In (an Australian) court yesterday, a magistrate reluctantly enforced an unpleasant contract.
A guy has a business that goes like this: he sends out lots of letters offering to buy popular, recently poorly-performing shares (stocks) at substantially less than their market value. Most people throw the letter in the bin. Enough accept his offer. Some later realise the unfavorable terms and attempt to get out of the deal. Yesterday - as with all previous attempts - they lost. The contract to sell is found to be valid.
The guy is fairly clever: the letter does not say that the offer is a good one. It even says, in normal-sized type, that one should get independent financial and legal advice before deciding to accept this or any other offer.
So, in a way, it’s not really a fraud. No-one’s arm is twisted. Nothing is said that is deceptive. But of course it’s a rip-off. And those who fall for it are the stupid and the vulnerable.
Should anything be done about this guy? On what basis? Or is it just a case of a fool and his money?
If there’s no deception or coercion, more fool those who fall for it. Stupidity is not a defence; by legislating against such actions you would effectively force magistrates to set minimum “reasonable” prices for every type of goods or services in existence.
Of course it’s fraud. (Note to Crusoe - read it again slowly. Guess he could count on your foolsgold too!)
I don’t know about Australia, but USA has a Truth in Advertising law that needs to be beefed up. Just as pill ads used to just list the benefit, now they have to balance that with the fine print “side-effects may include death”.
Are you saying that if I offer to buy your brand new Rolls Royce for $500, and you agree to sell it to me for that price, I’m committing fraud? Rewind, and think about this some more. (And truth-in-advertising laws only apply to products and services being offered for sale, not to offers to purchase something from someone.)
Unless the letter makes a claim that is untrue, I don’t see how it is fraud. Did it even claim to be better than market value? Or was it simply an offer?
It’s hard to judge without seeing the actual text of the letter.
I don’t see how this is anymore fraud then a supermarket selling milk at a price 2x as much as the market down the street.
I would have to see the actual letter to be sure though.
a hijack along simular lines:
Someone I know is in the demolition business (lets call her Sally). Sally has piles of scrap metal that are worth something on the open market. This guy (lets call him Bert) came to Sally and offered to buy some at her asking price. He did. This repeated several times, not regularly but often. Finally it was reveiled that Bert was checking the market for this stuff daily and when the prices rose he would call Sally and ask her price, If lower he would buy and resell it the same day, making a profit.
Sally (after she found out) told me that Bert was stealing from her. No matter how she tryed to explain it I couldn’t see it as stealing.
Back when I did my major paper in law school, fraud was a taking by deception. You can argue endlessly about what “taking” means and what constitutes “deception”, but without both elements you don’t have fraud.
That’s right. And not only that, but the people responding to this guy’s letter are in a better position to make a judgement than anyone buying an antique ever is. This is because the shares, at any given moment, have a verifiable and universal market value, whereas the price of antiques is considerably more flexible and depends on the condition of the goods, the place where they are being sold, etc.
Presumably, if i’ve read the OP correctly, the letter makes it reasonably clear that the offer is to buy the shares at less than market value. So, if you own shares in Company X currently trading at $10, and the guy is offering 85% of market value, it should be pretty obvious that he’s offering you $8.50 a share. Anyone who takes an offer like this probably deserves whatever they (don’t) get.
If the whole thing is as open and up front as the OP suggests, i’m not even sure i’d use the term “repellent.” Maybe opportunistic or hopeful would be more appropriate.
I have read it several times and can’t for the life of me imagine why you think it is fraud.
Could he count on my foolsgold? Nope! I am wise enough to spot a bad deal, I know what each of my stocks are worth and if I were going to sell them, I would know what a good deal was. If I did sell and it turned out to be a bad deal, well, shame on me for not doing my homework. Now, if the man had offered more than the stock was worth, then failed to pay, that would be fraud. If he promised profits that weren’t there, that would be fraud. But to merely offer less than the stock is worth and make money on it - well, let the buy beware.
