The week ahead with Michael Pascoe
Start of a week of heavy with AGMs, statistics, bank bashing and politics.
It's common knowledge that bottom feeder and perfectly legal conman David Tweed has grown rich preying on the ignorance of retail shareholders with his low-ball offers. What's now been revealed is a glimpse of just how rich.
According to IAG, its shareholders “have foregone in excess of $13.8 million” by accepting the undervalued offers made by Tweed and his lesser imitators instead of selling their IAG shares on the ASX.
Tweed and his fellow rip-off merchants fooled more than 12,000 IAG shareholders with below-market offers – an average of more than $1100 each.
That's just IAG. Given the size of the company and Tweed's modus operandi, it's a fair bet he ripped off more than that from AMP shareholders as well. And they're just the most obvious two big demutualisations. Tweed targeted the share registries of many major companies, but especially those that had been demutualised, picking off the ill-informed, the addled and the easily misled.
Former mutuals – the likes of IAG, AMP, AXA, Tower, IOOF, Aevum, NIB – convinced members they would be better off as shareholders, but it meant many people who had never owned shares before and didn't understand their trading were set up as easy targets for the unscrupulous. Mutuals with long, rich histories of acting for the benefit of their members were quickly turned into vehicles for enriching David Tweed.
And it's all been legal with the supposed authorities excessively slow in moving to stymie the exploitation of the innocent by the shameless.
The extent of Tweed's profiteering has been disclosed by IAG in its submission to the Senate Economics Committee inquiry into a corporations law amendment that promises to finally halt the racket by empowering companies to refuse to supply copies of their share registers.
At present, companies are required by law to hand over full details of their shareholders and their holdings to anyone who asks for it and pays a nominal sum.
Tweed has been adept at exploiting the law to his advantage. The Corporate Secretaries Association submission to the Senate committee notes that it was a company associated with Tweed that successfully challenged the fee AXA wanted to charge for a copy of its register in 2008. Until that court case, share registries would often charge a fee of $15,000 or more for access to the register of a large company – “a significant, practical barrier to inappropriate requests for access to shareholder information”, as the CSA puts it.
The Federal Court in its wisdom decided that just $250 would be a reasonable fee for a copy of AXA's share register.
Individuals who belatedly realised they were being ripped off by Tweed and his various companies were regularly and successfully sued. In 2003 the law was changed to at least force the below-market offers to include the last market price of shares, but the wily Tweed tweaked his scheme – paying more like the market price but in instalments over many years, thus taking in shareholders who didn't understand the value of money over time.
If the Senate passes the “proper purpose” test, it will mark a quiet victory for the CSA, the professional body representing company secretaries. The association has campaigned for the past decade against the low-ball racket while the watchpuppies dithered. It also will be a credit to the Rudd government that finally listened to the CSA case and proposed the current legislation.
But it's not just Tweed who has done nicely out of share registers – the lawyers he frequently uses, his accountants, his bankers and employees all have been paid well with money obtained from preying on the elderly and the unsophisticated, their “professional” performance facilitating the racket.
And it's not just con artists who stand to be excluded by the proper purpose test. The CSA submission says a number of requests for the register are now coming from brokers, direct marketers and charities “seeking to extend their marketing capacity and invade the privacy of shareholders”.
The present system of open slather on share registers particularly disadvantages retail shareholders' privacy as more sophisticated investors are often cloaked behind nominee companies and custodians. You might be too smart to fall for David Tweed's racket – but other individuals with other motives can presently obtain detailed knowledge of your wealth and assets with ease.
Michael Pascoe is a BusinessDay contributing editor
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