Complaints of false claims in Dutch tips

Press, 16 April 1986, Page 45

Complaints of false claims in Dutch tips

By

SIMON LOUISSON

In Wellington

Buyer beware — that is about the only advice or action the Securities Commission can take to protect New Zealanders who are being solicited by some Dutch-registered companies to invest overseas.

The Commission has received a number of complaints from people who have been solicited, but other than requesting the Netherlands Government to tighten up its laws so that “more reasonable procedures apply” it is powerless to stop the activity. The Dutch tipsters are advising people to invest in certain companies and complaints have been made that the tipsters are making false claims on behalf of, and without the knowledge of, those companies. “It is not for us to prevent people from investing money on the basis of a telephone call,” says the commission’s executive director, Mr John Farrell. “If the information is not entirely accurate they only have themselves to blame. If people want to invest on that basis it seems desirable that they should do a little background work,” he said.

“Even if there has been a theoretical breach of the law it is impossible to enforce against companies based in the Netherlands.”

According to a Wellington businessman, people are being invited by circular to send for a free

tipsheet which gives information on the international economy and shares. How people come to be on the mailing list is a mystery to the recipients. In this case the businessman sent in his application to a company called United Consultants, registered in the Netherlands, but with a Pana-manian-based executive, and received two tipsheets. A short time later he received a letter with a brochure of a company called Colt Computers, Ltd. Ten days later he was telephoned from Amsterdam by a Mr John Young, who had an English accent, saying he had a block of 50,000 Colt shares available at SUSB and for 2 per cent brokerage the businessman was invited to try them out.

He was told that in 60 to 90 days the shares would rise to between SUSI2 and $l5. The businessman said Mr Young did not push the shares but in the end he decided to buy 200. He received a purchase contract and sent his New Zealand cheque for SUS3OOO for which he received a receipt. Shortly after he received another phone call “from a high-powered sounding bloke with an American accent” who told the businessman his shares had gone up to SUS 9. The person said that United Consultants had information that Colt would be listing on the United States stock exchange and the shares would therefore go up to SUSI 6. The man did not guarantee that they would be listed but said that someone had underwritten them to SUSI 3. The New Zealand businessman was offered 10,000 at the then price of SUS9.SO. When he said he had no money available he was then offered 500 shares.

The Wellington businessman has not received the scrip for the shares yet, but he fully expects to. He says the Dutch company may not be doing anything legally

wrong except that in New Zealand it is not legal to invite people to subscribe for shares without there first being a prospectus available.

Mr Farrell says that New Zealand law requires that companies provide a prospectus and they provide a reasonable amount of information to keep the market continually informed.

It seems that companies such as United Consultants base themselves in the Netherlands because of loopholes in Dutch law and that consideration is being given to close these. Dutch law allows shares to be promoted to foreign clients by unlicensed and unregistered brokers. The promoters fall between two jurisdictions and are not subject to either. The problem has been quite widespread in Australia. An advertisement appeared in the “Australian Financial Review” earlier this month stating that BA Australia, Ltd, the ■merchant bankers, "is in no way associated with BA Advisory Services, of the Netherlands, which is currently soliciting Australian investors to subscribe for foreign shares.” One of the major problems is that the promoters often make false claims about the companies they are promoting. In one case, not United Consultants, a company being promoted repeatedly requested the promoters to stop misrepresenting it.

In this case the company received enquiries from people who had purchased shares and who had been led on by suggestions that the company had made some technological breakthrough. In nearly all cases the companies being promoted are new technology companies, often involving computers.

The Netherlands’ Embassy in New Zealand had no information on possible changes to Dutch law or how the loophole worked. The embassy had, however, received two enquiries — one from the Wellington Chamber of Commerce, and one from a Christchurch man, about United Consultants.