Stockbroking sector in turmoil

THE stockbroking community has been thrown into turmoil by a High Court judgment which undermines the secure status of billions of euro worth of shares held in trustee accounts and electronically.

And last night, investors whose shares are held in stockbrokers’ trustee accounts were advised to immediately obtain their share certificates to secure their investments, by Consumer Association finance spokesman Eddie Hobbs.

However, Irish Stock Exchange director of trading Brian Healy said the advice was precipitative and disclosed that the exchange was taking legal advice with a view to challenging the controversial High Court judgment.

“We will look to see what can be done to protect the integrity of client funds,” he added. Mr Healy said legislation was urgently required to provide statutory default proceedings in financial services industry.

The consumer director of the Irish Financial Services Regulatory Authority, Mary O’Dea, was unavailable for comment yesterday.

In the High Court this week, Mr Justice Roderick Murphy issued an order that the estimated €5 million in shares held in trust for clients by W&R Morrogh should be used to pay the estimated €3 million-plus costs of receiver Tom Grace and the legal costs of the case before him.

In July of this year, the stockbroking community breathed a collective sigh of relief when Mr Justice Murphy ruled that shares held electronically, in trustee accounts and by certificate should be treated equally and that identifiable traceable investors were the owners of the shares. Mr Justice Murphy issued a perfecting order on costs this week. The decree that the costs, fees and expenses of the receiver be paid for out of the “client assets of the firm” creates a precedent, which the industry agrees places a major question mark over the status of shares held electronically and in the trustee accounts of stockbroking firms.

The latest ruling by Mr Justice Murphy means that in all future liquidations or receiverships of stockbroking firms, the receiver will, if necessary, be able to access and sell off the individual shareholding of clients who deal with the firm.

Mr Justice Murphy’s ruling is further complicated by the fact that, at an early stage of the Morrogh receivership, a large number of paper share certificates belonging to individual investors which were in the custody of W&R Morrogh were returned to their owners.

It is unknown what impact, if any, Mr Justice Murphy’s ruling will have on the owners of these shares in respect of paying the costs of the receiver.

W&R Morrogh went into liquidation with a shortfall of €10 million in April 27, 2001 and since then, the value of shares held for clients by the partnership has fallen dramatically in value, some by as much as 90%.

It is understood that a number of parties to the original court action are seeking legal advice and have 21 days to appeal the ruling.