The Financial Services Tribunal (FST) has set aside a R50m fine imposed on Viceroy Research by the Financial Sector Conduct Authority (FSCA) and granted the activist short-seller’s application for the penalty to be reconsidered.
The majority ruling, handed down by a three-member panel on November 15, found that while the FSCA has jurisdiction over the conduct of the authors of a Viceroy report that was highly critical of Capitec, it did not have jurisdiction over their person. By extension, that means the regulator did not have jurisdiction to impose a penalty given that the three authors were foreign nationals and not based in SA.
“A superior court would not have had jurisdiction in a civil case against the applicants,” the ruling states. “It therefore ought to follow that the authority did not have jurisdiction to impose a penalty on the applicants.”
The FSCA handed Viceroy a R50m administrative penalty in September 2021 after it issued a report on Capitec that the regulator said was false, misleading and deceptive. “Capitec — A wolf in sheep’s clothing” was published on January 30 2018 and accused the bank of being a predatory lender.
Viceroy claimed Capitec’s loan book was enormously overstated and that its credit facility’s origination fee resembled “loan shark tactics”. It also urged the Reserve Bank and the finance minister to immediately place the lender under curatorship.
Viceroy had earlier made a name for itself in SA by publishing information on Steinhoff shortly before that company’s share price collapsed in the wake of an accounting fraud scandal.
The Capitec report prompted massive selling of Capitec’s shares. The stock later recovered after the Bank labelled the specialist short-seller group a “hit squad” and discredited the report.
“One gains the impression that the market chose to accept the assurances of the Reserve Bank and ignore the views of Viceroy,” the FST ruling said.
Viceroy founder Fraser Perring, a UK national who resides in the US, was scathing of the FSCA on Twitter and suggested the group may take further action against the regulator. The other Viceroy authors named in the court verdict are Aiden Lau and Gabriel Bernarde, both Australian citizens domiciled in that country.
“The FSCA deliberately played dirty tactics, in my opinion, and lost,” said Perring. “Our legal counsel are reviewing our options.”
The Viceroy Research Twitter handle echoed Perring’s comments, saying the group wanted to hold the FSCA accountable for “malicious prosecution”.
The FSCA said in a statement it was studying the tribunal’s decision and “will decide on the most appropriate way forward”.
One of the FST’s panellists, advocate Michelle le Roux, disagreed with the decision on the requirements for establishing personal jurisdiction. Le Roux argued that digital conduct occurs in a “dynamic and evolving context” and that defendants in legal matters should not necessarily need to be physically in SA to be served a summons.
Citing various prior cases, Le Roux said requiring defendants to be physically in SA to determine personal jurisdiction risked defeating the objective of the Financial Sector Regulation Act.
“A requirement of physical service on the defendant while in SA is, in my view, unduly restricted and onerous,” she wrote in her minority decision contained in the FST ruling.
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