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Sydney-based law firm Banton Group has announced its intention to file a class action against UK-backed IG Markets Limited for enabling consumers to trade in contracts for difference (CFDs), through a claim that will compete with an existing proceeding put forward by Piper Alderman and legal finance firm Omni Bridgeway (ASX: OBL).
Banton states it is in advanced investigations into potential class actions against one or more platforms that facilitate CFD trading, involving leveraged financial products whereby an investor pays only a fraction of what the underlying asset is worth and speculates on whether it will go up or down in value.
The anticipated class action will allege that any companies included and their authorised representatives contravened various provisions of the Corporations Act 2001 and the Australian Securities and Investments Commission (ASIC) Act 2001, each giving rise to claims for damages by their retail clients.
Only IG Markets has been specifically slated as a target of legal action for now, although other companies under the law firm's microscope include eToro, Pepperstone, International Capital Markets, Plus500 AU, Vantage, City Index, CMC Markets Asia Pacific Pty Ltd and BlueBerry Markets. The law firm has not yet indicated whether any of these companies will be subject to any allegations.
"Typically in respect of competing claims, a carriage motion will be brought before the court and the court will determine which of the competing arrangements is in the best interests of group members," Banton said in a statement regarding its proposed IG Markets class action.
"One factor which will be a significant consideration for the court in respect of any carriage motion is the funding cost and the amount of any compensation the group member will receive.
"Considering Banton Group’s leading market knowledge on funding arrangements, Banton Group anticipates that its funding model will be the cheapest, ensuring that its group members receive the greatest returns."
Banton Group notes that reviews conducted by ASIC in 2017, 2019 and 2020 found most retail clients lost money trading CFDs and during a particularly volatile five-week period in March and April 2020, the retail clients of a sample of 13 CFD issuers made a net loss of more than $774 million.
In the 18-month period from 1 April 2020 to 30 September 2021, the corporate watchdog reports that retail clients lost over $3 billion on CFDs.
ASIC proposed a product intervention order, which was eventually adopted and was commented on by Justice Beach after making his 2020 decision in ASIC v AGM Markets which involved penalties.
"But what I can say is that if such measures had been in place, most of the egregious conduct and its consequences that was exposed in the present case would in all likelihood not have occurred," Justice Beach said at the time.
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