Report by the FSCA on status of various investigations
The Financial Sector Conduct Authority’s (FSCA) held a meeting on 30 November 2018 to decide on various market abuse investigations.
The FSCA is mandated to investigate, and in appropriate instances, take enforcement action in cases of market abuse on the financial markets. Three kinds of market abuse are prohibited in South Africa, namely insider trading, market manipulation (prohibited trading practices) and false reporting relating to the affairs of a public company. Our investigation procedures include interviews under oath, acquiring documentary evidence and obtaining assistance from foreign Regulators.
In matters of insider trading the FSCA may order that the alleged offender pay an amount equal to the profit made or the losses avoided as a result of the offending transactions, and a penalty of up to three times such amount. These funds are distributed, after recovery of costs, to persons who may have been prejudiced by the offending transactions. In addition the FSCA may impose a range of administrative sanctions on the alleged offenders.
Market abuse transgressions are criminal offences in terms of the FMA (Financial Markets Act, No. 19 of 2012). The Director of Public Prosecutions may institute criminal action against any person. It is not the function of the FSCA to institute criminal prosecutions but would provide all information necessary to assist the Director of Public Prosecutions.
Since 1999, the FSCA; its predecessors; the Directorate of Market Abuse and the Insider Trading Directorate investigated a total of 416 cases. 304 cases were closed because there was either no evidence, or insufficient evidence existed to indicate that the FMA (or the now repealed Insider Trading Act and Securities Services Act) was contravened. In 91 cases the FSCA/DMA decided to proceed with enforcement action. The penalties imposed on offenders to date amounts to approximately R138 million.
The FSCA’s investigations into share trading patterns and complaints should not be construed as an indication that any violation of a law has occurred, or as a reflection upon any person, entity or security. The FSCA has the responsibility to investigate these matters in an impartial and objective manner. If no evidence of wrongdoing is uncovered, the investigations are closed.Below is a list detailing the current status of insider trading and prohibited trading practices investigations. It should be noted that these investigations are not into the affairs of the companies listed but into trading in shares on the stock exchange.
Possible insider trading cases
Possible prohibited trading practices (market manipulation) cases
Possible false or misleading reporting cases
Below is a list detailing the current status of possible false or misleading reporting investigations.
Investigations are "Closed" once it becomes evident that no, or insufficient evidence has been obtained to warrant administrative action.
The FSCA has decided to provide more detail on the cases mentioned below due to the extent of public interest and impact on the market.
Steinhoff International Holdings N.V.
The FSCA has registered three cases of market abuse involving insider trading, and publishing false and misleading statements.
Investigation One: Insider Trading This investigation focuses on seven trading accounts that sold Steinhoff (Steinhoff International Holdings N.V.) shares during the period from November to December 2017. The trading accounts (currently under investigation) belong to individuals, trusts and corporate entities. We have investigated the share trading on these accounts to establish whether it may have been undertaken by parties who were in possession of inside information regarding the alleged accounting irregularities and Mr Jooste’s resignation as CEO.
We are close to finalising this investigation.
Investigation Two: False and misleading statements
This investigation focuses on the 2015 and 2016 Steinhoff financial statements and the 2017 interim results. We are aware that PwC are conducting a forensic investigation and their findings will be taken into account in our investigation.
The FSCA has interviewed numerous individuals and has obtained extensive documentation. We have made good progress regarding this investigation.
Investigation three: Insider trading and false and misleading statements
This investigation deals with the Viceroy report which was published on 7 December 2017 after Steinhoff announced on 6 December 2017 that it has launched an investigation into alleged accounting irregularities and that it’s CEO had resigned.
The report was published by Viceroy (a foreign research company) which allegedly held short positions in Steinhoff.
We are receiving assistance from foreign Regulators and are making good progress in this investigation.
Once the PwC forensic investigation has been concluded it is possible that further investigations into insider trading and false and misleading statements may be initiated based on the findings of that investigation.
Resilient REIT Limited, Fortress Income Fund Limited, Greenbay Properties Limited, NEPI Rockcastle PLC
Allegations of possible contraventions of Sections 78 (insider trading) and 80 (price manipulation) of the FMA (Financial Markets Act No.19 of 2012) were made relating to share trades in securities in the following companies: Greenbay Properties Limited, Resilient REIT Limited, Nepi Rockcastle Limited and Fortress REIT Limited. In addition allegations of a possible contravention of Section 81(false and misleading statements) of the FMA were made relating to Resilient. The potential contraventions and the respective securities referred for investigation hereunder:
Price manipulation (Resilient REIT Limited, Fortress REIT Ltd, Greenbay Properties Ltd and Nepi Rockcastle Limited) - Section 80 of the FMA
The FSCA is investigating a possible contravention of section 80 (prohibited trading practices) of the FMA across all four shares. The investigation period is between 1 October 2017 and 31 March 2018.
Insider Trading (Resilient REIT Limited, Fortress REIT Ltd, Greenbay Properties Ltd and Nepi Rockcastle Limited) - Section 78 of the FMA
The FSCA is focusing on transactions before the following announcements:
Greenbay – SENS announcements dated 31 May 2016, 21 September 2016, 30 May 2017, 16 March 2017 and 8 August 2017. All these SENS announcements relate to book builds by Greenbay.
Resilient and Fortress - SENS announcement dated 7 March 2018 which relates to inter alia the unwinding of the cross shareholding between Resilient REIT Limited and Fortress.
Resilient - SENS announcement dated 22 August 2017 which relates to a book build by Resilient.
Nepi Rockcastle – SENS announcements dated 3 October 2017 which relates to a book build by Nepi Rockcastle.
False and misleading statements (Resilient REIT Limited and Nepi Rockcastle Limited) - Section 81 of the FMA The FSCA is investigating:
possible false statements made or published in respect of Resilient;
a complaint relating to rumours that were circulated on Twitter and other social media about the imminent publication of a report on Resilient by Viceroy; and
allegations of possible false and misleading reporting regarding Nepi Rockcastle pursuant to the Viceroy report.
Capitec Bank Holdings Limited
The FSCA received a complaint regarding possible contraventions of sections 78 (insider trading), 80 (price manipulation) and 81 (false and misleading statements) of the FMA. The initial period of the investigation was from 1 January 2018 to 30 January 2018, but this period has been extended to 29 June 2018.
The FSCA is investigating allegations of possible false and misleading reporting regarding Capitec Bank Holdings Limited pursuant to the Viceroy report.
Enquiries: Gerhard van Deventer Head: Investigations Financial Sector Conduct Authority Tel: 012 428 8015 E-mail: Johannes.vanDeventer@fsca.co.za