INVESTMENT REGULATION AND PRACTICE

1
INVESTMENT REGULATION AND PRACTICE

• LIABILITIES IN RESPECT OF A PROSPECTUS OR LISTING
  PARTICULARS

2
STATUTORY RIGHT TO COMPENSATION

• STATUTORY RIGHT TO COMPENSATION AVAILABLE FOR
  INVESTORS WHO HAVE SUFFERED LOSS DUE TO ERRORS IN
  OR OMISSIONS FROM A PROSPECTUS
• FSA 1986 s 150 - 152 FSMA s 90 POSR 1995 Regs
  13-15
• LAW PROVIDES TWO BASIC HEADS OF LIABILITY
  FOLLOWED BY SIX DEFENCES
• LAW SPECIFIES WHO CAN BE SUED (FSA 1986)

3
HEADS OF LIABILITY

• ANYONE RESPOSIBLE FOR PROSPECTUS OR LISTING
  PARTICULARS LIABLE TO COMPENSATE ANYONE WHO HAS
  ACQUIRED RELEVANT SECURITIES AND HAS SUFFERED
  LOSS DUE TO
• UNTRUE STATEMENT
• MISLEADING STATEMENT
• OMITTING ANYTHING REQUIRED TO BE INCLUDED
• NOTE GENERAL DUTY OF DISCLOSURE (FSA 1986 s
  146(1) POSR 1995 REG 9(1) FSMA 2000 s 80
• NOT PUBLISHING PARTICULARS OF SIGNIGICANT
  CHANGES/SUPPLEMENTARY PROSPECTUS OR LISTING
  PARTICULARS
• (FSA 1986 s 147 POSR 1995 REG 10 FSMA s 79, 81)

4
SIX DEFENCES

• 1. BELIEF IN TRUTH/PROPER OMISSION AND THAT
• BELIEF STILL HELD WHEN SECURITIES WERE ACQUIRED
  OR
• ACQUIRED BEFORE MATTER COULD BE BROUGHT TO
  ATTENTION OF INVESTORS
• ALL REASONABLE STEPS WERE TAKEN TO BRING
  CORRECTION TO INVESTORS ATTENTION BEFORE
  SECURITES WERE ACQUIRED
• BELIEF HELD WHEN DEALING COMMENCED AND THAT TIME
  HAS LAPSED SUCH THAT DEFENDANT OUGHT TO BE EXCUSED

5
DEFENCES (CONTD)

• 2. DEFENDANT RELIED ON EXPERT
• 3 REASONABLE STEPS TAKEN TO CORRECT DEFECT IN
  EXPERTS COMPETENCE TO INVESTORS
• 4 RELIED ON OFFICIAL SOURCE
• 5 PLANTIFF HAD KNOWLEDGE OF MISREPRESENTATION
  OR KNOWLEDGE
• 6 BELIEF THAT SUPPLEMENT UNNECESSARY

6
RESPONSIBILITY FOR PROSPECTUS OR LISITNG
PARTICULARS

• FSA 1986 s 152(1) POSR 1995 REG 13(1)
• THE COMPANY/ISSUER OF SECURITIES
• THE DIRECTORS
• OSTENSIBLE OR FUTURE DIRECTORS
• ANYONE NAMED OR AGREED TO BE DIRECTOR IN FUTURE
• THOSE ACCEPTING RESPONSIBILITY
• THE OFFEROR (UNLISTED SECURITIES)
• DIRECTORS OF OFFEROR
• OTHERS (E.G. EXPERTS)
• FSMA 2000 DOES NOT SPECIFY PEOPLE BUT WORDED
  GENERALLY (FSMA s 90)

7
OTHER CIVIL LIABILITY

• IF MATERIAL MISREPRESENTATION LEADS TO ENTERING
  INTO CONTRACT RECISSION OF CONTRACT AND
  CONSEQUENT RECTIFICATION OF SHARE REGISTER
• RIGHT WILL BE LOST IF
• ON DISCOVERING MISREPRESENTATION ALLOTTEE DOES AN
  ACT SHOWING HE/SHE ELECTS TO RETAIN SHARE
• FAILS TO ACT IN REASONABLE TIME ON DISCOVERING
  THE MISREPRESENTATION
• RESTITUTION IS IMPOSSIBLE
• COMPANY GOES INTO LIQUIDATION

