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Investor and Shareholder Protection
It is a myth that shareholders can do little to mitigate their risk other than diversifying their portfolio among several industry market segments and companies when investing in a publicly traded company. In fact, shareholders can insist upon changes in the senior management of the company, demand that enhanced corporate governance methods be instituted to protect the shareholders, and terminate their equity participation. This white paper will explore the need for shareholder protection, how shareholders can protect themselves, and examples of public companies that have enacted shareholder protection plans. It is important for investors to realize the difference between securities fraud and simple bad luck. Most investment losses are the result of market forces, trends, and factors that have nothing to do with securities fraud.1 Stockbrokers are not omniscient, and most investment losses are honest mistakes or are out of the control of the stockbroker. If a shareholder is certain that they have lost money as a result of foul play on the part of the stockbroker or the issuing company, this is called fraud. Investors should be informed about the avenues they can take after establishing that fraud has taken place. Investors often do not realize that securities fraud has taken place, and they do not realize what happened or how it happened. Stockbrokers have a duty to care for and be loyal to their customers. Brokers must use due care and diligence when dealing with their customers, and the interest of the customer should always come first. Certain warnings exist for investors to watch for:
It has been suggested that foreign companies that cross-list in the United States have will have a higher degree of protection for their shareholders. Cross-listing subjects foreign companies to the standards of both their native country and the U.S. GAAP requirements. “This increases the expected cost to managers of extracting private benefits and commits the firm to protecting the minority shareholder’s interests. There are clear predictions about the relation between subsequent equity issues, shareholder protection and cross-listings: 1) Equity issues increase following all cross-listings, regardless of shareholder protection. 2) The increase should be larger for cross-listings from countries with weak protection. 3) Equity issues following cross-listings in the U.S. will tend to be in the U.S. for firms from countries with strong protection and outside the U.S. for firms from countries with weak protection.” [continued...] Want to know more? Download the White Paper "Investor and Shareholder Protection" for just $9.95. |
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