Berlin Regional Court on pre-market shares:
Money for the investor completely back !
In its judgement of 15.10.2003 (Az. 28 O 588/02), the LG Berlin decided that investors in pre-market shares will get all their invested money back from the broker if no written clarification has been provided.
The LG Berlin emphasises that clear and comprehensible written instructions must be given by the agent: The investor must have understood that he must count on difficulties because of the missing stock exchange quotation, if he would like to sell the pre-market shares. The expert calls this primarily “limited tradability”. In practice, this often amounts to a total loss for the investor.
The sale of pre-market shares affects a large number of distributors, which leave the market as quickly as they have emerged. Often such shares were sold to laymen by telephone – hundreds of thousands of buyers remained stuck on the shares. A sale was practically impossible because the AG (public limited company) never received a stock exchange listing. However, telephone sales in particular are not sufficient, “because a mere verbal explanation of the risks associated with the purchase of pre-market shares would not be sufficient anyway”, as the Berlin Regional Court clarified.
Numerous corporations collected for years only the money of ignorant investors: Such high-risk plants are offered also today still by numerous AG’s. Experience shows that the prospects for an IPO, such as the recent Postbank share, are close to zero.
Typical examples of this are statements made by the Management Board about business failure, such as “since the Annual General Meeting in June 2000, we have consistently pursued the rocky road of restructuring our company”. For the investor, this is in fact a friendly description of the total loss of his investment.
In such cases, management and supervisory boards are often covered by criminal charges and civil actions for managerial liability. The most prominent example of investor losses in this market segment are the pre-market shares of the Munich-based WABAG AG and the aid connection with Max Strauss.
According to the ruling of the Berlin Regional Court, the intermediary is liable for the losses accordingly.
by Dr. Johannes Fiala
by courtesy of
www.experten.de (published on 21.07.2004)
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About the author
Dr. Johannes FialaPhD, MBA, MM
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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