The Government must make access to companies securities registers more difficult, prescribe minimum disclosure requirements for unsolicited offers and force those making unsolicited offers to keep them open for a reasonable length of time if low ball offers to unsophisticated investors from the likes of Bernard Whimp are to be thwarted.
So says Chapman Tripp partner Roger Wallis in a submission to Parliament's Commerce Select Committee on the Financial Markets (Regulators and KiwiSaver) Bill.
"Until the law is tightened, the sharks will keep circling," says Wallis.
He maintains Chapman Tripp has long been concerned about the comparative ease with which third parties can get copies of New Zealand security holder registers for improper purposes, with the most common use being for unsolicited direct mail offerings on unrelated financial products.
In the wake of Christchurch man Bernard Whimp's Christmas holiday offers to shareholders in at least seven listed companies - Vector, Contact Energy, Telecom, Fisher & Paykel Appliances, TrustPower, Guinness Peat Group and Fletcher Building - at prices about 30 per cent below market value, Wallis says urgent action is needed.
This could be done through amendments to the Financial Markets (Regulators and KiwiSaver) Bill, which will among other things establish the new regulator, the Financial Markets Authority.
Wallis says the amendments should:
- Enable regulations to be made prescribing minimum disclosure requirements for unsolicited offers, especially where there is a market price for the securities, the market price should be unambiguously stated.
Furthermore, any other unusual terms of the offer, such as instalment payments being made to the seller over 20 years, should be prominently and clearly stated.
"He (Whimp) targets smaller shareholdings and puts investors under time pressure, urging them to 'act now' as it is a 'first in first served' short notice offer. He does not quote the current share price in his letters, and he finds his mark."
- Unsolicited offers should have to be open for a reasonable time period - at least 21 days - to allow investors to properly consider the offer's merits without being coerced through "first in first served" offer terms.
- The Minister of Commerce Simon Power should direct officials to review the fees prescribed for security register access.
Issuers can currently charge up to 20 cents per printed page but can't refuse a request to access the securities register even if they know it's for an improper purpose. They must provide information about shareholdings within five working days.
- Include a regulation making power in the Bill to enable consultation on the detailed disclosure requirements and give flexibility to amend the requirements as unsolicited offerer practices evolve.
Whimp, who Wallis notes is doing nothing illegal, made more than NZ$300,000 from Vector shares alone.
Vector chairman Michael Stiassny has written to shareholders who sold to Whimp telling them they can review their decision to sell because of incorrect or incomplete information on the share transfer forms. However Whimp told the NZ Herald last week this wasn't the case.
Whimp's offers come as concern grows that infamous Australian predatory offerer David Tweed may target New Zealand investors after Australian laws were recently strengthened.
And it follows a series of low ball offers from Australian firm Stock and Share Trading Company Pty Ltd for the finance company debentures of in-receivership companies including Strategic Finance and St Laurence last year which led to Securities Commission warnings to investors to be cautious of any unsolicited offer to buy their investments, especially when the offer is well below face value.
This article first appeared in the NZ Herald on 14 February 2011.