Three years ago, South African CSD STRATE created the Dispossessed Members Fund (DMF) for shareholders whose share certificates might have become worthless because they had been forged and sold without their knowledge. The CSD says the protection afforded to shareholders by the DMF has now expired.
Investors are exposed to the threat that their share certificates might be negotiated. Only once the shareholder arranged to have his certificates converted into an electronic record of ownership would he have been made aware of the fraud.
“During the three years that the DMF was in operation, very few such fraudulent actions were exposed,” says Monica Singer, CEO of STRATE Ltd. “Resort to the DMF was therefore inconsequential.”
However, Singer points out, some 23% of the JSE’s market capitalisation has yet to be dematerialised.
Singer stresses that although the DMF cover has wound down, the Fund remains in existence to pay out claims where the fraudulent dematerialisation occurred before 29 September 2002.
In order to be “dispossessed”, the shareholder must no longer be the registered owner of his/ her shares, these being dematerialised into someone else’s name prior to 29 September 2002.
Should a shareholder have been dispossessed by 29 September 2002, they have until 29 September 2003 to lodge a claim against the fund.
For such a claim to be valid, it is not necessary for the shareholder to have attempted to dematerialise before 29 September 2002. Nor is it necessary for the shareholder to become aware that his shares had already been dematerialised before 29 September 2002.
It is, however, necessary that the shares were actually dematerialised before 29 September 2002 and that the shareholder discovers this fact and lodges a claim by 29 September 2003.
Singer urges those still in possession of share certificates to speak to their banks or brokers to arrange for the certificates to be dematerialised.
“The sooner the better. The cover offered by the DMF has only just expired, suggesting that if fraud has taken place, it would have occurred prior to September 29, in which case a valid claim could be entered.
“But the longer the necessary action is delayed, the more chance there is of the fraud taking place after September 29, after which date the protection afforded by the DMF is no longer available.”
Shares may not be sold on the JSE Securities Exchange until they have been dematerialised.