Television advertisements promoting property schemes may need to come with a warning and the schemes' prospectuses assessed by ratings agencies.
University of Melbourne professor Ian Ramsay, a corporate law and securities regulation specialist, says an independent agency could be brought in to conduct a risk evaluation of property scheme prospectuses.
These agencies would also track related-party transactions and assess how secure the investment would be.
Risk assessments could then be incorporated into the television advertisements.
"People are investing on the basis of a 30-second advertisement," Professor Ramsay says. "The risk evaluation might be part of the advertisement."
The Australian Securities and Investments Commission will this month release an update on its plans to investigate companies deemed to be offering high-risk financial products.
ASIC has identified 83 unlisted and unrated debenture issuers, with about $8 billion of investors' funds, that it considers to be high risk. But it has refused to name them, claiming this would be "prejudicial".
An ASIC spokeswoman said ASIC chairman Tony D'Aloisio would probably be releasing his update around the middle of the month.
But the update will be just that — it will not contain a water-tight model to stop more business failures. Instead, a special team has been set up to develop the plan, which will take 12 months to finalise.
About 20,000 investors around Australia have fallen victim to property-related companies Westpoint, Bridgecorp, ACR and Fincorp, which imploded owing more than $800 million. Yesterday, South Australian mortgage business John West was placed in liquidation.
While the products were a lot riskier than some investors realised, some of the other big problems might include lack of development expertise and the dearth of disclosure on related-party transactions, a critical gap because many of the companies were part of a web of related companies. Often investors' funds were lent at higher rates to related companies.
Stuart Wilson, chief executive of the Australian Shareholders Association, said ASIC needed to focus more on the advertisements.
"We have a strong suspicion retail investors are investing because of the advertisements being pitched, rather than the details of the prospectuses," Mr Wilson said.
He said the evidence of that lay in the way investors were shocked when they discovered their funds were not guaranteed and that the investments were riskier than they had believed. "There was also a lack of understanding of the business models behind the schemes."
He said ASIC could have been more proactive but there were limits to how far it could protect investors. "While ASIC could have done more around the monitoring of the advertisements, they shouldn't be held responsible when investors lose money."
Source: The Age
