The Financial Sector Conduct Authority says there is insufficient evidence against software company Huge Group, following allegations of share price manipulation.
The FSCA began its investigation of Huge Group in March, after a shareholder flagged some concerns about possible “unusual trade activity” in Huge's shares from December 2020 into Janurary, a complaint technology company, Adapt IT's independent board, took to the FSCA. The probe focused on that time period until 28 February 2021. Huge is looking to acquire 100% of Adapt IT, through a R800 million share swap in exchange for 0.9 of its shares for every Adapt IT share. The share swap ratio is based on a reference price of R6.13 and an implied price of R5.52 per Adapt IT share.
"[The FSCA] has concluded that there is insufficient evidence to find that repurchase transactions by Huge Group Limited during the investigation period constituted Prohibited Trading Practices," said the market regulator in a statement on Thursday.
However, the FSCA cautioned that its findings were not an endorsement, affirmation, or expression regarding the value of Huge’s share price. It added that it would revisit the group’s transactions, should new information that warrants a probe, come up.
"The investigation will remain open whilst the FSCA continues to investigate other transactions in Huge Group Limited securities that may constitute Prohibited Trading Practices," said the FSCA.
It added that it has begun an insider trading investigation on Huge disclosures and transactions that happened in January.
"Lastly, we intend to engage with the licensed exchanges and the broader market regarding the rules applicable to share repurchase programmes. The aim will be to gather information on whether the present rules provide sufficient investor protection when a listed company is significantly the largest purchaser of its own thinly traded shares," said the regulator.
It explained that this was because the consequences may affect the share price, the regulator concluded.
Huge’s CEO James Herbst said the group felt "vindicated" by the FSCA’s finding.
"The allegations were simply an attempt by those making them to attempt to spoil our offer, to the prejudice of Huge and Adapt IT shareholders," he said.
Herbst also said that the group’s understanding was that it not involved in the FSCA’s continuing investigation on other transactions on its stock.
Adapt IT CEO Sbu Shabalala said the company will continue to cooperate with the FSCA on its investigations.
*This story has been corrected to reflect that Adapt IT approached the FSCA with a formal complaint about possible share price manipulation at Huge Group. It has also been updated with comment from Adapt IT.