Investors fleeced by scams

By BRIAN FALLOW economics editor

New Zealanders have been fleeced of millions of dollars in an upsurge of "cold-calling" by self-styled brokers overseas, the Securities Commission says.

Typically the callers offer tips in Nasdaq stocks, the commission's acting chairman Michael Webb said yesterday.

"In the last six months the amounts people have told us they have sent overseas totals almost $4.6 million. ... Only a few who call us mention the amount they have parted with and there must be many, many more people who have not got in touch with us."

The commission's website (sec-com.govt.nz) lists the names of 29 brokers who have approached people in this country. Many are being investigated in their home jurisdiction, Mr Webb said.

Commission chief executive John Farrell said that international investigations into these "nasty, pernicious but sophisticated" operations pointed in one case to the Mafia, and in another to a Mr Big in Taiwan.

The commission also has in its sights for the coming year those local investment advisers who behave as if the four-year-old law governing their activities did not exist.

Its annual report says the commission continues to be surprised by the number of people taken in by schemes that offer unrealistic rates of return. In one example, Big International, about which the commission issued a warning last October, investment advisers were involved in promoting the scheme.

"Some advisers still also claim the existence of a 'prime bank' market which is highly secretive and used only by the rich elite. This market is a nonsense. It does not exist."

The commission will be issuing a discussion document looking at beefing up existing disclosure requirements and the remedies available when advisers breach the law. In particular it is likely to propose as a sanction that advisers who breach the act governing them be barred from the investment advice business.

Mr Farrell said the discussion document would ask whether people who peddle investment products that are plainly nonsense semi-scams should be subject to penal sanction.

Mr Webb said it would be a major step to impose liability for the content of an offer document and there was a lot of arguments against it.

"But one concern we have is that you have investment advisers who may themselves be involved as promoters."

It is not proposed, however, on the grounds of compliance costs, to impose a registration or licensing regime for investment advisers.

The year ahead will also see an enhanced role for the commission in enforcing the law against insider trading.

Under a law change the Government plans to introduce, the commission will be able to bring legal proceedings itself in insider trading matters. At present, while the commission can investigate and issue reports, only aggrieved shareholders or the company affected can take legal action.

Mr Webb said a prosecuting role would require the commission to meet the standards of well-developed laws of evidence and burdens of proof.

"We are encouraged by the Government's acknowledgment that giving the commission these powers will also require that it have adequate resources."