Investors get share certs warning

INVESTORS with billions of euro in shares held in trust by stockbrokers should get their hands on their share certificates to avoid their assets being seized in a default situation, the Irish Financial Services Regulatory Authority's prudential director advised last night.

The warning by IFRSA prudential director Patrick Neary comes in the wake of the disclosure by the Irish Examiner of the implications of a High Court judgment which undermines the secure status of billions of euro worth of shares held in trustee accounts and electronically.

However, Mr Neary cautioned that investors would face difficulties and extra costs in selling or buying shares if they opted to hold the share in physical share certificate form.

"If you want absolute security you should get your share certificate and put them under the mattress. But you have to balance things out; if you want to trade in those shares, then you will have difficulties," he warned.

Mr Neary said that if people who hold share certificates want to sell those shares, then they must put them into "dematerialised form" to trade them. In effect, this means the shares must be held electronically to be traded. "This can be costly and take time, causing difficulties for people who might want to trade shares quickly," he added.

The contentious High Court ruling arose from the receivership of Cork stockbroking firm W&R Morrogh, which went into liquidation with a shortfall of €10 million in April 27, 2001.

Mr Neary said that Mr Justice Roderick Murphy was fully entitled under law to issue an order that the estimated €5 million in shares held in trust for clients should be used to pay the estimated €3 million-plus costs of receiver Tom Grace and the legal costs of the case before him. Mr Neary conceded that the same thing could happen to shareholders again if another stockbroking house went into receivership, but said he thought it extremely unlikely. Mr Neary said IFSRA will have to examine the advice they give to investors and stockbrokers following Mr Justice

Murphy's precedent-setting ruling in the Morrogh case that the costs, fees and expenses of the receiver be paid for out of the "client assets of the firm."

The Consumer Association's finance spokesman, Eddie Hobbs, said that shareholders should immediately get their shareholdings in certificate form to avoid any risk.

And the Irish Stock Exchange's director of trading Brian Healy said the exchange is taking legal advice with a view to challenging the controversial High Court judgment.