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Financial Markets Authority steps up to an early first round win

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".


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