Low-ball share bids take $290,000 toll

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Kiwis lose $290,000 over year despite rules to limit offers below market price.

Kiwis who accepted low-ball share offers sold their investments at $290,000 below market value in the year to February, despite rules aiming to limit the practice.

The Financial Markets Authority yesterday released a report on low-ball offers, which is where someone makes a bid to buy shares at less than what they are trading at on the market.

Some investors are continuing to accept such offers even though they would be able to get more for their investments selling through a broker, the FMA said.

This is despite rules coming into force in December 2012 that were intended to help investors make more informed decisions.

See the FMA low ball offer monitoring report here:

These rules require those making low-ball bids to disclose the market price of an investment in the letter offering to buy someone's shares.

Although previous high-profile low-ballers have included Christchurch businessman Bernard Whimp, the FMA is aware of only two companies which have made these offers since the rules came into play.

One is Washington Securities - an Australian company controlled by John Armour - which the FMA believes made its first low-ball offer to investors in February last year.

Armour was previously behind the low-ball company Stock & Share and is understood to have once worked for Australian low-ball king David Tweed.

The FMA said it was aware of 35 offers made by Washington Securities to the holders of 17 different shares or investments. Some of these offers were made to tens of thousands of investors, the FMA said.

Out of all these bids, the FMA is only aware of 521 being accepted.

Almost 400 of those accepting Washington Securities' offers got, on average, $225 less than the market value of their investment.

For the remaining 125, each investor received an average of $1154 below market value for their investment, the FMA said.

Overall, this means those who took up Washington Securities' offers received about $233,000 less than they would have if they had sold at the price the investments were trading at on the market.

The FMA believes the last offer from Washington Securities was sent last October. The company has since given notice that it is not operating in New Zealand and was removed from the Companies Register last month, the FMA said.

"No new company directly owned or controlled by John Armour has been registered on the New Zealand Companies Register," the FMA report said.

Another low-ball company, Zero Commission NZ, is believed to be still active and made offers to investors in nine companies since February last year.

The FMA is aware of 1275 of these offers being accepted.

Investors who sold to Zero Commission, on average, received $45 less than the market value of their investments, the FMA said.

This equates to a total of about $57,000 for the period in question.

In making offers to tens of thousands of investors, Washington Securities' costs were likely to have been "significantly greater" than Zero Commission's, the FMA said.

Given the costs, the FMA was not of the opinion there was "good money to be made" in low-ball offers, a spokeswoman said.

While some were still taking them up, the report said the decrease in the number of offers being accepted indicated the rules are helping investors make more informed decisions.

"It's good news that the new regulations and FMA's stronger regulatory powers have resulted in investors being better protected. We will continue to monitor unsolicited or low-ball offers and take any enforcement action necessary, but the new rules seem to be working well," the FMA's head of compliance monitoring Elaine Campbell said.