By Simon McArley
Friday 10th October 2003
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In theory, this is fine. It has often been suggested a small levy against all public issuers or registered companies could provide a sizeable pool of resources.
The concept of a super corporate legal aid fund would fill many lawyers' hearts with glee but could create an unwieldy beast.
The alternative proposed by the association is to give the Securities Commission the power to take action. This is not new, as it is the approach used for insider trader laws.
The difficulty is that this power already exists and isn't used. The registrar of companies can bring criminal prosecutions against directors and promoters associated with misleading securities offers. With five years in prison and a $300,000 plus fine in the offing, this is by no means a blunt weapon.
Unfortunately, the registrar faces two major hurdles:
This ends up making the registrar look bad and the law weak. So if a fund is not feasible, what is the solution?
The commission should undertake civil claims on behalf of investors in the same way as with insider trading. But only with proper funding would this provide real help for shareholders.
The position could be strengthened by transferring the criminal prosecution power to the commission. This would avoid duplication. Better still, it would ensure when the initial investigation was done, it was done with the appropriate evidential standards in mind.
The commission could be required to conclude its reports with a statement as to whether it proposed criminal action, and if not, why not. If nothing else, it this would avoid raising false expectations.
Regardless of whether the money goes to shareholders or to the commission, more money must be put into the system. Only this will ensure the securities law has credibility.
Simon McArley is a partner in Kensington Swan
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