Kenny! You ungracious gob of crusty spittle. You know, I heard a story once about a man who used to offer kids lollies to get them into his car. He then raped them. By your logic I'd guess that the kids were to blame here; were they?
This messy business will finish in the courts, and the mud will stick to many with a hand in this. Here is a link to an article suggesting that unit holders may have recourse to sue the company, the directors, and the underwriters for the full value of their investment loss on the grounds that the pds did not adequately disclose the risk.
"It seems clear that hapless subscribers to the issue did not appreciate the leverage effect attaching to their partly paid securities and the risk attached to it. It's arguable that the PDS should have specifically drawn their attention to it.
The PDS is covered by the prospectus provisions, which means it had to contain all the information investors and their professional investors needed to make an informed decision as to whether to invest in the securities.
A person who suffers loss or damage for failure to give proper disclosure may seek to recover the amount of the loss or damage incurred from the issuer (BrisConnections), each of the directors and the underwriters.
The underwriters to the initial offering were Macquarie Capital Advisers (41.7 per cent), Deutsche Bank (41.7 per cent) Credit Suisse (Aust) (8.3 per cent) and JP Morgan Aust (8.3 per cent).
Macquarie Capital and Deutsche also jointly underwrote any shortfall to the second and third instalments of $1 a security, while Macquarie Capital is also the sole underwriter of a DRP (distribution reinvestment program) by Brisconnections.
Macquarie was awake to the leverage effect. It took 15.5 per cent of BrisConnections but from mid September, when the security price was down to 3c it began to sell. By the end of October it had disposed its entire holdings. In so doing it passed on the intrinsic loss associated with the remaining leverage risk to investors who did not appreciate the risk.
The BrisConnections PDS warned potential subscribers they were liable for the second and third instalments and if they failed to pay and the underwriters, Macquarie and Deutsche Bank made good their default, they remained liable and the RE would take action to recover the amounts owing.
The PDS contained also a list of the advantages and risks involved in subscribing for the partly paids. But nowhere did it make any mention of the leverage risk.
Contrast that with the prospectus for Macquarie Income Instalments that included the following: "the gains and losses on Macquarie Income Instalments are magnified, compared to a holding in the underlying share, because of the leverage (gearing levels) incorporated within the income instalments. If the share price performs negatively, or even stays the same, the value of the Macquarie Income Instalments will decrease at a greater rate than the share. Investors should consider the risk of leverage prior to investing in Macquarie Income Instalments".
Similar remarks were made in relation to an investment in Hot Macquarie Income Instalments. It said an investment in Hot Macquarie Income Instalments gave rise to a higher risk than that associated with regular Macquarie income instalments because they were more highly geared.
Even the federal Government's Telstra offerings, which involved the use of partly paid "instalment receipts" warned of the leverage effect. The prospectus said: "Instalment receipts may trade at a price reflecting a premium or discount to the price of fully paid Telstra shares. The partial payment characteristics of instalment receipts may make percentage movements in them greater than percentage price movements if they were fully paid shares in similar circumstances"."
BCS Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held