By Tony Johnson - 24 May 2011
The Financial Markets Authority has notched its first win since
replacing the Securities Commission on 1 May 2011 by winning its
case against Bernard Whimp and nine limited partnerships associated
with him.
The Scheme
The partnerships associated with Mr Whimp sent unsolicited share
offers to shareholders of six publicly listed companies.
The front page of the offer, in bold print, compared the offer
price with the current market price of the shares. In all
cases, the offer price was slightly higher than the market
price.
However, in the fine print on the second page, under the heading
Terms of the Offer, was a deferred payment clause.
The purchase price would be paid in equal instalments over ten
years. No interest would be payable on the outstanding
portions.
Taking into account that extended period, the actual real value
of the offer price was far below the current market price.
The Charges
The FMA alleged that the presentation of the offers, with the
purchase price in a predominant position and the deferred payment
clause largely hidden in the terms on the second page, was
misleading and deceptive, in breach of section 13 of the Securities
Markets Act 1988.
The Decision
The High Court compared Mr Whimp's conduct to that of Mr David
Tweed's similar deferred payment offers in Australia in the early
2000's. The Australian Securities and Investment Commission
successfully laid similar charges against Mr Tweed.
The Court adopted much of the Australian Courts' reasoning, in
particular the conclusion:
The section (in the Securities
Markets Act) is not there for experts; it is there to protect the
general shareholding public, many of whom do not analyse offer
documents in any great detail, but act on appearances and
impressions. This cannot be characterized as unreasonable
conduct on their part. It is just the natural order of
things.
Focussing on this consumer protection rationale, the Court
decided that the general presentation of the offer was misleading
and deceptive and that Mr Whimp and his entities had breached the
Act.
The Orders
Given the misleading and deceptive nature of the offers, the
Court:
- Permanently restrained Mr Whimp and his entities from making
similar offers;
- Cancelled most of the contracts where the investors accepted
the offers, and returned their shares; and
- Prevented the registration of any share transfers.
As well as the Court orders, the FMA used new powers that were
not available to the Securities Commission. The FMA requires
Mr Whimp and entities associated with him to include a warning
letter from the FMA with any unsolicited share offers that he or
they make in future. That warning is on the FMA's website.
The Result
The NZ Herald reports that Mr Whimp has since "retired from
making offers".