FSCA finds no evidence of naked shorting at Mantengu Mining

The Financial Sector Conduct Authority (FSCA) says after a months-long investigation it found no evidence of “naked shorting” of Mantengu Mining shares, as claimed by the company in a criminal complaint.

It also found no evidence of improper conduct by the JSE or its officials. Should the matter be further investigated by law enforcement, the FSCA says it will provide its full support and cooperation.

Naked shorts are illegal in most countries and are seen as a type of price manipulation. This is where shares are sold by a trader who does not own or has not borrowed them, with a view to making a profit by buying the shares back at a lower price.

This is what Mantengu alleges has been happening to its shares.

Mantengu alleged that there is a “centrally controlled, tightly run and fronted syndicate that is central to Mantengu’s share price manipulation,” the objective being to disrupt its acquisition of Blue Ridge Platinum in October last year.

Mantengu named a number of alleged co-conspirators in its claims, including certain JSE officials, Liberty Coal and its chief financial officer, Ulrich Bester, who was formerly financial director at Mantengu.

The JSE, Bester and Liberty Coal have denied any wrongdoing, and have threatened legal suits against Mantengu for what they say are false and defamatory allegations.

Liberty Coal accused Mantengu CEO Mike Miller of being a “delusional fantasist” who has made defamatory allegations without providing evidence.

Liberty Coal and the JSE say they have yet to see actual evidence of the criminal complaint allegedly made against them.

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Mantengu responds

Mantengu responded to the FSCA statement late on Sunday, highlighting what it regards as several deficiencies in its investigation, including:

• The FSCA investigation covered just nine months out of Mantengu’s 24-month review period;
• The investigation was confined to a sample of trades flagged by Mantengu, suggesting the JSE did not identify or refer any suspicious trades to the FSCA, which “raises concern about the JSE’s monitoring and surveillance of the trading activity in Mantengu’s shares”;
• The investigation was too narrowly focused on short selling instead of alleged collusive and systemic share price manipulation by a syndicate;
• Information from electronic devices seized as a result of an Anton Piller court order on Ulrich Bester was excluded from the investigation;
• While the FSCA has cleared certain JSE executives of wrongdoing, they remain the subject of a Hawks investigation; and
• Eight million Mantengu shares were allegedly taken with authorisation by the share owner to cover naked shorts – the company alleges its shareholders are losing significant value due to governance breaches by the JSE.

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Investigation, findings, conclusion

The FSCA’s statement on Friday took issue with Mantengu’s claims in the media “that it had reported to the JSE Limited and the FSCA that a certain group of individuals were involved in the manipulation of the company’s share price”.

Mantengu further claimed that the FSCA had found a prima facie case warranting further investigation.

“The FSCA wishes to clarify that claims that it found a prima facie case for further investigation are incorrect,” it says.

“The Authority received a complaint from Mantengu alleging prohibited trading practices and insider trading. Given the serious nature of the allegations and because they [in their untested form] met the threshold of reasonable suspicion, the FSCA considered it prudent to initiate an investigation.”

The FSCA initially focused on specific share trades made in January 2024, which Mantengu alleged were intended to drive its share price lower. The regulator then conducted further investigations into what were deemed suspicious trades made in August 2024.

Mantengu’s share price over the past year

“After a thorough investigation, the FSCA concluded that the transactions and orders identified by Mantengu were lawful securities transactions in the ordinary course of business,” concludes the regulator.

“With regard to the allegations of naked short selling of 387 044 Mantengu shares during the first week of June 2024, the Authority concluded that the transactions did not amount to uncovered short sales.”

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Earlier review

The JSE told Moneyweb that it previously reviewed Mantengu’s claims of share price manipulation, finding “either no evidence of possible price manipulation warranting a referral to the FSCA by the JSE” – which it says it conveyed to Mantengu – “or the relevant trading activity is the subject of an ongoing investigation by the FSCA”.

Mantengu says one of its shareholders was approached by the JSE to borrow shares, presumably for to facilitate short trading.

The JSE says that when it conducts securities lending and borrowing with market participants, this does not necessarily mean the shares are being used for short selling.

“Mantengu awaits the full FSCA report and will consult its corporate and legal advisors to assess whether a High Court review of the findings is warranted, given the investigation’s limited scope,” says Miller.

“The outcome does not impact Mantengu’s criminal complaint and ongoing investigation.

“Contrary to some narratives, Mantengu is not seeking to discredit the JSE or FSCA,” he adds.

“As a responsible corporate citizen, we are committed to ensuring market integrity – whether concerning people, systems, controls or regulatory frameworks.

“Several other listed companies have approached us with similar concerns, reinforcing the need for thorough scrutiny.”

This article was republished from Moneyweb. Read the original here.