Report finds Viceroy lacking

COMPANY PROFITS FROM ITS RESEARCH Clear case showing its shot at Capitec Bank was an attempt at market manipulation.

For Bonang Mohale, the straight-shooting CEO of Business Leadership SA (BLSA), Viceroy must be praised for red-flagging the fraud at Steinhoff that led to the spectacular downfall of the retailer’s disgraced former chief executive Markus Jooste.

“Viceroy needs to be congratulated for having exposed the theft and deceit at Steinhoff,” Mohale told Moneyweb.

Short-seller Viceroy unveiled patterns of off-balance sheet transactions that Steinhoff used to artificially inflate earnings at a time when there was an information vacuum about the extent of the fraud.

But the ethics of how Viceroy obtained data and compiled its report left a lot to be desired, said Mohale.

Viceroy faced renewed scrutiny from BLSA as the business lobby group accused it of substantially plagiarising its report on Steinhoff from the work of London-based Portsea Asset Management.

“If Viceroy’s research was fact based, well researched and had no other ulterior motives, we would support it as the voice of business,” said Mohale, who added the mandate of BLSA was to understand how fake news impacted financial markets.

A study by research house Intellidex, which was commissioned by BLSA, found the wording of Viceroy’s Steinhoff report was identical to a report issued by Portsea six months before Viceroy published its report on December 6, 2017.

It appeared as if Viceroy used data sourced by Portsea without citing it and effectively presented it as its own. This, Intellidex argued, gave Viceroy – founded by disbarred social worker Fraser Perring and two 24-year-old Australians who all have limited financial market experience – undue influence as its report blew the lid off the complex web of Steinhoff’s fraud.

According to Intellidex, Steinhoff’s shares fell by more than 40% after Viceroy released its

report, resulting in Viceroy profiting from the sell-off as it took short positions.

Taking short positions or short selling is the legal and age-old practice of borrowing a share with a view that its price will fall instead of rising over time and booking profits.

Viceroy has been accused of destabilising other companies based in SA, Australia and the US by releasing damaging research and profiting from share price declines.

It recently took aim at Capitec Bank, alleging the lender was concealing significant write-offs by refinancing loans that customers were unable to repay. Viceroy’s Capitec report, which was considered shoddy and was criticised by the Reserve Bank and National Treasury, led to a more than 7% slide in the lender’s share price.

Intellidex chairman Stuart Theobald said there was a clear case to show Viceroy’s research was an attempt at market manipulation and distorting share prices.

BLSA handed its report to market regulators on Thursday. It might be used by the JSE and Financial Sector Conduct Authority in their market abuse investigation into Viceroy after wild swings in Capitec’s share price.