Protecting interests of aggrieved investors the way forward

Investors, whether large or small, seasoned or new, all have one thing in common: they have often been at the losing end when the company in which they own stock is hit by problems and controversies, ranging from incompetent boards, to rogue management teams.

When it comes to what could possibly go wrong, the list is endless. In the end, all the investor knows is that either their money is stuck, or that the company’s stock has been suspended, and the price has tanked with no liquidity.

Often, investors, especially retail investors, have no recourse when something goes very wrong with their investment. This could happen when the stock becomes suspended, the price falls significantly, and then becomes illiquid.

Once a stock is extremely illiquid, the opportunity for the investor to exit becomes harder and harder. And when stock prices fall, it is like trying to catch a falling knife. The retail investors are left feeling helpless, unable to do anything, and it can be years before they see any way to exit their stock (and even then, it is at a fraction of the price they paid).

In most of the bigger markets, there are options for retail investors to take their own action against these errant companies, be it management or board members. In some markets, we have also seen that there are avenues for smaller investors to band together.

However, there are some countries that have implemented laws that do not allow legal firms to charge success fees, which is a deterrent for the smaller investors who generally do not have the funds to pay the legal costs. While there may still be options available to these smaller investors, these options are generally limited in some of the smaller markets.

We were pleased to see some movement in one of the Asean nations on this issue, and we couldn’t agree more with some of the recent articles coming out of Singapore.

In a letter to the editor published in The Business Times, the Society of Remisiers (Singapore) noted that “(Raphael) Lim’s BT article is spot on in stating that ’legal recourse that enables local retail investors to recover some funds could keep listed companies on their toes and boost confidence and vibrancy in the market’”.

The society goes on to note that “the Singapore exchange regulator may not share the same urgency and pain but we remisiers who are at the frontline and in direct contact with our clients can sympathise with their predicament and understand their agony”.

“However, we are at our wits’ end to provide any solution as we’re solely dependent on the regulator to seek the necessary justice for them.

“On this aspect, we also need to address the critical issue of independence of the regulator. Presently, the Singapore Exchange Regulation is part of the Singapore Exchange which is a profit-seeking listed entity. We’re not suggesting that the regulator is not independent but according to good audit principles ‘one must not only be independent but must be seen to be independent’.”

We often read about investors being unhappy with how companies are run, especially when the companies’ losses are mounting, yet massive salaries and bonuses keep being paid out to the senior management and owners of these companies. The retail investor often has no voice, except perhaps via their own remisier or social media – but often, their cries of anguish fall on deaf ears.

One can only wonder how companies and directors would act if there was a separate avenue for retail investors to take on these big and influential companies. We have seen in the US, a recent series of lawsuits against the listing of a special purpose acquisition company (SPAC), citing misrepresentation. The stock price of the SPAC has tanked, not only because of bad results but because of the allegation of false promises. We will continue to watch this space, as six legal firms are filing suits on behalf of investors.

As laws are reforming to address current times and their challenges, we are also pleased to see the changes occurring. Going back to the letter by the Society of Remisiers (Singapore), we quote again, “It is heartening to note that the Singapore Parliament passed a Conditional Fee Arrangement Bill on Jan 12, 2022. As it’s a relatively new bill further fine-tuning would be required. Perhaps our regulators could use their expertise and resources to explore this bill further and see how it could be used to protect aggrieved investor interests”.

The small investor should not be seen as insignificant or powerless – every voice counts, and every one of them must have avenues to be protected.- FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.