R50m Viceroy fine set aside
CAPITEC: REPORTS ABOUT IT MISLEADING
Research group targeted gullible online users to spread panic about bank.
The outcome of an application by Viceroy Research and its three partners to set aside a R50 million fine imposed by the Financial Sector Conduct Authority (FSCA) contains a few surprises. The Financial Services Tribunal panel that considered the application concluded that the FSCA has no jurisdiction over Viceroy and its members because the damaging reports were written and distributed from outside South Africa.
The decision comes after the tribunal accepted the FSCA’s findings that Viceroy’s 2018 reports on the bank – the original of which was titled “Capitec: A Wolf in Sheep’s Clothing” – were false, misleading and deceptive.
“Viceroy did not prepare the Wolf report for altruistic reasons, something it freely disclosed in the ‘disclaimer’ where they state that they may continue transacting directly and/or indirectly in the securities of issuers covered in this report for an indefinite period and may be long, short, or neutral at any time hereafter regardless of their initial recommendation,” notes the tribunal in its ruling.
The facts
“The simplified facts are these: Viceroy had an agreement with a hedge fund, Oasis, under which it, at a monthly retainer of $10 000 (about R172 000), would prepare reports that would assist Oasis in shorting securities in any chosen company,” states the ruling.
“In addition, Oasis would, on a yearly basis, pay Viceroy 12.5% of the net profit it made in the particular year on trades based on Viceroy’s reports. The applicants produced the report under the agreement and supplied it to Oasis to enable Oasis to take positions on Capitec securities.
“Oasis did, and to be able to profit, Viceroy had to make its bearish report public, which led to panic sales as described. Oasis made an estimated profit of R82 million and the share of Viceroy in the profit from short positions taken by Oasis on Capitec was estimated by the FSCA to be close to $744 482 (R10 million then), which was shared equally between the applicants.”
Despite accepting the FSCA’s damning evidence, the tribunal found that the three Viceroy members – Fraser Perring (a British citizen whose domicile is the U1S) and Aiden Lau and Gabriel Bernarde Australian citizens staying in Australia – are all foreign nationals and SA authorities had no jurisdiction to enforce the penalty.
Referring to other cases, the tribunal found that “a superior court would not have had jurisdiction in a civil case against the applicants. It therefore ought to follow that the FSCA did not have jurisdiction to impose a penalty on the applicants.”
The tribunal agreed with Viceroy’s submission that the penalty needed to be reconsidered, accepting its arguments that “the acts committed by the applicants were not committed in South Africa” and, secondly, “that they are foreign peregrini of South Africa”.
The tribunal offered lengthy legal arguments that court actions are based on a person’s whereabouts, either by way of residing in or having a business presence in a country. However, it said it does have jurisdiction over the person’s conduct.
“The facts do not support the applicants. Accepting that the Wolf report was compiled in the USA and Australia and ‘sent’ from there, this conduct had consequences in SA – irrespective of where the originating acts occurred. The impugned statements were ‘directly and indirectly’ published (made public) by the applicants in South Africa and they ‘made a concerted effort to publish the statements as widely as possible in SA’,” states the ruling.
The penalty of R50 million was nonetheless set aside based on the requirement of physical jurisdiction. The hatchet job was mostly successful as Viceroy targeted gullible social media users to spread panic about Capitec in its bid to drive down the share price.
The writers, then hiding their identities, cultivated the image that Viceroy was a large successful research firm that disclosed the truth about the fraud at Steinhoff International.