SHARE-HAWKING.

Press, Volume LXVI, Issue 20027, 8 September 1930, Page 8

SHARE-HAWKING.

PRACTICE CONDEMNED. CONTROL BY LEGISLATION URGED. City share-brokers-say that the hawking of shares is a pernicious practice, and commend the attempt of Mr W. E. Barnard, M.P. for Napier, to prevent it in New Zealand, by introducing legislation similar to the recent amendment in the English Companies Act. Slmre-hawking, ■ they say, was as common and as harmful in England as it is to-day in New Zealand until stopped by law, so that that is the only way to prevent it hero. They point to its positive dangers for those unsuspecting people who believe glib-tongued salesmen and buy shares, only to find that they have been taken in, whether intentionally or accidentally. They go so far as to say that any shares which are being hawked are worthy of the suspicion of the would-be investor. There are, they assert, shares of this kind being taken round the City to-day. A Freo Field. The hawker pays no fee, he goes wherever ho likos, even round to people ? s back doors, sells his wares, collects the money, pays it to his principals, receives his commission, and has nothing-further to.worry about. Norhae the investor any clear case against him if the venture fails, unless misrepresentation can bo proved; often by that time the hawker is not to bo found. This is why brokers warn the public to" beware of hawkers and go to reputable brokers if they wish to invest, for the broker is not here to-day and gone to-morrow; ho has his business reputation to keep up, and this depends oil giving his clients the best, advice. ... Heavy Penalty. | One broker said yesterday that the! English Act of last year prohibited j canvassing for subscriptions for shares j by house-to-houso visits. Further,, wliero shares were not offered to the ] public in a prospectus, no written offer must bo made unless tho stringent provisions of the Act were complied with. 1 lie coiisecnK-uee.s ol a Urea oil of this provision were severe; contravention of it rendered the offender liable to imprisonment fur six months, or to a line not exceeding £2OO. lie would like to have seen the Govern- I ment incorporate other provisions into otir Companies Act, besides the aniondment relating tu.shares. Specific Example. Another broker quoted the Mercan- J tile Bank of Australia, Ltd., now in compulsory liquidation, as an example as to how investors might be taken in by share-hawking. "Two years ago shares in this company were being hawked round Christchurch; the position of tho shareholders to-day is told by tho following extract from the current issue of the "New Zealand Stock Exchange Gazette": "A situation of considerable interest to investors has developed with regard to the liabilities of tho ordinary shareholders of the Mercantile Bank of Australia, Ltd., in compulsory liquidation. Shares in this bank were offered to New Zealand investors at the time of flotation 18 months to two years ago and quite a number were taken up in this Country. When, after long delays, an attempt was made to start operations it was found that insufficient capital had been subscribed, and eventually, on the application of a shareholder, they company was forced to go into liquidation. "The process of liquidation has been slow, mainly because of tho illness of the liquidator, but reports from Sydney, where th '"ead office of tho company is situ., tod, contain startling revelations with respect to tho liabilities of ordinary shareholders. Although the shareholders did not have the satisfaction even of seeing the bank's doors open, there is a possibility of their being asked to mako up to the extent of uncalled capital what preference shareholders" havo lost, in • addition to premiums already paid, and other expenses incurred by tho dircc tors. Tho position that has arisen illustrates again that shareholders in new ventures cannot scrutinise any proposi- i tion too carefully before signing up. "There arc other propositions on the New Zealand market at tho moment that may go tho samo way as tho Mercantile Bank of Australia. In spite of every honesty of intention on the part of the promoters, delay in starting operations, too little capital, and, many other handicaps often rob new flotations of all chance of success before they can actually make a start." And again in a recent issue:— "Maiiy an investor throughout New Zealand, during tho last two years jn particular, has been induced to take up shares or bonds in a new flotation, and afterwards, even though he might still be paying calls, has found that ho has been misled and that the true facts of; the case havo been grossly misrepresented. He generally continues paying his calls, under threat of a summons from the company, and as a result few, if any, unscrupulous company promoters are ever asked to give an account of their actions in the Courts. One concern last year raised a comparatively large amount of ckpital in all parts of . the Dominion on a most unsound proposition, relying largely on misrepresentation to sell shares. Nothing was done, despite the fact that a number of* private meetings of shareholders were held to discuss the position. " £ A large amount of.capital is sunk in wild-cat companies, which, give a living to parasites all the year round,' stated tho Auditor-General of Australia recently. He. might have gone further, if his position had allowed, and asked that something bo done to check the operations, of such 'parasites.' It does seem, however, that more use could be taken.'of existing legislation with respect to misrepresentation. Instead of suffering in silence as he generally does,, the disillusioned shareholder would be doing a duty to himself and his fellowinvestor if he took advantage of every opportunity to show up the crookeddealing promoter in his true light." Tightening Up Legislation. And again in November, 1929: '' A tightening up of the legislation. in regard to prospectuses is asked for, on the grounds that as the law now stands the prospects and true position of a company can be grossly misrepresented without prejudicing the legal position of the promoters. "An instance to the point was given in . Christchurcli early in the year. In February, an issue of 8 per cent, preference shares was advertised by a concern that gave its assets at a value of approximately. £14,000; all these assets were heavily pledged, but no mention was made of this to prospective shareholders. In less than two months i a new company was formed to take over the old, and the assets that were previI ously flaunted as worth £14,000 were j shown as passing to the new concern j at £4500. "In another case, a development conI cern that was launched last year brought

out several highly-painted booklets and prospectuses when • conducting a cam-; paign to raise money from the public —principally country residents and women. Each publication contained; a different estimate of the probable returns of the venture, which, even with tho best of luck, has very littlo chance of ever returning ' anything to the shareholders. "It is cases of misrepresentation such as these that the Stock Exchange Association and other organisations desire to check when they ask for a revision of the Companies Act. Apart from tightening up tho regulations in regard to the contents of prospectuses, the new English Act • does''much' to check the operations of tho sharehawker, definitely forbidding tho peddling from houso to house of shares, and confining negotiations for their sale to offices used for business purposes; in effect, while a canvasser may call upon a prospect at his place of business, he cannot canvass homes. It is urged that legislation in New Zealand such as this would do much to restrict the operations of the peddler of questionable shares. The penalty for a breach of the provisions of the English Act is a fine or imprisonment. "'' New Zealand business men raise other points, which will merit consideration when the Act comes under review; but even those already mentioned are sufficient to show that they have a just case, and one that should receive immediate attention. All they ask is that the investment market be freed from evils that are doing much, at the moment, to prejudice it in the eyes of the man. in the street."