FSCA fines Viceroy Research R50 million for false Capitec statements
By Ina Opperman
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The Financial Sector Conduct Authority (FSCA) has fined Viceroy Research R50 million for its false Capitec statements, after finding that it had contravened Section 81(1) of the Financial Markets Act when it published false, misleading or deceptive statements, promises or forecasts regarding material facts about Capitec in January 2018, that the partners should have known were not true.
In addition, after the partnership was informed that what it published was false, it failed to publish full and frank corrections as required by Section 81(2) of the act.
The administrative penalty includes Viceroy Research’s partners, Aiden Lau, Fraser John Perring, and Gabriel Bernarde and they are jointly and severally liable to pay the R50 million within 30 days. According to the FSCA it took into account:
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The need to deter this kind of conduct: the FSCA says a contravention of section 81 of the act is a serious offense that can cause significant harm to investors, listed entities, and the broader market, and therefore the penalty should be a deterrent.
The degree of co-operation in relation to the contravention: the FSCA says it had to enlist the help of the US Securities and Exchange Commission (SEC) to compel a representative of the partnership to be questioned under oath.
The nature, duration, seriousness and extent of the contravention: the FSCA says the partners made a concerted effort to publish the statements as widely as possible, knowing that Capitec is a systemically important financial institution in South Africa and that these statements had the potential to trigger a run on the bank.
Loss or damage suffered by any person as a result of the conduct: the publication of the statements immediately caused the Capitec share price to decline by 23.12%.
The extent of any financial or commercial benefit arising from the conduct: the partners gained financially from the decline in the Capitec share price.
Whether the person has previously contravened a financial sector law: the FSCA says there is no record of the partners contravening a financial sector law previously.
The effect of the conduct on the financial system and financial stability: the FSCA says Capitec is a systemically important financial institution in South Africa and the partners’ false statements and failure to publish corrections posed a clear and present threat to the stability of the South African financial system.
“This penalty is particularly significant because it shows just how far the Financial Management Act reaches. Although the Viceroy Research Partnership and its partners are not financial institutions, and are domiciled in a different jurisdiction, their comments about South African listed securities make them subject to the stipulations of the act. The penalty also makes it clear that breaching our financial sector laws has serious consequences,” Unathi Kamlana, FSCA commissioner, says.
He says he takes a “dim view” of the Viceroy Research business model, as the partnership did this for a profit-sharing arrangement with a client. Kamlana added that he hopes the FSCA’s action will act as a deterrent.
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“Everyone who comments on South Africa falls under our laws.”
After the Steinhoff debacle the FSCA also investigated Viceroy Research, but found that in that case the partnership’s findings were correct. The partnership issued a report on Steinhoff in December 2017, shortly after it fell apart.
Kamlana says the FSCA also investigated possible insider trading and prohibited trading practices in terms of the Financial Management Act in Capitec securities during the period of the publications, but has not found any evidence of it.