Stagging by Illegal Methods
| Date | 01 April 1976 |
| Published date | 01 April 1976 |
| DOI | 10.1177/002201837604000210 |
| Subject Matter | Article |
Stagging by Illegal Methods
In 1971
and
1972,
many
private
companies
'went
public'
and
invited
members
of the public to invest
additional
funds in
their
enter-
prises. In fact,
many
more
members
of
the
public
wished to invest
funds, with the result
that
there was usually an excess
number
of
applications
for
any
issue.
To
deal with the
problem
arising from the
fact
that
most issues were over-subscribed, most issuing houses
and
merchant
banks
adopted
the
practice of allotting only a
part
of the
shares
applied
for by
applicants
who wished to have alarge
number
of
shares
and
by
holding
aballot
among
those who
had
applied
for only a
small
number.
In this situation, there arose an
operation
known as
'stagging',
that
is
applying
to
merchant
banks
or issuing houses for
shares
issued to the public for
the
first time, with
the
intention
not
of
keeping
them
as an
investment
but
of selling
them
immediately
at
a
profit to those
members
of the public who
had
not received
what
they
themselves
had
applied
for from the
merchant
bank
or issuing house. It
is not suggested
that
'stagging'
is in any way illegal.
But
it is obvious
that
in
order
to make the process worth while it was '1ecessary to
apply
for a very large
number
of
shares
in
the
first place, so
that
the
amount
actually
allotted would be sufficient to
make
aresale
worth
the
operator's
while.
To
discourage
'stagging'
the issuing houses usually
required
a
cheque
for the full
amount
of the shares
applied
for, together
with a
declaration
that
that
cheque
would be
met
on first
presentation.
I t was
hoped
that
this would
mean
that
only those with sufficient funds
to meet their total
application
would then be able to apply.
The
appellants
in R. v.
Greenstein
(1975, 1 W.L.R. 1353), however,
invented
a
practice
which they claimed
circumvented
the issuing
houses'
precautions
quite
legally.
They
opened
several
banking
accounts
which they kept in funds,
although
they
made
no
arrange-
ment
for overdrawing.
They
applied
for
shares
newly issued to the
public
for
amounts
far in excess
of
the
value of the balances which they
had
in those accounts.
But
they relied on the
practice
of the issuing
houses, which was to
send
aletter
of
allotment
of the
smaller
number
of
shares
actually allotted together with
theirown
cheque
for
the
'change',
that
is,
the
difference between
the
value
of
the
cheque
which they
had
received
and
the value
of
the
shares
actually allotted.
The
appellants
made
arrangements
with
their
banks
that
the
issuing houses' cheques
which they received would be given accelerated clearance, so
that,
when their
own
cheques were
presented
for
clearance
by the issuing
houses,
the
bank
met
them. Eventually,
the
issuing houses
complained
and
the
bank
managers
told
the
appellants
this was
irregular
banking
practice
and
they
abandoned
their
operation.
They
were
charged
with,
and
convicted of, dishonestly
obtaining
property
by
deception
contrary
to s. 15(1)
of
the
Theft
Act, 1968
and
124
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