion. I am not asking the committee to comment on it today. It is merely an observation that at some level it would appear the banks have been excluded—whether it be legitimately, as a consideration of the economic climate we find ourselves in, that the greater good be served that our banks not be brought into question; whether it be because of an inappropriate alliance between the heads of our four pillars and politics; or whether it be for some other reason. I urge you to go back and read the report of the Fitzgerald inquiry and try and apply it to the financial sector. It is very, very easy to do.

I am not a friend of the Cassimatis’ and I will never be a friend of the Cassimatis’. From the moment I started through this process with my financial planner, one of the significant hurdles that my financial planner had to get me across was my dislike of the Cassimatis’. I make that point very clearly because you are going to hear from me today as a person who has examined the facts as they apply to my case and to many, many other people who have rung me and expressed the details of their situations. You will be fully aware, as you have heard them repeatedly for the last few days.

Unlike some of my colleagues who appeared early this morning from the financial planning industry, I do not get my information from newspapers. I am a Queensland police officer who attends major crime scenes on a regular basis and I know that newspapers are not accurate. As a result, the information that I will pass to you today I pass to you as honestly and as succinctly as I can. You will note from two of my four submissions that you have received so far that you have a treat coming on 7 September. I have oath acted each and every one of my submissions that they are true and correct. I give evidence in court regularly. If I am found to be untruthful not only have I lost my investments through this debacle but I will lose my career. I have not and will not lie to this committee. I will not attempt to deceive you in any way.

That being said, the second thing that I would ask you to do is to have a second look at the Commonwealth bank’s submission and note what I believe may be Mr Norris’s signature that appears at the end of the index. He must be extraordinarily proud that the index is truthful and accurate of what is about to follow. He does not sign the end of that document. No-one from the bank has signed the end of that document. In legal terms no-one can be held accountable for the excrement which is smeared liberally throughout the document. I apologise for the crassness of the comment, but I have spoken to suicidal people for eight months; I have nursed my wife through a suicidal episode for two months. I have contractual agreements with my bank, who determined that it is fine for them to apply their own interpretations, adding whatever words they need necessary to make the interpretations fit, and then ending the conversations with, ‘If you don’t like it, sue us.’ This is to a person who for 18 years has been a cash cow for the banks.

I have been described as one of the Storm people, as a greedy investor. I copped it again today. I will set the market straight: my sole goal was to ensure that my wife and I did not have to struggle on a pension provided by the government in our old age. The reason that is such a strong tune with me is that I watched my mother do it. I watched a woman who was unable to get medical insurance because of her illnesses have to go through the public hospital system. We are a lucky country but we need to take responsibility, each and every one of us, for our futures. That is what the Storm clients were doing. Make no mistake about it; they were taking responsibility for their financial future. Something has gone cataclysmically wrong, and I do not envy your position because now it is up to you to try and identify what has gone wrong and recommend politically palatable solutions that may prevent this having to be addressed again. The importance of that is that every single person from now on, whoever holds a job, is going to get a superannuation cheque. They may have to go to a bank and get advice about what to do with that. It might be 60 years down the track or it might be 15. Thank you, Mr Ripoll.

CHAIRMAN —I need to inform you that you have made a number of statements which I consider inaccurate. I would consider them to be not correct. They do not reflect the conditions of this inquiry, nor the circumstances of this committee. You are entitled to your views, but they do not necessarily reflect fact. I just need to inform you of that. You have obviously had a bad experience, as have a lot of people, with your involvement with Storm. I am not sure what more I can ask you. You made a lengthy and detailed submission and we appreciate that. It is good information and good evidence for the committee, and we will be working very hard to use your evidence, your circumstances and your submission to try and deal with the terms of reference and what we have been chartered to do: (a) to try and find what actually did take place, (b) to have a record of fact concerning things that took place rather than just a range of views and (c) to make recommendations that we believe will go some measure towards having a better system.

Mr ROBERT —You indicated in your statement that your margin loan went from $2½ million to $3 million without your concurrence. Is that correct?

Mr McArdle —Yes.

Mr ROBERT —How did that happen?

Mr McArdle —I do not know.

Mr ROBERT —Did you give Storm Financial any authority to borrow on your behalf?

Mr McArdle —No.

Mr ROBERT —So there is nothing in the Ts and Cs that you are aware of? You are a forensic policeman, so you are used to reading Ts and Cs.

Mr McArdle —No.

Mr ROBERT —Then the only way would be that they made a loan on your behalf without your concurrence, which may be fraudulent—

Mr McArdle —Yes.

Mr ROBERT —if there is no way that you approved it or signed it, there is nothing in the Ts and Cs that gave them the authority and there is nothing written down that they can present showing they have authority to make a loan on your behalf.

Mr McArdle —If I may remind the committee, this was only less than a year ago. I am very, very clear that no authority was given to Storm Financial and no authority was given to the Commonwealth Bank or any of its subsidiaries.

