IC Markets subject of potential class action
Online retail foreign exchange broker IC Markets has been hit with a potential class action after Australian investors allegedly lost an expected $500 million collectively.
Piper Alderman has today (27 November) launched a class action against International Capital Markets Limited (IC Markets) following the trading of “controversial financial products”: contracts for difference (CFDs).
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The class action will allege that investors suffered losses in circumstances where IC Markets did not adequately assess its objectives, financial situations and where the risks of investing were inadequately disclosed. The proposed claim is being funded by Woodsford.
According to the firm, a CFD is a “leveraged” financial product that 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 cryptocurrency – without owning the asset itself. The investor pays a fraction of what the underlying asset is worth and bets on whether the asset will increase or decrease in value.
While CFDs are legal in Australia, they have been banned in other countries – and the Federal Court of Australia has described these products as “financial heroin hits” in the hands of unsophisticated retail investors.
In March 2021, the Australian Securities and Investments Commission (ASIC) imposed strict new conditions on CFDs by way of a product intervention order to protect retail investors after a review by the regulator found that 72 per cent of retail clients who traded CFDs lost money over a 12-month period. Prior to this investigation, investor’s losses often far exceeded the amount of their initial investment.
According to ASIC, close to 70 per cent of investors 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 of more than $75 million awarded.
Piper Alderman partner Kate Sambrook said that these “everyday” investors should not have been offered CFDs by IC Markets.
“Everyday Australian retail investors who had little or no experience in trading complex financial products should never be offered highly-leverage CFDs without a proper assessment of their objectives, financial situation and without proper risk disclosure,” she said.
“The class action seeks to provide a remedy and recover losses for those retail investors.”
The class action alleges IC Markets engaged in unconscionable conduct and misleading and deceptive conduct during the period December 2017 to March 2021, in addition to breaches related to its target market determination after October 2021.
Individuals who have suffered losses through trading CFDs with IC Markets during that time have been encouraged to register for the proposed class action.