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The unspoken crimes of the ASX — Part 3

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Rowena Orr QC during the Royal Commission (screenshot via YouTube).

Benjamin John Pauley reports on the unethical, self-interested conduct at the heart of Australia's stock exchange. Part one can be found here and part two here.

In some way or another, every person’s quality of life is affected by how the stock market functions. Many people own their own shares. Many more have their superannuation funds invested in shares. 

Besides this, many Australian companies which are publicly traded are responsible for projects which affect our lives on a daily basis. When you think of large government-funded infrastructure projects like highways or hospitals, the companies that tender for and win these projects are usually listed on the Australian Securities Exchange (ASX). It is therefore imperative that our stock market functions correctly — as a mechanism of delivering capital to where it is needed the most. 

Unfortunately what it has turned into is far worse than a casino. People go to a casino knowing the rules are rigged in favour of the casino. On the ASX, however, people buy shares assuming that it is a level playing field. Actually, stock prices are being fixed. Stock prices are being rigged. Stock prices are being manipulated.  

By far and large the biggest problem we face on the ASX is price manipulation. The average person doesn’t know about it and just wonders why his favourite stock is crashing in price for no reason. Then he gets a shock when his company is taken over for a fraction of what it’s worth, while the directors cheerily accept the takeover, take their remuneration and move on to the next company. 

For example, the Australian companies UGL and Sedgman that were taken over by Spanish owned behemoth Cimic. In the events preceding, there was negative news about both of them: share-price manipulation to lower the price, a hostile takeover and ever since then, magnificent profits from both companies going to Cimic. You can see the benefits some get from this manipulation. 

The Reject Shop is going through the same thing now. Watpac, another large Australian building company, saw its share price collapse by manipulation. The writing was on the wall when the CEO wrote down the assets of the company, started buying shares for himself all the while flying to Belgium to discuss operations with its top shareholder BESIX. Now BESIX has taken over Watpac — surprise surprise. 

Then there are the unlucky mum and dad investors who see their entire savings go down the drain when the company they have put their life savings into goes into administration. These are companies like RCRQuintis and Arrium. Entities often become substantial shareholders because of shares borrowed from others. These entities have a vested interest in profiting from destroying shareholder wealth through short selling, after which they get access to cheap shares to repay their loan obligations.

It is madness. Who, in their right mind, would lend shares to these predators if not the institutions, custodians, hedge funds, the investment banks and the fund managers who are all part of an exclusive club focused on stripping the wealth of the nation at everyone's expense?

Most people who actively invest, even if it’s just a hobby, know about this manipulation. The very popular forum "Hot Copper" where investors discuss their favourites stocks, is filled with complaints about it. There is a general feeling of frustration, hopelessness and intense anger from those watching it happen in broad daylight. 

To most it seems cruel, amoral and carried out by steely-eyed strangers whom they imagine will never be held accountable.

Even with a large amount of research done by myself and others, finding out who is responsible is out of reach for us. All we can say for sure is that it’s done by entities behind the scenes that use multiple accounts that are hidden within institutional accounts held by investment bank brokers. 

A visit down the rabbit hole by ASIC or the ASX would find a labyrinth of connections. The collusion would involve brokers, hedge funds, fund managers, corporate predators and short sellers. It results in innumerable companies that are undervalued and subject to predatory takeovers or even being forced into administration.  

Then the administrators can sell assets on the cheap in sham auctions. Of course, these auctions are meat and drink for the vultures and its all part of the network of collusion.

In other situations, the administrators, receivers and creditors work together with a third party emerging with a valuable asset on the cheap. One such asset was a vineyard called Oakridge Estate which ended up in the hands of Tony D'Aloisio while he was the Chairman of ASIC. Following his retirement from ASIC, he then worked for PPB advisory another receiver firm which takes charge of the assets of failed companies. 

Such links between ASIC executives and receiving firms are worthy of an investigation because receiving firms are part of this network of collusion and manipulation.

Anyone who has complained to ASIC in the last ten years knows that it is a waste of time complaining. ASIC is very much in a state of "regulatory capture".  How ASIC ended up this way is plainly seen with the D’Aloisio example. Not only do they protect the perpetrators and cheer from the sidelines — they also bend the rules for themselves. 

Belinda Gibson, a former ASIC Deputy Chair, is now a director for Citigroup, an investment bank.  Previous ASIC Chairman, Greg Medcraft, came from an investment bank, and his best man at his wedding was AMP’s chief lawyer who came under fire for misleading ASIC in the fees for no service scandal. 

Cathie Armour is an ASIC Commissioner who worked for two investment banks Macquarie and JP Morgan before she got her prize job at ASIC. While she lets those two companies get away with whatever they please, she will eagerly target the minnows of the corporate criminal world and then boast about it in the media in an attempt to convince us that ASIC does anything.

For the amount of criminality that occurs on the ASX which ASIC turns a blind eye to, we have had only one real outlet to pour our frustrations into. That has been the ASIC website online complaint form. This complaint service where investors can report misconduct is so ineffective that I can only imagine that every complaint is laughed at before being tossed in the bin.

It is overseen by Warren Day, a man who like Cathie Armour, believes that the ASX is performing well and there is no need for ASIC to intervene.

They believe that investors should take out class actions whenever there is misconduct. ASIC loves class actions because then they don’t have to do their job but who is actually held accountable in class actions. 

The class action system is deeply flawed.  While class action companies have ethical motives, the lawyers are paid handsomely in the process. In cases where directors really do conspire to defraud investors — these directors are rarely penalised themselves and instead it is their insurance which pays the settlement. 

There are other cases where directors have been acting in the interests of shareholders but then they get targeted in a class action — just to get the insurance money. In some of these cases, these directors were victims of carefully orchestrated share price manipulation attacks and acted out of desperation to protect shareholder value. 

In cases where class actions target the company itself, the victims are the current shareholders and they have done nothing wrong. There is no real justice in these class actions. It is far better to have the wrong-doers fearful of prosecution. For that ASIC staff themselves need to be fearful of prosecution. If they are seen to be ignoring crimes surely this is a matter of corruption.

Many injustices continue to occur and anger is building in the investor community. The Financial Services Royal Commission will not even look at the issue of stock price manipulation. All other issues it has uncovered such as fees for no service pale in insignificance to the manipulation of stocks that we all own.  For every company that gets taken over by a competitor and for every company that goes into administration — that is one less competitive company in the market. 

We have seen and will continue to see the gradual weakening of the economy unless it is stopped.  Perhaps we need to do something more than an online complaint form?

Ben Pauley obtained a degree in Natural Resource Management from the University of WA before going to work for three years in the WA prison service. He left that job to pursue a career investing in the stock market. You can contact him at devinechanges2018@gmail.com

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