Sec. Commission will ask for prosecution of Hyde-Harris

Press, 26 December 1984, Page 16

Sec. Commission will ask for prosecution of Hyde-Harris

PA Wellington The Securities Commission will ask the Registrar of Companies to bring a prosecution against Mr P. A. Hyde-Harris, a director of Sovereign Gold Mines, Ltd, and to bring appropriate prosecutions under section 195 of the Companies Act, 1955, concerning the state of directors’ shareholdings as recorded in the share register. The recommendation in respect of Mr Hyde-Harris concerns a failure by him to inform the Wellington law firm of Bell Gully, the Wellington sharebroking firm, Francis Allison Symes, and

co-directors, as well as the Commission, that he had changed his name by deed poll, and that under his former name of de Jong he had been convicted for “other relatively minor offences.”

He had told Bell Gully, Francis Allison Symes, and co-directors that he had had a conviction for an offence not involving dishonesty in his youth. The report says that almost as soon as the Sovereign prospectus was filed questions began to be asked about the acceptability of the board, which contained no well-known figures, and the experience of some of its members.

The questions about experience were related particularly to Mr Hyde-Harris and to another director, Mr K. C. Hunt.

The Commission says: “These two gentlemen had for some time been involved in a variety of entrepeneurial ventures on the West Coast. One of the ventures, Answer Access, Ltd, had failed shortly after HydeHarris and Hunt had sold their interests in the company. The failure involved a loss of some ?50,000 to creditors.”

Reference is made by the Commission to provisions in the Companies Act, 1955, designed to establish the identity of directors. It says the register of directors and secretaries for Sovereign contains no mention of any former name of Mr HydeHarris.

The report reveals that when Francis Allison Symes approached broking firms about taking out firm share allocations in Sovereign a number did so before reviewing the company prospectus.

But when concern was expressed to Francis Allison Symes about the identity of the directors by a number of brokers, particularly in Auckland, the firm took legal advice on whether it could withdraw from un-

derwriting agreements, the Commission says. Mr J. M. D. Willis, of Bell Gully, as solicitor for Sovereign and “certain of the directors,” told Francis Allison Symes that if it chose to determine the underwriting agreement his firm would advise their clients to sue Francis Allison Symes for damages. “At that stage the persons most concerned, Francis Allison Symes and Mr Willis, were not aware of Mr Hyde-Harris’s former name or convictions under that name.

“Having regard to the legal issue, Francis Allison Symes decided to proceed with the issues and informed brokers who had taken allocations that they would likewise be held to their. agreements,” the report" says. “In the event, one broker refused to accept his allocation, and no action was taken against him. Another did not pass on any shares to clients but sold the allocation as soon as dealings began.” The report refers to a directors’ report to the Stock Exchange on July 12 that the Sovereign public issue of 10 million 25c shares, together with 5 million options, had closed fully subscribed. “This report was literally true, but it conveys a false impression of what in fact happened. “The public subscriptions were less than the offer, and the balance was made up by subscriptions from underwriters. “It was submitted to us that the report conformed with market practice, but the parties who made that submission believed the practice should not be continued.”

Later in its report, the Commission says: “We do not think it is appropriate to report that an issue has been fully subscribed when it has been filled by applications from underwriters and

sub-underwriters. We will ask the Stock Exchange to adopt a rule to the effect that the report of the result of the offer should disclose the number of shares applied for by the public and by underwriters and subunderwriters separately.” The commission says that Francis Allison Symes at all material times had a holding of 900,000 shares resulting from their underwriting liability and their support activities during the first month of trading. “We have examined the records’ ot tnese transactions and find no evidence of impropriety in them. “Different views can be held of the action of purchasing. On the one hand, purchases by brokers can be regarded as a form of market manipulation sustaining the price above the true market level,” the report says.

“On the other hand, by purchasing, Francis Allison Symes gave to those who had honoured their commitments the opportunity to quit their holdings without loss,” the commission says.

“In the circumstances ol the case, we think it was proper for Francis Allison Symes to make the market for a period after the allotment. This is a matter we will discuss with the Stock Exchange with a view to settling a rule of practice.” As reported by Oliver Riddell on Monday, the Commission says it will ask the Law Society, the Stock Exchange, the Institute of Valuers and the Society of Accountants to give particular attention to a number of matters.

The Law Society will be asked to give further guidance covering rules for solicitors acting for more than one party with an interest in the same matter and to consider limitations on contracts fees.

The exchange is to be asked to consider the role of brokers and their responsibility for preparation of a prospectus.

(Mention is made in the report that the commission thought readers of the prospectus would take it that Mr Hyde-Harris and Mr Hunt were not to engage in gold mining anywhere else in New Zealand for three years, except on oenair oi Sovereign. In fact the deed of agreement they had with the company referred only to Westland). The exchange will also be asked whether it is proper for a broker to act both as organising broker and underwriter.

The report continues: “A broker involved in a public flotation may give advice to the issuer, the promoters, the directors, the underwriters. other brokers and the public. Are there conflicts of interest to such an extent as to require any particular rules for the regulation of the broker’s conduct?”

The Commission says the requirements of the listing agreement regarding periodic reporting by mining companies should be strengthened. It says the exchange should make more use of its power to suspend trading when the facts are so confused that the maintenance of an informed market is not possible. The exchange should review the practice when a broker enters the market as principal, whether as buyer or seller, and adopt rules on the matter in consultation with the Commission. The Commission wants to know from the Institute of Valuers whether assets valued on site should also be reported on in terms of their valuation on a removal basis, when the valuations are material to operations of such a company. It wants to know from the Society of Accountants whether securities regulations can be improved as they relate to distinction between buying of assets and purchasing a business.