Terry McCrann: The great share gouge that needs to stop now

Will the corporate cop continue to allow mum and dad investors to be taken for a ride over share issues?

The multi-billion dollar rip-offs need to end. Picture: NCA NewsWire / David Swift

Here’s a small – indeed even tiny – but clear-cut and straightforward and yet utterly defining challenge for our new top corporate cop Joe Longo that he must answer immediately and publicly.

Yes, he only formally walked into the job as ASIC chairman two weeks ago, but the demand is simple and defining.

Is he going to adopt the practise of his predecessors of letting the big end of town – the cosy insiders club of investment banks, institutional investors and lazy and frankly, just plain stupid, corporate boards – continue to rip billions of dollars off retail and SMSF shareholders via discriminatory discounted share issues?

In a way the case I’m going to describe is even more outrageous, but that makes it even more precisely damning of both (at this stage, the previous) ASIC and the ASX, but especially ASIC, that even this most obvious discrimination is apparently entirely legal.

Back in January a small minerals exploration hopeful – what we used to call ‘penny dreadfuls’ – named Discovex Resources announced a deal to be financed by a placement and a follow-up SPP or Share Purchase Plan.

Both were subject to shareholder approval at a general meeting on March 5, which was duly, overwhelmingly, given.

Treasurer Josh Frydenberg with new ASIC Chair Joe Longo and ASIC deputy Sarah Court.

The offer opened on March 9, documents were dispatched on March 9. The SPP was to close on April 8.

Indeed, the application form sent out by Computershare had in big bold letters: “Make your payment by 5:00pm (Perth Time), Thursday 8 April 2021”.

A shareholder who contacted me said he received his application on March 17 (thank you virus, thank you AusPost); tried to make his application by BPAY, only to be told the biller code was invalid.

So, he sent the application, with cheque, by snail mail. On April 6 – before the stated closure date – he got the cheque back with a letter from Computershare stating that the SPP had been oversubscribed on March 11 and that Discovex had closed the SPP “with immediate effect on 11 March”.

So even before this – and, presumably, many if not most – Discovex holders had even got their application forms, there was nothing to apply for.

Some lucky – favoured? – holders somehow got their application forms immediately, were able to snap up the $500,000 of shares on offer under the SPP (I did say it was small and indeed tiny), and all the other holders were left from the very get-go as bystanders.

The shares in the SPP (as with the placement) were issued at 4c. The shares were trading at the time mostly at 7c, have been at 6c or higher since and the most recent close was 6.5c.

The timetable in the SPP statement set the closing date at April 8, with no reference to the possibility of an early close. A footnote said the dates were “indicative only” and “may” be changed at the company’s discretion.

The statement did later emphasise that the company reserved the right to close early – or extend – and holders were “encouraged” to apply early.

But how was it possible to apply at all when the offer was closed – after just two days – before you had even got your application?

Now, there’s a specific issue for ASIC in relation to Discovex – the favouring of some holders and the exclusion of others. That could be easily resolved – requiring Discovex to accept all rejected applications.

My concern is the bigger issue. How is it even possible for a company to be able to close an SPP early? It defies the whole basis of an SPP – supposedly giving all retail shareholders an equal opportunity to participate?

Is ASIC incapable of understanding the most basic incompatibility between having a formal closure date and a discretion to close early?

You have until April 8 to subscribe – there it is, in unqualified black and white on the application form – except, sorry, you were too late after March 11.

SPPs are at best a defective – and often even themselves a further discriminatory rip-off. But right now, they are the only thing retail investors have. Except, as shown, they don’t necessarily even have that.

As I’ve explained over the years – indeed, decades – anything other than a renounceable pro-rata issue is inherently discriminatory, and particularly a rip-off of retail and SMSF holders.

During and after the GFC we had billions of dollars transferred from them to the instos – with investment banks picking up tens of millions of dollars, essentially handing out free money to their fellow insiders via discounted placements and non-renounceable issues.

And last year we saw it happen all over again in the hysteria through and after the virus. With ASIC and ASX sleeping blissfully through it all.

The most generous interpretation is that ASIC and ASX are just too dumb to understand basic financial and investment and even simple arithmetic realities.

Longo has a choice. Does he sign up for the established – and establishment – stupidity and the multi-billion dollar rip-offs?