Viceroy calls for information
Lawyers for Viceroy Research, the activist short-seller that was fined R50m by the Financial Sector Conduct Authority (FSCA), have written to regulators accusing them of “scurrilous” behaviour and demanding that they hand over certain information within 24 hours. Johannesburgbased Snaid & Morris accuses the FSCA of making “defamatory” statements against Viceroy.
Lawyers for Viceroy Research, the activist short-seller that was fined R50m by the Financial Sector Conduct Authority (FSCA), have written to regulators accusing them of “scurrilous” behaviour and demanding they hand over certain information within 24 hours.
Johannesburg-based Snaid & Morris accuses the FSCA of making “defamatory” statements against Viceroy in a press release on Wednesday when the R50m fine was announced. The FSCA hit Viceroy with the administrative penalty for a report on January 2018 accusing Capitec, SA’s biggest bank by client numbers, of being a “loan shark” and a “wolf in sheep’s clothing”. The FSCA deemed the report to be false, misleading and deceptive.
The letter drafted by Snaid & Morris is addressed to the FSCA and the Financial Services Tribunal (FST), which deals with appeals against FSCA sanctions. Viceroy founder Fraser Perring said on Wednesday the group intends appealing against the R50m penalty though he doubts it will get a fair trial.
Viceroy’s letter makes demands of the financial regulators, including that they publish “corrections” to their Wednesday statement and that they hand over information related to their investigation into Steinhoff. The letter alleges that Wednesday’s FSCA statement was disingenuous in that it failed to mention that Viceroy had voluntarily co-operated with the Securities and Exchange Commission (SEC) when summoned to appear before the US financial regulator at the FSCA’s request.
The letter also demands that the FSCA hand over all working documents and papers used by Brandon Topham, the FSCA’s head of enforcement, to make the calculations relied on when determining that Viceroy’s analysis of Capitec was erroneous. Viceroy’s lawyers are also demanding that the FSCA disclose details of all its employees and officials who are “members of social and/or religious organisations together with any employer [sic] or office bearer of Capitec Bank”.
“Our client further requires a list of all financial donations, gifts, contributions and/or sponsorships received by the FSCA or the FST or its officers and/or employees from Capitec Bank, its directors, office bearers and major shareholders,” the letter states. It claims that the behaviour of SA’s financial regulators display a “positive bias towards Capitec” and that they have launched a “witch-hunt” against short-sellers.
Short-selling is a controversial technique employed by certain market participants who seek to profit from the sudden collapse of a security. Participants often seek to expose information on companies that is unknown to the market to spark the collapse.
Viceroy has achieved fame by publishing information on
Steinhoff in December 2017 soon before the company’s share price plunged after it emerged that it was at the centre of the biggest fraud in SA corporate history. But its January 2018 report on Capitec failed to achieve similar results, with regulators discrediting Viceroy’s research and the Reserve Bank labelling the outfit a “hit squad”.
SA-founded capital markets researcher Intellidex also published a report, “Investment Research in the Era of Fake News”, that questioned the rigour of Viceroy’s analysis of Capitec, saying it was “thin on data” and contained unsupported exaggerations. The Intellidex report, which was commissioned by Business Leadership SA (BLSA), said that Viceroy’s Steinhoff report was “substantially plagiarised” from a similar body of work produced sixmonths earlier by London-based Portsea Asset Management.
The FSCA confirmed receipt of Viceroy’s letter and said that while it intends to respond it does not regard it as an appeal against its decision.
“The correct legal avenue is for an aggrieved party to lodge an application for reconsideration of the decision with the FST,” said Tembisa Marele, a spokesperson for the FSCA. “As the FSCA, we stand by the regulatory action we’ve taken, whilst also respecting the right of aggrieved parties to approach the tribunal for a reconsideration of any of our decisions.” Capitec declined to comment.