Investors fume over toothless watchdog

Australian retail investors are furious at the Rudd government and the corporate regulator ASIC over two recent decisions that prevent them from participating in shareholder class actions against companies that have collapsed or breached continuous disclosure obligations.  

In the latest Investor Pulse survey, a joint venture between marketing research group Colmar Brunton and BusinessDay, 87 per cent of retail investors believe they are overlooked by companies, the corporate regulator and government and 81 per cent reckon they don't receive enough attention for their grievances.

Two recent decisions by authorities make the point. The first case, a full Federal Court ruling in November that classified funded class actions as managed investment schemes, making it almost impossible for retail investors to participate in class actions.

Seventy-eight per cent of investors condemned the Federal Court ruling and 77 per cent called on ASIC to use its powers to allow retail investors access to class actions.

This outburst follows an announcement by litigation funder IMF last week that it would proceed with a funded shareholder class action against Transpacific Industries (TPI) on behalf of sophisticated and professional investors. IMF said retail investors would be excluded from the class action.

The reason? ASIC rejected an application lodged by IMF that would have allowed retail investors to join the class action.

Last year’s court decision now leaves ASIC to decide on a case-by-case basis whether or not to grant an exemption to enable a funded class action to proceed with retail investors.

IMF is expected to allege that TPI breached its continuous disclosure requirements and/or engaged in misleading or deceptive conduct in relation to its 2008 and 2009 earnings forecasts. If they are successful, TPI will be forced to hand over some money, but retail investors will miss out on the proceeds.

It is no surprise then that 77 per cent of investors believe ASIC should reverse its decision on the TPI case and allow retail investors to jump on board the class action train.

Another 55 per cent disagree with Corporate Law Minister Chris Bowen’s decision to introduce legislation to overturn a High Court decision that had ranked shareholders equal with unsecured creditors.

This decision means there will be no more class actions of collapsed companies. While cases against companies such as Great Southern, Timbercorp and ABC Learning will continue, shareholders will largely miss out in any future collapses.
This decision prompted 86 per cent of investors to claim that this was a violation of shareholders’ rights.

But investor disenchantment goes much deeper. The question that investors are asking is just who is it that ASIC is supposed to serve? When asked if ASIC was captured by big business interests, 69 per cent of investors agreed.  

This result should shock regulators and the government alike. Almost three-quarters of Australian retail investors have lost faith in the regulator with primary responsibility for protecting their interests.

The bad news does not stop there. Three-quarters of retail investors believe that ASIC does deals and settles with wealthy individuals too often. Seventy-two per cent believe ASIC pursues cases against small-time offenders with greater zeal than big cases because they are too hard and 67 per cent believe it is fair that ASIC is under fire over its regulation of insolvency practitioners.

In a ray of light for the current management of the beleaguered regulator, 70 per cent of investors consider ASIC under-funded. And a majority, 57 seven per cent, say the government was right in its decision to hand over key supervisory powers of the ASX to ASIC later this year, even though 62 per cent believe ASIC will be ill-prepared.

Investors no doubt feel that, despite their doubts, ASIC is at least an improvement on the ASX's clear conflict of interest.

aferguson@fairfaxmedia.com.au