Unsolicited selling is how most investment frauds begin: a phone call, a Facebook message or a visit to a village meeting promising returns that no bank can match. The Capital Market Act 2015 treats the approach itself as the problem, not just the lies that may follow.
The ban on unsolicited approaches
“Except as otherwise expressly provided in this Act, a person shall not make (a) an unsolicited invitation to subscribe for or purchase any securities; and (b) an unsolicited offer for subscription or purchase of any securities; and (c) an unsolicited recommendation of any securities.”
Each limb stands alone despite the “and”. An invitation asks you to apply; an offer is a proposal you can accept; a recommendation is advice that you should buy, even if the caller is not selling. “Unsolicited” means you did not ask for it. Units in a unit trust are securities (section 2), and the ban extends to securities of a company or scheme that is only proposed to be formed (section 151(5)), so “get in early before the fund launches” is caught as well. Contravention is an offence punishable by a fine of up to K10,000,000 or ten years’ imprisonment, or both (section 151(6)).
When an approach is allowed
Section 151(2) sets out the permitted cases:
- Licensed persons and existing clients. A holder of a capital market licence, or a person allowed in writing by the Commission, may make invitations, offers or recommendations about securities listed on a PNG stock exchange or on an approved overseas exchange, to a person who bought or sold securities through that licensee in the previous 12 months or who has a written agreement in force under which the licensee acts for or advises that person (section 151(2)(a)). Both parts, listed securities and an existing relationship, are expressed as requirements. A stockbroker ringing an established client about PNGX shares is lawful; the same broker ringing a stranger is not.
- Trustees and existing unit holders. A trustee may provide “further information, notices or recommendations to existing unit holders in relation to the investments of such unit holders” (section 151(2)(b)). A letter to members offering more units in their fund is permitted; a mail-out to the general public is not.
- Commission-approved notices. A person allowed in writing by the Commission may issue notices or recommendations about units containing the information the Commission permits (section 151(2)(c)), subject to any conditions, breach of which is itself an offence (sections 151(3)–(4), (6)).
- Prospectus offers. An invitation, offer or recommendation “made in, or accompanied by, a prospectus that complies with this Act” is allowed (section 151(2)(d)). This is the lawful route for a new fund: the registered prospectus goes with the approach. See when a prospectus is required.
- Excluded offers. Approaches that are excluded offers or invitations under Schedule 6, such as offers to licensed fund managers, banks or buyers of K250,000 or more, are outside the ban (section 151(2)(e)); see excluded offers.
- Companies Act offers and Gazetted exemptions. The ban does not apply to invitations or offers governed by the Companies Act 1997, or to any class the Commission exempts by order in the National Gazette (section 151(2)(f)–(g)).
When the pitch is also a fraud
Section 151 is breached simply by making the unsolicited approach. If the caller also lies, section 302 applies. It forbids inducing or attempting to induce another person to deal in securities by making or publishing a statement, promise or forecast known to be misleading, false or deceptive; by dishonest concealment of material facts; by recklessly making a misleading statement, promise or forecast; or by recording false information in any device. The penalty under section 306 is the same fine of up to K10,000,000 or ten years’ imprisonment, or both. A promise of “guaranteed 30 per cent a year” from a unit trust, whose value by definition rises and falls, is a textbook example. Investors who lose money through either breach may recover it under section 446, and a convicted offender may be ordered to pay compensation under section 463.
What to do about cold calls and social media promotions
Treat any uninvited approach to invest as unlawful until shown otherwise. Ask for the caller’s capital market licence number and the fund’s registration, then check both with the Securities Commission before paying anything. Insist on the registered prospectus; a lawful offer of units comes with one. Be especially wary of pressure to act today, of payment into a personal bank account or mobile wallet, and of promotions run through Facebook groups, WhatsApp chains or church and clan networks by people who are not licensed. Report the approach to the Commission, which can investigate and prosecute. See spotting an unlicensed scheme.
The ban protects people who are already investors too. A licensed adviser who recommends switching a retiree’s savings into a new unlisted scheme, without being asked and without a prospectus, breaches section 151 even though the adviser is licensed, because the exception for licensees is confined to listed securities. Unit holders who receive a recommendation from their own trustee should remember that the trustee must still act in their interests under Part V; see the trustee’s duties.
Advertising to the public at large, as opposed to approaching individuals, is governed by a separate set of rules in section 137; see the advertising rules. The two provisions overlap: an unsolicited WhatsApp broadcast offering units is both an unsolicited offer under section 151 and a prohibited notice under section 137.
Sources
- Capital Market Act 2015 — ss 2 (“securities”, “licensed person”), 137, 151, 302, 306, 446, 463; Schedule 6
- Companies Act 1997
Before relying on anything here, read the current text of the Capital Market Act 2015 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.