Stock Fraud

A question I have often asked myself how common is stock fraud given there no longer is any share scrip and share trading operates within the confines of a tightly regulated industry. Until recently I had not heard or read reports of stock fraud within the Australian public companies (ASX) trading environment.

How similar is the Electronic Conveyancing industry for property compared to Paperless Share Trading on the ASX. One common element is just as there isn’t share scrip under EC there wont be any paper or duplicate titles. Updating the Titles Register via Transfers and Mortgages will be executed by licenced lawyers, conveyancers and banking staff on behalf of clients and financial institutions.

Stock Fraud

A report just published by ASIC - Mr Neville John Kakoschke, a former options advisor and stockbroker, has pleaded guilty today in the Adelaide District Court to 27 forgery charges arising from an investigation by ASIC. A further 25 forgery charges were acknowledged.

Mr Kakoschke, of Thorngate in South Australia, was employed as a dealer’s representative of two stockbroking firms, Dicksons Limited, between July 1997 and June 2002, and Bell Potter Securities Ltd, between June 2002 and April 2003.

ASIC alleged that between 13 September 2001 and 11 March 2003, Mr Kakoschke forged collateral lodgement forms thus allowing him to use his clients’ shares without their consent as security for trading on other clients’ accounts as well as for his personal options accounts. This placed clients’ shares worth about $1,283,980 at risk without their knowledge.

As a consequence of Mr Kakoschke’s trading, some of his clients had no further collateral available to enable them to continue options trading. It is alleged that rather than tell these clients the true situation, Mr Kakoschke forged the third party collateral forms and used this collateral to continue trading on these accounts.

The charges are being prosecuted by the Commonwealth Director of Public Prosecutions.

Mr Kakoschke has been remanded on bail for sentencing in the District Court on 29 September 2006.

Predicatively rogue employees or principals may very well be one risk that will lead to title fraud under the Electronic Conveyancing regime. One measure against unauthorised dealings is that when a New Dealing is created under EC, the system wil generate a notification, email or letter, that is sent to the Registered Proprietor giving notice of the proposed dealing. Its an alert to the owner that something is afoot with their property. This is a preventative measure to stop unauthorised dealings ever getting registered. The public will need to be educated to notify the Land Titles Office of any change of address to ensure they receive such a Notice. Perhaps this is a service Insurance Companies could offer to their clients. Or Councils might be given this responsibility. Food for thought.

Then there is always the title insurance angle giving protection to owners and financial institutions against finanical loss for unauthorised or fraudulent dealings I for one will recommend every client to take out Title Insurance. You insure your car against theft, don’t you.