Dodgy brokers on prowl again

By JIM EAGLES

Cold-calling of New Zealand investors by shonky overseas brokers is on the rise again, says the annual report of the Securities Commission, issued yesterday.

The report notes that last year, the period under review, this sort of activity reached new heights but then seemed to die off.

"Recently, though, there are indications that unsolicited calls are on the rise again."

The report says such activity, usually by brokers based in Jakarta, Bangkok or Manila, is a major concern not only for the commission but for securities authorities around the world.

The callers "invariably try to persuade people to buy shares in low-value technology stock listed on the Nasdaq. They are often very persuasive.

"The strong suspicion is that the brokers simply pocket the money or if stock is bought it cannot readily be sold. When a person attempts to realise an investment the broker becomes very difficult to contact.

"Some people are caught twice when they are approached by a new broker saying they have a buyer for the shares but, of course, they need more money to make this happen."

The commission has to rely on people to advise it of such activities and, although it has heard from hundreds of New Zealanders who have lost at least $14 million in the past 18 months, "we suspect this is only the tip of the iceberg".

After crackdowns in the United States, Thailand and the Philippines and extensive publicity about the problem, "our impression earlier this year was that the activities of overseas brokers were beginning to wane, or maybe that New Zealanders were being more cautious".

But the report says it has again started to hear from New Zealanders targeted by the cold-callers.

A commission spokesperson said yesterday that in the past three months it had heard of an increasing number of approaches.

"It seems as though they've regrouped and are starting again, in some cases using new names, but it's the same old scam."

The report reveals that the commission spent 40.7 per cent of its budget on enforcement during the year, including (besides the overseas brokers) a clampdown on contributory mortgages, action against illegal offers of securities and intervention in respect of 18 financial documents that were misleading or confusing.

It also spent a lot of time completing inquiries into 11 cases of insider trading.

The report notes that "there is often an expectation that when a share price moves ahead of an important announcement, insider trading must be involved".

But, it says, "these cases are rarely as clear-cut as they seem".

The annual report emphasises the commission's role in creating "a market in which New Zealand and overseas investors can have confidence".

Chairman Jane Diplock says in her introductory message that considerable progress was made in that direction during the year through effective enforcement, new securities regulations and improved funding for the commission.

The commission's report, and a detailed warning about the activities of overseas brokers, appear on the web at www.sec-com.govt.nz