Low-ballers busy as brakes go on

16:00, Sep 30 2012

Australian opportunists continue to make hundreds of thousands of dollars ripping off mainly elderly, unworldly investors through cheeky low offers for their shares.

They remind me of the street-smart character in 1940s Dunedin who sold a car though it lacked an engine. He took his victim - after buying him a beer - in a cable car to the top of Dunedin's High St. Getting behind the wheel for the test drive he assured his victim he would find the car “an amazingly quiet runner”. It was.

It soared down the steep bits of the lengthy downhill street.

When it slowed on the flatter sections, he explained he was demonstrating how good the brakes were. At the bottom of the hill, over a few more drinks, the deal was done.

Similarly, Adelaide lawyer John William Armour, his company Stock and Share Trading Pty Ltd, and his Auckland representative Andrew Kennedy of Prudentia Law, must be causing much distress among people who accept their unsolicited offers for their shares, who subsequently find their offer wasn't nearly as good as it looked.

These lawyers are making substantial sums of easy money through their low-ball offers, from widows, beneficiaries and others who lack financial knowledge: innocents who accept misleading official looking documents for their shares and bonds for far less than the true value.


These gentlemen are currently offering $2.30 for Rural Equities shares that sell on the market for $3.25. In an earlier raid they pocketed $90,000 after buying 100,000 shares and reselling them immediately.

They are deliberately targeting Rural Equities and Rangatira which are not listed on the NZX, and Fletcher bonds, where shareholders will find it harder to locate their market prices. But they are also going for bigger prey, like energy company Vector where so far they've convinced 300 shareholders to sell their shares for a fraction of the $2.85 they are really worth. So far they've made more than $100,000 after 737 Tower shareholders sold in a similar cheeky offer.

In this part of the world “low-ball” is associated with shares but Google has endless warnings in the United States, where it relates to home sales.

Since the 2008 global financial crisis, opportunists have offered extremely low prices for family homes: paying up to $350,000 less than market value.

Sellers tend to be people who have lost their jobs and don't know what their properties are worth, and an immediate cash sum looks attractive to solve immediate headaches.

Stock and Share Trading emphasises it is within the law, which it is. Even the Dunedin conman might have got away with his sale if he had faced a court, by pleading he “forgot” to mention the car didn't have an engine. The buyer did end up with a car even if it would only go downhill.

The headache for those trying to protect less worldly folk is that you can't pass laws to stop people offering to buy things for less than they are worth. It happens on Trade Me every day.

Even so, there is widespread revulsion at the activities of low-ball share buyers, like Messrs Armour and Kennedy, who seek to exploit ill-informed investors by using a loophole in rules surrounding share registries.

The Financial Markets Authority tells companies they cannot refuse to release their shareholders' names and addresses if asked in writing.

Hopefully, the sudden spate of offers may be because the easy money is coming to an end.

Commerce Minister Craig Foss says regulations to rein in these offers should be in place by the end of the year. While he has not been specific, reading between the lines of a series of confusing statements it appears these will give companies the power to refuse requests for share registry details if they suspect they are being sought for an improper purpose such as an unsolicited offer. This would bring New Zealand belatedly into line with Australia which was plagued by companies ripping off investors.

Since December 2010 anyone seeking share registry details there must explain why.

Companies can refuse to release shareholders' names if they believe the applicants plan to make an unsolicited offer. Our Government has been lobbied by powerful corporate interests to make this change, including from share registries and companies that have been targeted, irate at the practice and the dreadful image it is creating for the New Zealand equities market.

Stock and Share Trading Pty Ltd successfully outmanoeuvred the Financial Markets Authority's recent bid to inhibit its activities.

The first page of its offer documents is deliberately presented to make it look official.

The second attached page contains the wordy statement agreed with the watchdog that allows them to continue making offers. This is a legalistic blah-blah affair. It recommends investors talk to an authorised financial adviser (unfortunately many will not have one) to “find out what your investment is really worth”.

Ploughing on through the small print you eventually find a comparison between the offer and a recent market price.

Unfortunately it is obvious few get this far through the small print. Proof of this was an irate call I received from a leading figure in the financial world after seeing one of these documents.

Like others who had been taken in, he saw the name Financial Markets Authority and at first sight thought the authority was endorsing the offer.