Senator WILLIAMS —You say you are very clear on that, Mr McArdle. In your profession, have you kept diary notes, documents and every piece of correspondence right throughout your whole Storm investment?

Mr McArdle —Pretty well, yes.

Mr ROBERT —You indicated that when you were first contacted by CML on 8 December, Angus Cameron stated your securities had been seized and sold and you had a 126 per cent loan-value ratio. Prior to that, did they let you know that you had hit the LVR which you had nominated?

Mr McArdle —Prior to that day, I had had no contact with CML, Commonwealth Bank or CGI directly in any format.

Mr ROBERT —On the forms or documents you signed with Colonial Margin Lending or a lender before that, what did the Ts and Cs say with respect to whose responsibility it was for making a margin call and who would contact whom?

Mr McArdle —The Ts and Cs, which I have a copy of here if you would like them, are very clear in that there is an orthodox relationship between Colonial Margin Lending and you, the client.

Mr ROBERT —That is point 4.2, I think.

Mr McArdle —It goes right through and it is repeatedly stated throughout the document a number of times. Section 4.2 includes: ‘In the event of our providing you’. That is an example of the type of language that was used. It also mentions providing ‘you or your adviser’ with margin call advice in any number of ways.

Senator MASON —‘You’ being Sean McArdle?

Mr McArdle —If we go to the definition of ‘you’:

you or Borrower means the person who borrows money from us, whose details are set out in the Application Form. If there are more than one, you means each of them separately and every two or more of them jointly.

Mr ROBERT —Did Storm Financial contact you regarding the LVR when it was breached?

Mr McArdle —No.

Mr ROBERT —Why do you think CML breached its own guidelines in not informing you as per 4.2 of their Ts and Cs?

Mr McArdle —I believe it was a deliberate strategy.

Mr ROBERT —For what reason?

Mr McArdle —I was contacted by Angus Cameron on the 8th. He told me I had a margin call. I said, ‘Okay. How much money do you want to correct it?’ I mistakenly believed that this was my margin call. He told me that I was sold out approximately two weeks earlier and that it was too late.

Mr ROBERT —So you are saying that they did not, as per their Ts and Cs, contact you when you had breached the LVR and they actually called you on the 8th to say, ‘You’ve been in breach and, by the way, we’ve sold you up.’ That is outrageous.

Mr McArdle —It gets better! Again, at the risk of offending anybody, I suspect from what I have been reading and following that you people have been hearing over the last three days a heap of symptoms. They are symptoms, not a cause. We had a bank that was in negotiations with a financial planner on the 4th and the 5th. From the 6th, I have copies of scripts that were printed out—I have pages 28 to 34—which directly related to what CML staff were to tell Storm clients the following week when they rang them up, which was, ‘This is all Storm’s fault. It is nothing to do with us. It is all Storm’s fault and’—for the privileged few like me—‘by the way, you owe us a substantial amount of money because not only did we not advise you of your margin call but we didn’t sell you out and you are now in negative equity and you owe us money.’

Senator MASON —This was an orchestrated response; is that what you are saying?

Mr McArdle —These were scripts that were typed out for the staff to use to respond to clients. I would like to publicly thank Mr Angus Cameron from CommSec. He was recruited across and happened to get my number. He was a very patient, diligent and, I believe, too-honest-for-his-own-good person. He told me that there were 200 high-value—the bank’s term, not mine—clients. If I am at the base of that list of people, we are talking low millionaires up to people with significant sums of money invested—$15 million, $18 million or $20 million. None of those people were advised of their margin calls. Lots of those people have ended up in negative equity. The significant thing about negative equity is that it makes it very hard to walk into a solicitor’s office because you would have to say, ‘I’ve got a problem with my bank; would you like to do some pro bono work for me?’ Why would the bank do that? I have never missed a repayment. In 18 years with the bank, I have never missed a repayment and never been late for a repayment. The only problem I had with the bank was once they cleaned out my account.

Senator MASON —I have a process question. Mr McArdle, did you nominate your LVR? What was your nominated LVR?

Mr McArdle —My LVR was nominated at 90 per cent.

Mr PEARCE —I just want to go to your submission, Mr McArdle. You say in the introduction of your submission:

Storm Financial have misled the McArdles into participating in an investment strategy by misrepresenting the exposure through the margin lending component of the product.

Can you share with the committee what that misrepresentation was.

Mr McArdle —I had a longstanding relationship with my adviser prior to Storm coming onto the market. He moved across to Storm and then he approached me. From the beginning of our relationship I had made it quite clear to him that, as a result of an experience when I was a 20-year-old lad at Mooloolaba, I did not like margin loans. I was not comfortable with them. I did not know anything about them. I did not want to have anything to do with them. We started working through the issues. Repeatedly, when I would raise questions over an eight-month period of due diligence, the biggest bone of contention was margin lending. During that whole time my adviser failed to mention to me that if you get a margin call and do not respond you are going to lose everything and be catastrophically left in debt. If he had, I may have been a little reluctant to sign up. That sounds like a smart-arse statement, I know, but the fact of the matter is that if my adviser had fully informed me, through accurate statements, of the potential for a margin call I would not have signed up.

