Brokerage firm International Capital Markets is firmly in the sights of legal firm Piper Alderman for a potential class action over allegations that it was responsible for CFD trading losses collectively worth hundreds of millions of dollars to everyday Australians.
Piper Alderman notes that CFDs have been described by the Federal Court of Australia as ‘financial heroin hits’ in the hands of unsophisticated retail investors.
The law firm has team up with litigation funder Woodsford to explore the potential for a class action which will allege that investors suffered losses in circumstances where IC Markets did not adequately assess their objectives, financial situations and where the risks of investing were inadequately disclosed.
“It is anticipated the class action will advance allegations of unconscionable conduct and misleading and deceptive conduct during the period September 2017 to March 2021,” Piper Alderman says.
CFDs (contracts for difference) are controversial financial products that are legal in Australia but have been banned in some countries.
In recent years they have come under scrutiny by the Australian Securities and Investments Commission (ASIC) which in 2021 tightened conditions around the issue and distribution of CFDs to retail clients.
The ‘leveraged’ financial product enables investors to take a position on the movement of an underlying asset – such as a share, a share price index, a commodity, a currency or even a crypto currency – without owning the asset itself.
The investor pays only a fraction of the underlying asset’s value and bets on whether the asset will increase or decrease in value.
“Everyday Australian retail investors who had little or no experience in trading complex financial products should never be offered highly-leverage CFDs,” says Piper Alderman partner Kate Sambrook.
“The class action seeks to provide a remedy and recover losses for those retail investors.”
ASIC launched a crackdown on CFD trading in 2021 with a product intervention order that imposed strict new conditions on CFDs to protect inexperienced investors.
The move followed reviews by the regulator that found 72 per cent of retail clients who traded CFDs lost money.
“Prior to this intervention an investor’s losses could far exceed the amount of their initial investment,” says Piper Alderman.
“According to ASIC, close to 70 per cent of clients who traded CFDs earned an annual income of $80,000 or less.
“In recent years, ASIC has also successfully brought proceedings for breach of the Corporations Act against a number of CFD licensees operating in Australia, with penalties awarded in excess of $75 million.”
Piper Alderman is encouraging investors who suffered losses through trading CFDs with IC Markets, and who feel that their objectives and financial situation were not considered, to register their interest in the proposed class action.
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