One of Australia's richest men, Andrew Budzinski, faces a class action over allegations that he and his company, IC Markets, misled thousands of everyday investors who may have collectively lost hundreds of millions of dollars trading in risky financial products.
Echo Law filed a class action against Mr Budzinski and IC Markets in December, expecting that thousands of investors who lost money trading the products – known as contracts for difference (CFDs) — could come forward.
CFDs are financial products that allow people to trade on how much assets – such as cryptocurrencies, shares and commodities – will increase or decrease in value.
They are illegal in the United States and Hong Kong but can be traded in Australia, although the corporate regulator imposed strict conditions on these products in 2021.
The class action alleges that, by offering these highly risky and unsuitable financial products to retail investors (before the ASIC restrictions came into force on March 29, 2021), IC Markets engaged in misleading, deceptive and unconscionable conduct.
IC Markets was in 2007 founded by Andrew Budzinski, who in 2022 ranked number 50 on Australia's Richest 250, worth $2.5 billion.
The 49-year-old has grown his fortune from foreign exchange and cryptocurrency trading.
IC Markets has its headquarters in Sydney, although Mr Budzinski now reportedly lives in a luxury marina on the southern coast of Cyprus.
IC Markets reaped almost $1 billion in net profits in three years and court documents, lodged by the applicants, state that Mr Budzinski paid himself at least $939 million in dividends through his holding company Bud Corporation.
These constituted 99 per cent of the profits made by IC Markets in the three years to September 30, 2020, the documents state.
The allegations against the company covered investors who acquired CFDs with IC Markets between December 2017 and March 28, 2021.
The court documents allege Mr Budzinski maintained "extensive control and management over, IC Markets's operations and business; and considered himself to be the 'owner'."
The court documents also include emails Mr Budzinski sent to employees of the company in 2022, after the period of the alleged conduct, suggesting the money paid by IC Markets to its staff was "his" money and threatening to not pay staff their wages.
The court documents state that on February 16, 2022, Mr Budzinski sent an email stating "the company does not employ faggots (gay people) … I pay your wages and that of others and I would fund the lifestyles of faggots … Why did you not inform me that you had intended to offer a gay a job who was subsequently employed and has now been terminated" and that he was disgusted "that my money has been given to such a human being."
They also state that in September 2022, Mr Budzinski directed IC Markets not to approve or pay any wages to employees in Australia pending his review of the employee's performance.
Mr Budzinski's direction, according to the court documents, was: "Payroll approval. Just a reminder that all employee payroll is to come past me this month for approval for all offices, including AU. Four employees will have their pay withheld until such a time they complete the task assigned to them in a professional manner, these people know who they are. Upon satisfactory completion of the assigned task, their pay will be released. This is not a threat. THIS WILL HAPPEN".
An IC Markets spokesman told ABC News: "The claims in this case are entirely meritless and will be vigorously defended."
It said its "CFD products have consistently complied with all regulations, and we pride ourselves on providing efficient, honest and fair services to our clients".
"This case is simply the latest in a series of copy-cat class actions against, it seems, any and all CFD brokers in Australia, driven by plaintiffs' lawyers and litigation funders," the spokesman said.
"It has absolutely no bearing on our current operations and will have no impact on our clients or our broader business."
CFDs 'akin to gambling'
Idil Mohamud, senior associate at Echo Law, said retail investors who acquired CFDs with IC Markets between December 2017 and March 28, 2021, could learn more about the class action and register their interest.
"CFDs are highly volatile and have historically been highly leveraged products, exposing investors to rapid losses," she told ABC News.
On March 29, 2021, corporate regulator the Australian Securities and Investments Commission (ASIC) issued a product intervention order imposing strict conditions on providers to protect retail investors.
The limits followed a series of ASIC reviews in 2017, 2019 and 2020 finding most retail clients lose money trading CFDs, noting that they are "confusing" along with characteristics "akin to gambling".
In documents filed with the Federal Court, covering a three-year period before the ASIC restrictions came into force, it's alleged that IC Markets set "the buy and sell price for its CFDs in a way that was not transparent to retail clients".
It states that the company sold "highly leveraged CFDs to retail investors that were complex, highly risky and unsuitable for those investors".
The company's website and operating platform "facilitated poor decision-making and encouraged continuous trading, notwithstanding significant or repeated losses".
IC Markets, the applicants allege, "made it easy for retail investors to open an account and start trading; emphasised the ease and quickness of trading and minimised the risks".
The company, it's alleged, "used language that made new users feel comfortable, such as representations that users could 'trade with the world's largest Forex CFD provider' and 'trade with the most trusted CFD provider in the world' and did not contain prominent warnings of the risks of CFDs."
ASIC's August 2019 review found CFDs were generally marketed to and traded by retail investors, of whom 70 per cent earn an annual income of $80,000 or less.
After ASIC imposed new rules around the issue and distribution of CFDs in 2021, investor losses were curtailed.
Immediately after the new rules were introduced, losses plunged to an average of $33 million per quarter, well below the average $371 million per quarter in the year prior.
ASIC has successfully prosecuted three cases against CFD providers AGM Markets, OT Markets and Ozfin for breaching the Corporations Act after Federal Court judge Jonathan Barry Beach in October 2020 handed them a combined penalty of $75 million for "engaging in systemic unconscionable conduct".
Judge Beach at the time had described CFDs as "financial heroin hits" sought by unsophisticated investors.
Investors 'still picking up pieces of their life'
Ms Mohamud said the investors in their class action were impacted before the ASIC limits came into force.
She said one of the investors the law firm was representing had lost about $50,000 and was financially devastated.
"The investors were not being properly informed about the nature of the transactions," she said, noting tens of thousands of investors potentially lost hundreds of millions of dollars during the period and that many of them traded with debt such as credit cards.
"They're still picking up pieces of their life … and still servicing the debt they incurred," she said.
She added that while some investors felt shame and guilt for investing with IC Markets, "they didn't know the odds were stacked against them".
The company does make investors carry out a questionnaire when they invest but the court documents allege IC Markets did not take sufficient steps to warn people of the risks they faced.
Lead applicant Nathaniel (who has asked that his surname not be used) says he doesn't feel he was adequately warned of the risks.
He was 26 at the time of the investment.
In early 2020, he had been temporarily stood down during COVID lockdowns from his job as an assistant director in the film industry.
He says in October 2020 he lost $10,600 because of acquiring contracts for difference via the IC Markets trading system.
While he had some experience in trading corporate stocks on the ASX, he says he "within two and a half weeks, the money I invested pretty much disappeared — around 90 per cent was wiped out."
Nathaniel says had there been clear warnings before he invested about the risks of the trade, he wouldn't have jumped in.
He was watching an IC Markets trader he was following on a Facebook group, which he thought was reputable.
This trader, Nathaniel says, had appeared to over a 30-day period double his money, and many others in the Facebook group were also making investments with IC Markets as a result.
"We set it to copy someone's trades actions," he says.
"I watched and waited for a month before jumping in — you'd be a fool to jump in straight away on a whim.
"I figured that it was an account that was doing well and ... took that as a sign."
But Nathaniel feels he was misled into joining a platform that he thought was safe and regulated.
He says he lost part of the deposit that he'd saved to buy a home with his girlfriend at the time.
"Financially, it was a hit. Emotionally, it was very distressing. It had an impact on my relationship at the time. Because it's a lot to lose.
"It would be nice to get (the money) back."