Friday, February 26, 2010

Caveat venditor

I've mentioned before about caveat emptor - let the buyer beware. There is an exception to this principle - caveat venditor - let the seller beware. The seller is responsible for the product liability if there is any fraud, misrepresentation or concealment of facts.

While this seems to be a good news but there are a number of practical problems when it comes to share investing.

1. What is the product that are we buying? What is the definition or specification of a contract in share investing?

2. Who is the buyer and seller when a transaction takes place? Is a transaction takes place between a company and individual investors ? Or individual to individual investors ? Or investor to investor but guaranteed by company or government?

If you bought share A from xx investor at $ 0.90, when share price drop to 0, are we going to sue xx investor(who we don't even know when we execute our buy order) or are we going to recover $ 0.90 from company A?

3. If the management decided to cheat all the investors(majority and minority), what kind of damages or from whom all the investors to recover their losses?

4. Who is willing to be Erin Brockovich, to initiate a class action lawsuit?



Lawsuit is the last resort and most expensive and time consuming way to remedy an unjust situation. I'm seeing almost like a Mount Everest climbing trip trying to answer that few questions, with so little resources. Don't get me wrong, I'm not condoning people with Mala fide neither I'm making an easy way out. That's why I'm adopted a philosophy of prevention is better than cure.

Our Minority Shareholder Watchdog Group Berhad is supposed to do something but I have not seen any real actions from them. Have they initiated any class action lawsuits? I'm not really sure, how could they help? You can visit their website

http://www.mswg.org.my/cms/about-us/mission-and-vision



The Securities Commission of Malaysia has taken some lawsuits but is it enough?

SC charged ex-Directors of Welli Multi Corporation Bhd for furnishing misleading statements

On 15 April 2008, the SC charged the former Managing Director and Executive Director of Welli Multi Corporation Bhd (WMCB)for four counts of furnishing misleading statements to the SC and Bursa Malaysia. The misleading statements were for the revenue figures of WMCB from December 2005 to September 2006. The accused were released on bail for RM150,000 each with condition that all travel documents were surrendered to the Court. SC secures conviction against Emorevest Sdn Bhd for operating illegal futures markets

On 28 May 2008, three individuals and a company pleaded guilty for operating an illegal futures market under the Futures Industry Act 1993. The three individuals and the company were fined between RM30,000 and RM50,000 each.

SC files landmark civil suit against IRIS Corporation for share manipulation

Marking the beginning of a new approach in combating market manipulation, the SC initiated a milestone civil enforcement action against two Malaysian individuals and eight other foreign individuals and companies for alleged manipulation, market rigging, and fraud of Iris Corporation Bhd shares.

In addition, the SC sanctioned two stockbroking companies and two dealer’s representatives involved in the case.

In pursuing its investigation, the SC worked closely with six foreign regulators to unravel the complex cross-border transactions.

http://sc.com.my/ENG/HTML/resources/capMy/capitalMY_0808.pdf


When something goes wrong, is investor, regulator, accounting body, company management or Minority Shareholder Watchdog Group, director to be blamed? May be that question is NOT that good, the more relevant one: who is in the position to determine who is at fault? Judge Bao Zheng, please help us.

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