Fraud and Insolvency Cases

David beats Goliath using a recorded phone call

Monday, March 01, 2010

Macquarie Bank's recorded phone calls used as evidence against them

What would you do if faced with a call on a margin loan of $160,000 from Macquarie Bank and given three working days to pay it? Over the past 12 months this has became a common situation in Australia, and around the world.

Last year one investor’s offer to meet the Bank’s call didn’t go exactly as planned and the Bank sold his shares at a substantial loss. However the Federal Court agreed that the investor’s efforts were sufficient to meet the Bank’s call. They ordered the Bank to compensate the investor. The Bank’s own recorded phone calls actually helped the case against them.

This court decision could impact every investor who uses margin lending arrangements.

Background to the case of Goodridge v Macquarie Bank Ltd and Leveraged Equities Ltd

Next time you hear the words “this call may be recorded for training purposes” it may just help you. Lawfully obtained ‘surveillance’, in this case recording of phone calls, were used in this court decision.  This type of surveillance evidence is often most useful in the detection and proof of frauds but this case was different.

In the Federal Court decision on 12 February 2010 of Goodridge v Macquarie Bank Ltd and Leveraged Equities Ltd recorded telephone conversations were used to prove an aspect of the case. The Plaintiff is a Barrister (as a litigant in person) and he decided to take on the might of Macquarie Bank and Adelaide Bank.

The main issue was whether or not the Borrower had satisfied a Bank’s “call” under a Margin Loan.

The Situation

On Thursday 5 February 2009 the Bank made a margin call upon the Borrower. This required a payment of nearly $160,000 be paid by the following Tuesday 10 February – or three business days.

The Borrower sought to negotiate an extension. The Borrower knew that 10 days after the deadline he would receive approximately $175,000 of dividends from these units. His offer was for the dividends to be paid directly to the Bank in satisfaction of the Call. The Bank verbally agreed to this offer in a phone conversation.

Recorded Phone Calls Used as Evidence

The Bank had a procedure for recording telephone calls of its customers and brokers.  Two of these recordings were used in evidence as between the Borrower and the account manager. 

As agreed the Borrower signed an authority and instruction directing the dividend from his investments be credited to the Bank. As part of a subsequent conversation the account manager told the Borrower that he had done his part and that it was “perfect”. 

For an unexplained reason this authority was not acted upon and the dividend payment was still made directly to the Borrower’s bank account. It was then transferred to the Bank by the Borrower.

His Honour Justice Rares found that this action by the investor completely satisfied the margin call based on the evidence. The Plaintiff had successfully proven this aspect of his case using the Defendant’s own phone records.

Comment by Mark Streeter Sydney Lawyer

This case is illustrative of the high value Courts give to records held in objective media. These may include film, tape of voice recording or other electronic media such as emails, Skype or SMS records.

In a Court of Law it is not enough to be right. You must be able to prove, on the balance of probabilities, that you are right.  In this situation the recorded phone calls were the proof that was needed.

However any surveillance evidence must be in admissible form. It must not be obtained illegally. Otherwise it cannot be used in a Court of Law.  In Australia there are very strict rules regulating the collection of information and data.

This case actually involved two more margin loan calls with very interesting results. See the next blogpost.

Bank told to compensate for selling shares in low market



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