I can’t see how fraud is being committed. He offered to buy the stock at a certain price, and did exactly what he promised. I don’t even think it was all that immoral. If someone willingly sells stock without spending two minutes to look up the current price first, they are too stupid to own stock in the first place.
Does anyone have the text of this letter? I’d say anyone taking this offer is making a stupid mistake, but it’s probable the letter is a little misleading.
EG. Supermarket says ‘oranges $1’ ok. ‘good value: oranges $1’ maybe not ok. ‘Many oranges are overpriced? Why not buy ours at $1’ not sure
Were the people who accept those who otherwise couldn’t dispose of their stocks (in other words, the people starving to death, who still own one thing of value, but no way to dispose of it. Someone comes by and offers them 1/2 market price, and having no alternative, they must sell)?
Thanks for the replies. I don’t have the text of the letter, 'tho I’m looking for it. AFAIK amarinth, those who sold shares were not in such a position.
Results show - and I agree - that it’s not fraud in the legal sense. But equally it’s not an offer made in good faith.
This is a good point. Against it - with my economist’s hat on - these sorts of businesses do not create wealth. At the very best they just move it around, more likely they destroy some in transactions costs. And that’s bad too. This parasitic business is a bad use of talent.
I like futile gesture’s mention of antiques, although I’m not quite sure I agree with where mhendo takes it. At least with an antique, the dealer could say that people’s valuation of objects varies and thus the person who buys at a seemingly inflated price “really likes” the object. With a security, it is a fact that the offer is a bad one. Likewise, buying milk at the convenience store involves a different location to a supermarket. But a share is a share is a share.
This guy’s name and address have been published in newspapers here (which is why I’m frustrated I haven’t yet found a link for you). I have a feeling that at some stage this will cause a breach of the peace.
[slight hijack: both “repellent” and “repellant” appear to be correct. Odd.]
Exactly. That’s the point i was trying to make. People who own shares should be in a position to know exactly what each share is worth, so it should be very clear if what they are being offered is less than the current market value. It is, as you say, a fact that the offer is bad, and if people don’t take the trouble to work that out when they have so much of the relevant information at hand, then that’s their problem.
Look, i’m far from being some free market absolutist; often i’m quite the opposite. I concede that there are many instances where people really do get taken, and i believe that there should be tough fraud laws in place to prevent such things. But buying shares is, by its very nature, an investment in something whose value at any particular time is little more than a reflection of what people are willing to buy or sell it for. It’s very difficult to argue that a share has any intrinsic value; it could be worth 20 bucks one day, and bupkus the next.
Hawthorne, i was interested in your comment:
Are you a trained economist? If so (and even if not) i’d be interested to know exactly how you define wealth creation. Some economists seem to adopt a type of absolutist position whereby anything that creates any jobs and leads to the transfer of goods or capital constitutes wealth creation. Others narrow their definition to exclude certain occupations which, as you say, “just move [wealth] around.” What is your take, for example, on something like speculative trading in currencies? Even George Soros, who makes hundreds of millions doing just that, has been known to say that it’s not really wealth creation in any real sense of the word.
Stock prices (hell any price) is always a relative thing. Just because one knows what the last person paid for a thing doesn’t mean the next person will pay the same rate. Perhaps there’s information that decreases or increases the potential value. Perhaps the buyer simply likes the management of the firm and thinks it’s a good long term buy. Perhaps the seller doesn’t like the firm and wants to unload.
Stock prices are nowhere near being ‘absolutes’. Far better to treat them as always in flux and the value of a stock being different for each person and transaction.
You’re missing my point entirely. I fully realize that share prices fluctuate in reponse to changes in information, subjective likes and dislikes, etc. Your example would be correct if shares were sold at bake sales or swap meets. But the fact is that they are generally sold through a centralized entity such as, for example, the Australian Stock Exchange or the NYSE. And that centralized entity keeps track of the prices that a particular share is trading in at a particular time. If someone writes you a letter, as in the OP’s example, asking you to sell him your shares for, say, $8.50 each, and you can look at the price currently being paid for the share at the stock exchange and see that it is $10, then you’re a moron if you sell for less than the current going rate.