Unsolicited mailshots to small shareholders in listed companies are misleading and deceptive where prominence given to the above-market offer price is not matched by equal prominence given to the fact that payment is deferred, with the buyer receiving all dividends in the interim.
Following an application by securities regulator, the Financial Markets Authority, the High Court has frozen registration of unsolicited share bids made by interests associated with
Nearly 1200 shareholders responded to Mr Whimp’s offers. His scheme mirrored similar share offers made in
The Markets Authority argued Mr Whimp’s offers were misleading, in breach of the Securities Markets Act 1988. The front page highlighted an above-market price on offer and generated an air of urgency with emphasis on strict time limits within which to respond. In the fine print on the reverse, it was revealed that only ten per cent of the price would be paid on acceptance with the balance due over the next ten years. Over this decade, sellers would rank as unsecured creditors for payment due and would lose out on dividends paid in the interim.
A share offer can be misleading while still factually true. In this case, the discounted present value of the share offers were below current market value. Shareholders were being invited to give up an income-producing security in return for an unsecured promise to pay in the future, a promise made by a person with a less than stellar track record. The court was told Mr Whimp has been convicted of burglary and was prohibited from managing any company for a four year period commencing 2006.
Financial Markets Authority v. Carrington Securities – High Court (09.05.11)
05.11.003