Wednesday 25 March 2009

Dumb and Mrs Dumber

Last year I saw the CEO of Bris Connections on a nationally televised business show answering questions about the risk of "mom and dad" investors buying the partly-paid shares in his company for only a few cents, and not realising that there were two $1 calls due on the stockholders in the next year.

Sure enough, there are now many investors crying foul and trying to sue all and sundry for not saving themselves from their own greed and/or stupidity. For example, one couple bought 200,000 of the shares for only 0.3c each (total outlay $600+$19.95 brokerage), They are soon due to pay up the first $290,000 call on their shares, which would allegedly cost them their home (presumably because they could be sued if they don't pay the call amount, and their only asset is their $450,000 house).

Now, I must admit I find their claim of total ignorance a bit hard to swallow. The relatively large brokerage cost on a $600 parcel of 0.3c shares and the daily volatility of these shares suggests that this was a purely speculative gamble, rather than a long-term investment. And despite their claims that the online brokerage site didn't "warn them" that they would have to pay another $2 per share when the calls fell due, they would have seen that that shares were partly paid when they placed their order.

Anyhow, there was plenty of publicity (such as the CEO interview) to ensure that the calls due on these shares were public knowledge. It appears to be just another case of greedy investors taking a punt on a highly risky investment, and then trying to sue anyone involved in the transaction that has big enough pockets (usually a bank).

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Anonymous said...

Just transfer the shares into a limited liability company

Jerry said...

It's as if people are looking for some kind of insurance that they CAN'T lose money, which makes no sense at all. Investing has inherent risk, it can lead things up or down. These chuckleheads should have known better...