No getting away with price rigging
UNETHICAL: TOP OFFICIALS GET R5.5M FINE
The announcement by the Financial Sector Conduct Authority (FSCA) that it has fined an asset manager and his stockbroker a total of R5.5 million for trying to rig prices on the JSE – in an effort to profit from huge exposure to the same shares in the futures market – makes for interesting reading due to the huge amounts invested in two small companies.
At the time of the transgression in 2008, Trinity Asset Management bought single stock futures contracts to the equivalent of R225 million worth of shares in the two companies.
The exposure to ConvergeNet, a small IT company, amounted to some R200 million and exposure to the even smaller Sallies in the mining sector came to R25 million.
Unfortunately, the shares didn’t go up and deliver large profits as the buyers obviously hoped for. Price data from 2008 shows they were very volatile. The investors were in for a wild ride, especially in the case of ConvergeNet.
Rapid decline
Not only did ConvergeNet’s share price experience large swings, hindsight shows that the trend was definitely down. The share declined rapidly from a high of above R13 in February 2008 to a low of less than R8 per share in December.
A report of the investigation by the FSCA and an old report of investigations by the Directorate of Market Abuse flagged suspicious transactions in ConvergeNet shares between November 2008 and March 2009, and in Sallies between July and December 2008.
The FSCA investigation found that Quinton George, CEO of Trinity Asset Management at the time, and Justin Fletcher, a share dealer at Imara SP Reid, manipulated the share prices of ConvergeNet and Sallies during November and December, to avoid posting additional margin to their loss-making positions in the futures market.
Deception
According to the FSCA report, George and Fletcher “used manipulative, improper, false or deceptive trading practices to create deceptive appearance of trading activity or an artificial price in respect of ConvergeNet and Sallies”.
The effect of the inflated closing prices meant that Trinity avoided or reduced the additional margins that would had to have been paid – by as much as R19 million on some days.
The FSCA imposed an administrative penalty of R4 million on George, saying that it had considered the seriousness of the misconduct.
Fletcher was fined R1.5 million. At the time, he was a dealer at stockbroker Imara SP Reid.
The FSCA noted further that South African financial markets, as emerging markets, require integrity to attract global investors and foster investor confidence.