ELEANOR HALL:
The Federal Government has announced a long awaited crackdown on the shady business of unsolicited and predatory share offers. The proposed regulatory reforms target predatory traders, such as David Tweed who's made millions of dollars from making below market offers to vulnerable shareholders.
Under the changes, unsolicited offers would have to have a cooling off period and a warning to investors who are induced to sell at a bargain price. But while life will become a little tougher for those predatory traders, they won't be put out of business.
Here's our business editor, Peter Ryan.
REPORTER:
Predatory share trading has been a booming business in recent years, but especially now with many share prices under pressure. The targets are often unsophisticated and vulnerable investors who receive unsolicited offers to buy their shares below the current market price. The predators, or vultures as they're often known, have been operating within the letter of the law, but not for much longer.
NICK SHERRY:
This abuse has been going on now for at least 10 years and it's time to close off this exploitation and unfair behaviour.
REPORTER:
The Minister for Corporate Law, Senator Nick Sherry, has called for public consultation on measures to crack down on high profile predators, such as David Tweed. The key proposals include a proper purpose test, for access to a company's share register, and a cooling off period of between one and two months so shareholders have the option of withdrawing their acceptances.
Senator Sherry also wants other measures to protect companies and shareholders from unsolicited offers.
NICK SHERRY:
Issuing warning statements, health warnings such as those that appear on cigarette packets, and allowing (listed) companies a pre-emptive right to purchase these shares where they're made below the market value of the shares.
REPORTER:
So, do you think this is going to rub out or eliminate some of the better known predatory share traders, such as David Tweed?
NICK SHERRY:
Well, without going into individuals who've been engaging in this practice, I certainly believe when the reforms are finalised and adopted we will see a significantly lower level of this predatory behaviour against unsuspecting Australians.
REPORTER:
David Tweed, through his Direct Share Purchasing Corporation, has targeted the share registers of some big corporate names, such as AXA, Rio Tinto, IAG and Suncorp, just to name a few. He's also focused on investors from lesser known companies, such as the boutique fund manager Clime Asset Management, where I pressed him on his predatory practices at an extraordinary general meeting in November 2005.
[Excerpt] Do you think that you're an ethical businessman? [Laughter]
DAVID TWEED:
Maybe you should ask the Federal Court that one.
REPORTER:
No, seriously. Do you think that your practices are ethical?
DAVID TWEED:
Well, I'm here - I'm here today on client capital and, you know, and I've been giving free interviews here.
REPORTER:
Would you accept that perhaps your behaviour doesn't represent the best of business or ethics?
DAVID TWEED:
That's for others to decide.
REPORTER:
But what do you think? What do you think about yourself?
DAVID TWEED:
Doesn't matter what I think.
REPORTER:
But do you accept that you have exploited people who - who are vulnerable and don't have the knowledge of the market that you have?
DAVID TWEED:
Do I believe client capital shareholders have been exploited? I don't know about that. [Ends]
REPORTER:
Clime's founder, Roger Montgomery, has been fighting to toughen up laws on predatory traders since David Tweed's actions.
ROGER MONTGOMERY:
It was expensive, it was time consuming, it was distracting and it was extraordinarily stressful for shareholders and for the board.
REPORTER:
But Roger Montgomery says the proposals announced today are too weak and overly complicated.
ROGER MONTGOMERY:
What it's not doing is preventing them from happening in the first place. It's offering a cooling off period so you can get out of the contract. But it's not saying we're going to prevent this from occurring; it's just saying these are these are the bells and whistles, or these are the hurdles that an offer needs to jump over in order to be able to be made to shareholders. I'm almost certain that the vast majority of shareholders would prefer not to receive these offers at all.
REPORTER:
So, you're not confident at all that these measures will do anything to rub out predatory share traders like David Tweed?
ROGER MONTGOMERY:
Well, no, they - by their very nature, by definition, they're saying that the offers can still be made, but they need to jump these hurdles. They need to have these bells and whistles attached.
REPORTER:
Senator Sherry agrees the reforms won't put predatory traders out of business, but he says the new warnings and tougher guidelines will make like a whole lot tougher
NICK SHERRY:
I am confident that when we've concluded the overhaul of regulations we'll certainly have very, very small amount of abuse; much smaller than has been occurring at the moment and what we've seen in recent times.
PETER KAY:
The Minister for Corporate Law, Senator Nick Sherry, ending that report from our business editor Peter Ryan.