A list of demands to protect investors
- June 22, 2009 11:57 AM |
- By Your Voice
Submitted by Alagan Elavalagan
Bio: An Engineer graduated from Carleton University working in the telecom industry. Currently, the Manager of Quality Assurance for a VoIP company. Also, the creator of the mathematical board game BEDMAS.
My take: Innocent investors have trusted our political, legal and regulatory protections and in return have been investing their life savings in publicly traded corporations such as Nortel Networks. Once again the system has failed us. It is time for us to examine why the ordinary investors are robbed again and again even in a first-world country like Canada. Bre-X wasn't the first and Nortel won't be the last unless we change it.
Here are a list of my demands to protect investors:
Demand 1: On January 14, 2009, the Ontario Superior Court approved Nortel's "preemptive" bankruptcy protection while Nortel had enough money to pay the $107 million interest payment. The decision was unjust; it must be voided.
Bankruptcy courts are not given the right to modify the legally binding compensation methods, especially based on the market price.
Demand 2: A decision by the Ontario Superior Court that approved Nortel's request for modifying the legally binding compensation methods was unjust and it must be voided. Furthermore, trading cash payments for common stocks with insider knowledge is simply an insider trading; the court and the judge can therefore be considered alleged accomplices to insider trading.
Demand 3: Liquidating Nortel before criminal charges against former CEO Frank Dunn and two other former executives were concluded is unjust. The case against Dunn and others must conclude before liquidating Nortel. On June 19, 2008, the RCMP laid fraud charges against Dunn.
Demand 4: The Ontario Securities Commissions should be punished for allowing the Nortel executives, the insiders, to trade their stocks for CASH payments while Nortel was being traded on the TSX.
Executives swindling the common-stock investors are very common in Canada and the practise has a long history. Private companies going public, swindling the public investments, taking back to private and then again going public to continue to swindle again even by the same executives are possible here and legal.
Before investing in Canadian common stocks, one should ask how many corporate executives went to jail in Canada for the crime they did and who is protecting them. Before investing in Canada, we should rewrite corporate law to include the following:
Demand 5: The executives and the Board of Directors who lead a public corporation to bankruptcy protection should be removed from their positions during restructuring and they must be prohibited from returning to their posts after the company emerges from bankruptcy.
Demand 6: Laws should be rewritten so all non-salary benefits (i.e. bonuses) for each quarter must be proportional to the dividend paid during that quarter (i.e. multiplication of the dividend paid).
Demand 7: Publicly traded companies that have abandoned their common stocks and gone private should be prohibited from publicly trading again.
The financial damage done by the Bay Street and Wall Street corporate Generals (AIG, Bear Stearns, Bernie Madoff, Enron, Fannie Mae, Freddie Mac, Lehman, Nortel, WorldCom, etc.) has proven to be much worse than the damage done by the USSR military Generals.
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Comments (6)
Wow, could we keep green engineers from publicly talking about things they know nothing about? Lets go through these:
1. A company, or person, can be able to make interest payments for a long time. If they have to sell most of their business to do so, or, in the case of a R&D dependent company like Nortel, can't afford to do R&D, they are not a viable business and need to restructure without drowning in debt.
2. Welcome to bankruptcy, if they bankrupt party owes you something they get to shaft you. In return, they're not going to have an easy time lending money for a long time.
3. Bankruptcy court is about getting the most money for creditors possible. If you waited years for a criminal trial to work its way through the system the IP at Nortel would be worth a *lot* less than it is today.
4. This is part of how the stock market works. If you buy a stock, it goes down, and a successful tender offer goes through you lose money. If you don't like it put your money in GICs, your only risk then is if the government goes bankrupt. Also, if you lose money this way once why would you re-invest after the company goes public again?
5. Oh ya, take out the guys with the most experience running the company, and keep them from coming back, great idea. Sometimes it may be that the executive are responsible, sometimes it may be that a business climate turned suddenly when a company was taking a risk (think oil sands development companies). Removing experienced senior management should be a case-by-case decision.
6. So sales people shouldn't be able to make commission, since that isn't salary and could exceed the dividend level? Or do you just mean senior management bonuses? I get a yearly bonus and I'm definitely not management, should my bonus be capped? Where do you draw the line?
7. A local company was just recently was bought by it's 3 biggest investors. In other words, it went from publicly traded to private. This was because it was planning on losing money for a few years in order to invest in its own products. The stock market tends to be hostile to this, focusing on quarterly results. When the company becomes profitable again the investors will most likely want to take it back public to recap part of their investment. This is part of the business cycle for some small companies, and it keeps them from laying off large portions of their workforce to stay alive.
Perhaps this engineer should stick to making demands about things he understands, and not screw around with things that are apparently well beyond him.
Government policy of low interest rates is not just to stimulate the economy -it is to support the stock market. If the interest rate is realistic many people would sell their investments in the stock market for a guaranteed return on their money instead of gambling.
Realistically who sells shares are people who think they do not have potential and the purchasers always think they will go up in value! It is gambling! Conservative savers are subsidizing the stock market when the government sets the interest rate so low.
We currently have too low interest on investments. The true interest rate on investments should be 3% plus the inflation rate. This is what led to the financial crisis in the first place and now we are seeing a new bubble in the real estate market in Toronto with people buying properties beyond their means because of the low interest rates.
The stock market is nothing more than a casino without entertainment.
In fact, casinos have better regulation. Gamble in the stock market and you take your chances.
Tim
Canada
You miss the main point. Let me try to explain, (as an ex employee of Merrill Lynch).
A brokers job is NOT to give good financial advise to his clients. It is to sell the shares his employer has agreed to sell for the company or individual who solicited them to do so.
Not long a go, I stopped trading, the stocks listed with Vancouver Exchange, simply because the exchange had very por regulations. Companies could form and fold overnight.
Probably still the same situation.
Toronto exchange has some loop holes and "CLEVER" PEOPLE TAKE THE ADVANTAGE. TSX can see the directon, why and how the corporations manipulate the regulations.
But Exchange looks at the different direction.
Here lots of "reasons" could be speculated.
Only the Govt. regulations and control can improve the common public investment. Question is "ARE THEY (GOVT.) REALLY INTERESTED IN PROTECTING INVESTORS?"
Two words, Caveat Emptor. Let the buyer beware. Know the policies of the companies you want to invest in. Investors, or potential investors, can shape company policy.
If investors wouldn't invest in a company unless they had dividend to bonus ratios in place as one writer suggested, for example, the company would have to do without the investment capital or bend.
It seems that every time amateur investors get involved in the markets to 'get rich quick' we have problems. When the price of the stock exceeds the value of the assets you are on dangerous ground.
Artificially inflated stock prices are a sign of impending doom. Greedy people want to get theirs before the bubble bursts, and many do, but eventually the house of cards fall and then we want to blame the executives, the Government, or anyone else except ourselves.
There is an old axiom: "Don't invest what you can't afford to lose". That was said because trading stocks and bonds is risky business. Dependence on government oversight is a poor excuse for lack of due diligence. Investors at the very least share the blame for our current mess.
I think their sloppy investment choices and lack of wisdom are far more to blame than governmental regulation. Certainly punish criminals, but if and when I invest, it will only be after substantial research and personal oversight as long as one penny of my money is involved.
You won't see me euphoric as the market price soars. My eyes will be wide open and watching the company like a hawk, and ready to withdraw quickly when something doesn't smell right.