Viceroy Research is a partnership established in terms of the laws of the state of New York, and it has one British and two Australian citizens as partners.
In September 2021, the FSCA fined Viceroy R50 million for publishing allegedly false statements about Capitec in 2018.
Viceroy’s document, titled “Capitec: A wolf in sheep’s clothing”, alleged that Capitec should be placed under curatorship for overstating its financial assets and income, opaque reporting of loan cash flows, and reckless lending.
On the day the document was published, Capitec’s share price fell by more than 20% to an intraday low, wiping more than R24 billion off Capitec’s market capitalisation, before it recovered to end 3% down on the day.
Viceroy shared the report with a hedge fund prior to publication. It was estimated that the hedge fund made a profit of about R82m from shorting Capitec securities. Viceroy had an agreement with the hedge fund, and it received 12.5% ($744 482, or R13.6m) of the net profit from short positions that the fund took in Capitec securities.
The FSCA found that Viceroy contravened section 81 of the Financial Markets Act (FMA) because it published false, misleading, or deceptive statements, promises or forecasts regarding material facts about Capitec, which it ought reasonably to have known were not true. Further, notwithstanding being made aware that what they had published was false, Viceroy failed to publish full and frank corrections thereof, as required by section 81(2) of the FMA.
Viceroy applied to the FST for reconsideration of the FSCA’s decision to impose the R50m fine.
The tribunal upheld the application for reconsideration and set aside the FSCA’s order on the basis that the FSCA did not have jurisdiction over the person of the Viceroy partners because they are foreign litigants not domiciled within the jurisdiction of South Africa’s courts.
Read: Tribunal rules on Viceroy’s application against R50m penalty for Capitec report
The FSCA has launched an application in the High Court to review and set aside the tribunal’s decision.
Statements about listed companies must be true
Commenting on the case, the FSCA said although “motive and renumeration for publishing statements could play a role in determining an appropriate penalty for someone found to have contravened section 81 of the FMA, that is not in itself an element of the contravention. The key question remains whether the publication was a materially false, misleading, or deceptive statement, promise or forecast.”
Individuals who intend to publish statements, whether positive or negative, about regarding listed companies must ensure that they take the utmost care, and implement “each and every possible measure” to ensure that what they intend to publish is true, that what they publish is presented in a factually accurate, unambiguous, and frank manner, and that if they had made a mistake, they publish a full and frank correction as soon as they are made aware of any inaccuracy, the FSCA said.
Jooste’s fine slashed from R161m to R20m
Jooste was the chief executive of Steinhoff International Holdings and a director of various of Steinhoff’s subsidiary companies until his resignation on 5 December 2017.
He participated in the financial management of the subsidiary companies and the consolidation of the financial statements. Jooste attended most of the subsidiary’s board meetings, and the consolidated figures of Steinhoff’s European companies were submitted to Jooste for his review and input before being submitted to Steinhoff’s chief financial officer.
Therefore, during the finalisation of the consolidation of the financial year and the audit for the financial year ending 30 September 2017, Jooste had extensive knowledge of the group’s financial affairs and audit process, which included the strong likelihood that the group’s auditors would not sign off the financial statements without a forensic investigation.
On 30 November 2017, Jooste sent an SMS to a select group of friends and business associates. The SMS read: “Jy het altyd my opinie gevra … Steinhoff gaan lank sukkel om al die bad nuus en Amerika te verwerk so daar is beter plekke om jou geld te belê, vat onmiddelik die huidige prys en delete hierdie sms en moenie aan enige iemand noem nie.” (Steinhoff will struggle for a long time to process the bad news coming out of America, so there are better investments to make with your money, sell immediately at the current price and delete this SMS and do not disclose it to anyone.)
One of the recipients disregarded the SMS and did not trade. Three recipients heeded the warning and sold Steinhoff shares and deleted the SMS.
The FSCA found that Jooste contravened section 78(4)(a) and 78(5) of the FMA. The FSCA also found that three recipients contravened section 78(1)(a) and/or 78(2)(a) of the FMA.
Jooste and a recipient, Ocsan, took the FSCA’s decision to the FST.
The tribunal set aside the decision for the contraventions of section 78(1)(a), 78(2)(a) and 78(4)(a) and referred the calculation of an appropriate penalty for Jooste’s contravention of section 78(5) back to the FSCA for consideration.
Read: Tribunal overturns Markus Jooste’s R162m fine
The FSCA originally calculated the penalty for the contraventions of section 78(4) and (5) (combined) in terms of section 82 of the FMA. The penalty consisted of the amount of loss avoided by each recipient (three), plus an amount of three times that loss avoided for each recipient, plus the cost of the investigation. An amount of R1 million was also added for the fourth recipient who decided not to trade. The total penalty came to R161 566 066.
After the FST referred the matter back to the FSCA, the Authority recalculated the penalty, using different days to determine the absorbed price of the negative news and imposed a fine of R20m.
Jooste has lodged an application for reconsideration.
