THE current regulatory structure for agricultural investment schemes is inadequate and could lead to a re-run of the unscrupulous practices of the mid-1990s, research group van Eyk Capital has warned.
It has called for ASIC to establish some form of pre-etting of offer documents, in conjunction with the ATO’s work in issuing Product Rulings.
van Eyk Capital also has called for stricter penalties and sanctions for scheme promoters who break the law or fail to comply with the terms of their offer document.
“Without these safeguards, there is a high degree of probability that, as in the mid-1990s, a large number of unsophisticated investors will face substantial financial losses,” van Eyk Capital associate director Harry Sookias said.
van Eyk Capital has a reputation for being highly critical of agricultural investment schemes, although Mr Sookias readily accepts there are “a number of reputable organisations operating in this sector providing sound long term investment returns”.
“Nevertheless, the risks are too high for the government and the primary regulator to maintain the status quo,” he said.
ASIC director for financial services regulation, Sean Hughes, said the regulator was not mandated by law to pre-vet offer documents.
However, it can issue a stop order if it believes an offer document has insufficient or misleading information.
Mr Hughes said ASIC’s overall goal was to ensure there was sufficient information in the market so that investors and their advisers could make informed decisions.
Mr Sookias said a formal process of pre-vetting all offer documents before they were released to the market would be a more effective approach.
van Eyk Capital has strongly endorsed some aspects of the current regulatory approach, particularly the Australian Tax Office’s product rulings, which provide certainty on the tax implications of investment schemes.
However, Mr Sookias has questioned the possible ramifications of a scheme not being implemented in the manner described in the product ruling.
In this situation, the ATO could retrospectively withdraw the income tax deductions grant-ed to the retail investors.
Mr Sookias believes this would be unfair, except in extreme cases, and has suggested that the regulators should instead apply a range of civil and criminal penalties against the scheme promoters.
