Pretoria - The Financial Sector Conduct Authority (FSCA) has been in contact with its counterparts in the US and the UK in a bid to contact short seller Viceroy, who published their report "A Wolf in Sheep's Clothing" about Capitec Bank in January.
The report, which saw Capitec’s share price dive by up to 25%, claimed the bank was using predatory lending practices and illegal fees to inflate profits. Several market analysts have since criticised Viceroy’s report and the South African authorities are investigating whether there was any market manipulation or insider trading involved.
“We cover all bases, without going into detail…we have contacted our counterparts in the US and the UK to try help us find out who Viceroy is and if they can help us contact them,” FSCA’s head of market abuse Solly Keetse told a media roundtable in Pretoria on Thursday.
The FSCA replaced the Financial Services Board (FSB) on April 1, as part of the Financial Sector Regulation Act, also known as Twin Peaks regulatory system, which came into effect on the same day.
Capitec accused Viceroy of deliberately discrediting the bank, to short its share price, a claim which the US based shortseller has denied.
Financial sector authorities are barred from revealing details about ongoing investigations due to confidentiality legislation.
Keetse said they aim to complete relatively simple investigations within six months and more complex matters within a year.
The FSCA’s focus is on offences relating to listed securities in a regulated market; insider trading, market manipulation and false and misleading statements.
Most complaints of suspicious behaviour come from the Johannesburg Stock Exchange (JSE), the press and sometimes anonymous tip-offs.
Keetse pointed out that the regulatory authority only has to prove wrongdoing on the balance of probabilities and unlike a criminal case, they don’t have to prove their case beyond reasonable doubt.
He added that this makes it easier for the FSCA to impose sanctions, than it would be for authorities to secure a criminal conviction.
According to Keetse, since the legislation was enacted in 1999, financial regulatory authorities have imposed fines amounting to R100m. The most common offence is insider trading, followed by market manipulation and a handful of penalties for false and misleading statements.
False Steinhoff statements
The sell-off of Steinhoff shares in December as well as property stablemates Resilient Reit, Nephi Rockcastle, Fortress and Greenbay in February, have also raised questions about whether anyone had information about the companies before the rest of the market.
Shaun Davies, director of market regulation at the JSE said that they have a sensitive system to monitor the buying and selling of shares as well as the identities of the traders.
He said that if there is any unusual activity, the JSE is alerted and authorities check whether any publicly known information warrants the changes.
If there is no event in the market that could have led to increased activity, the JSE contacts the listed company and asks them the events.
Sometimes the companies admit that there could have been a breach ahead of their results being released or corporate activity and the JSE will review who bought and sold the shares.
If the JSE finds that an investigation into the transaction is warranted, it will inform the FSCA who will take over the process.
Davies added that listed companies have been known to include typos and other errors in their financial statements, but Stellenbosch-headquarter Steinhoff could be the first company to be found guilty of deliberately publishing false and misleading information.
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