CHAIRMAN —Mr McArdle, you are saying you were completely deceived by your adviser?

Mr McArdle —I am saying that by not telling me things—

CHAIRMAN —You were deceived by your adviser.

Mr McArdle —Yes, by not telling me things.

CHAIRMAN —Do you believe he knew he was deceiving you? Obviously, he did not tell you that you were getting a margin loan. I need to ask the question.

Mr McArdle —I know. I was not pulling that face at you. Like a lot of other people in this room, we had a relationship with our adviser. I would like to turn around and say, ‘No, I don’t think he did,’ but the bottom line is that he knew what we were getting into. He was a financial planner.

CHAIRMAN —He must have known.

Mr McArdle —If you look at the beginning of our first submission you will see that it has been revealed that my accountant was called into one of the meetings by me. I called my accountant in. I later found out that he received $10,000 from my financial adviser.

CHAIRMAN —But he never disclosed that to you?

Mr McArdle —It was not mentioned at the time. He was there at my insistence to find out whether this was a suitable strategy. I had some concerns about the strategy, but they were put to rest over and over again.

Mr ROBERT —Did your accountant disclose that in writing?

Mr McArdle —No.

Mr PEARCE —I just want to go back to the submission. In your submission, under part 1, you talk about an experience—I am going to abbreviate it, if I can—where you applied for some margin loans through some branches of the bank.

Mr McArdle —Yes.

Mr PEARCE —You were given approval at a certain level. I think was $350,000.

Mr McArdle —Yes.

Mr PEARCE —Then, if my memory is right, very soon afterwards you were told by somebody that you could actually have $1 million.

Mr McArdle —Mr Pearce, I was so reluctant about the Storm product that I went around to multiple other financial advising firms and individuals, seeking their advice—not about Storm but about what they could offer me. I was going to leave my financial planner of seven or eight years. As part of that, I went to the Toombul branches and the Virginia branches, which are both branches in the northern suburbs of Brisbane. I gave them the same pay slips, the same tax returns and the same group certificates as I provided to Storm—not similar ones, not copies, but the same ones. I said, ‘What is the maximum amount you will lend me?’ To his credit, James Lowe, the lending manager from Toombul branch, made the mistake of forwarding a formal application through to the bank. That came back saying, ‘We will give Mr McArdle $350,000 because, despite being asset rich, you are income poor,’—policeman’s salary and all that. Very shortly after that, very shortly, I had in my hand clear-cut advice from my adviser that the Commonwealth Bank—the same bank—was going to give me a million bucks. I asked what the difference was—

Mr PEARCE —Did you apply for that, or was this mentioned one afternoon or something?

Mr McArdle —The loan?

Mr PEARCE —Did you actually apply through Storm for a margin loan?

Mr McArdle —Eventually I did make an application through Storm. But, prior to that, my adviser had said, ‘We will get you a million.’ I questioned that. I said, ‘How come if I walk in off the street I can only get X amount; yet you guy can get nearly three times that amount for me?’ The answer was very clear: the reason was that the relationship between Storm and the CBA was so strong. I have found the document that I was looking for. That will show James Lowe from the Turnbull branch doing the appropriate thing and coming up with a $350,000 loan and on the back is the $1 million loan from Storm—which was very shortly afterwards. If you would like to look at that document, it is readily available.

Senator McLUCAS —You have researched very well. You seem to be a very well-informed user of financial services. Why did you sign with Storm?

Mr McArdle —I kept going back to my adviser with my problems and saying, ‘What about this?’ and ‘What about that? These figures don’t add up,’ and they would allay my concerns—and therein brings my solution as to how we can avoid at least the retail client and the financial adviser’s problem. We talk about duty of care. Do not even consider that financial advisers are more reputable than Queensland police officers. Do exactly what Tony Fitzgerald suggested: if it is not independently corroborated, it did not happen; it was not said. It is a very simple process to record conversations and download them to a website that ASIC would monitor. It would be perfectly confidential and secure and would give ASIC the ability to save an enormous amount of travel costs if they were able to do remote auditing. It would also give us the ability to monitor ASIC’s performance in relation to the auditing of their financial advisers.

CHAIRMAN —Mr McArdle, thank you very much. I do understand that people may get a bit confused about timing issues. We have cut out half the lunch and we have cut out breaks. We are trying to fit in as much as we can. We really do not want to cut people off, but we have another witness and we have flights that we have to catch and the committee has to travel to the next hearing. Mr McArdle, thank you very much. We have really appreciated your evidence.

[4.13 pm]