Editorial Welshing on a bet

When the stocks being sold are offered by the company through a prospectus, however, things aren’t quite the same. The rules in British Columbia are such that you can buy, but you can change your mind during the two-day period after receiving the prospectus from your broker.

The rules, meant to protect individuals who might have second thoughts after succumbing to a broker’s high pressure sales pitch, provide a cozy little hedge to the more sophisticated investor. In fact, it amounts to a short-term call option — two days to be exact — at no cost. British broker Alexanders Laing & Cruickshank Ltd. recently committed to buy on e million units at $4.25 in an offering by Prime Resources, a company that trades on the Vancouver Stock Exchange. But when the stock price fell, the British broker had second thoughts. It told Canarim Investments, which was acting as agent on behalf of Prime to sell the units, that it wasn’t going to pay.

As a result, Canarim was planning to return the units to Prime and Prime was going to have to settle for raising $4.25 million less than the $20.8 million it had planned on.

But that’s hardly cricket, said British Columbia’s investment community. Canarim had promised to sell its allotment of Prime units, and its word was its bond. Canarim was persuaded of its responsibility to make up the shortfall to Prime, although it’s not entirely clear if that responsibility is anything more than pressure from its peers.

It is all pretty much a tempest in a teapot. No regulations were broken and everything appears to be sorted out. To Canarim’s credit, it took its lumps saving others embarrassment and some financial difficulty.

Still, one can’t help wondering why the rules seem so accommodating to Laing & Cruickshank. These are not amateurs. They agreed to buy the shares, then reneged. They can hardly claim to being fooled by a fast-talking Canarim salesman. If the price had gone up, there’s no doubt they would have demanded delivery, but when the price went down, they backed out.

In our book, that’s tantamount to welshing on a bet — hardly a criminal offense, but offensive nonetheless.

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