8
DAMAGES FOR TORT OF DECEIT

• DAMAGES FOR TORT OF DECEIT (FRAUD) MAY BE CLAIMED
  IF MISREPRESENTATION IS FRADULENT
• FORMERLY COULD NOT CLAIM DAMAGES IN DECEIT
  AGIANST A COMPANY WHILE A MEMBER IF CONTRACT IS
  NOT RECINDED OR RESCISION IS IMPOSSIBLE
  (HOULDSWORTH V CITY OF GLASGOW BANK (1880)) RULE
  ABOLISHED BY CA 1989
• MISREPRESENTATION MUST BE MATERIAL STATEMENT OF
  FACT NOT OPINION

9
CIVIL LIABILITY (CONTD)

• PEEK V GURNEY (1873)
• FACTS PROSPECTUS ISSUED BY RESPONDENTS CONTAINED
  FALSE MATERIAL STATEMENTS OF FACT ABOUT COMPANYS
  SOLVENCY. P, OBTAINED 2000 SHARES BY TRANSFER
  INFLUENCED BY COMPANY PROSPECTS. COMPANY WAS
  WOUND UP AND P HAD TO PAY ABOUT 100,000 AS
  CONTRIBUTION. HE SUED FOR FRAUD
• HELD ACTION MUST FAIL. PROSPECTUS APPLIED ONLY
  TO ORIGINAL ALLOTEES.
• FSA 1986 s 150 POSR 1995 REG 14 FSMA 2000 s 90
  EXTENDED STATUTORY REMEMDY TO SUBSEQUENT
  PURCHASERS

10
CIVIL LIABILITY (CONTD)

• ANDREWS V MOCKFORD (1896)
• FACTS A READ PROSPECTUS OF GOLD MINING BUT
  DECIDED NOT TO BUY SHARES. MONTHS LATER,
  FOLLOWING A FALSE TELEGRAM SENT TO THE
  FINANCIAL NEWS STATING THAT A NEW VEIN OF ORE
  HAS BEEN OPENED UP AND RELYING ON THIS AND WHAT
  HE HAS READ IN THE PROSPECTUS, A BOUGHT 50 SHARES
  IN THE COMPANY. THE COMPANY WAS WOUND UP WITHIN
  A YEAR. A SUED TO RECOVER HIS EXPENDITURE.
• HELD A SHOULD SUCCEED. THE FORCE OF THE
  PROSPECTUS OH HIS MIND WAS NOT SPENT BY THE TIME
  HE BOUGHT THE SHARES AND THE DIRECTORS WERE
  LIABLE. IT WAS CONTINUOUS FRAUD.

11
DAMAGES UNDER THE MISREPRESENTATION ACT 1967

• MISREPRESENTATION ACT 1967, s 2(1), GIVES
  INNOCENT PARTY A RIGHT TO DAMAGES IF SHE/HE HAS
  SUFFERED LOSS
• ONLY OTHER PARTY TO CONTRACT CAN BE SUED
  (DIRECTORS AND EXPERTS EXCLUDED AND COMPANY ALSO
  EXCLUDED UNLESS SECURITIES ACQUIRED DIRECTLY FROM
  IT)
• COURT CAN AWARD DAMAGES INSTEAD OF RECISSION IF
  EQUITABLE TO DO SO

12
DAMAGES AT COMMON LAW FOR NEGLIGENCE

• DIRECTORS AND OTHERS RESPONSIBLE FOR A PROSPECTUS
  MAY OWE A DUTY OF CARE TO ALL WHO RELY ON THE
  PROSPECTUS
• HEDLEY BYRNE CO LTD V HELLER PARTNERS LTD
  (1963)

13
CRIMINAL LIABILITY

• FSA 1986 s 47 AS DISCUSSED EARLIER
• OFFENCE TO MAKE A STATEMENT, PROMISE OR FORECAST
  WHICH ONE KNOWS IS MISLEADING, FALSE OR DECEPTIVE
• OFFENCE TO DISHONESTLY CONCEAL MATERIAL FACTS OR
  RECKLESSLY MAKE (DISHONESTLY OR OTHERWISE) A
  STATEMENT, PROMISE OR FORECAST WHICH IS
  MISLEADING, FALSE OR DECEPTIVE

14
CRIMINAL LIABILITY (CONTD)

• THEFT ACT 1968 s 19
• ANY OFFICER OF A COMPANY WHO PUBLISHES OR CONCURS
  IN PUBLISHING A WRITTEN STATEMENT WHICH HE KNOWS
  TO BE MISLEADING, FALSE OR DECEPTIVE MATERIALLY
  COMMITS A CRIMINAL OFFENCE.