The unrelenting pursuit by the Financial Sector Conduct Authority (FSCA) of short seller Viceroy Research over “false” statements about Capitec in 2018, which saw the group’s share plunge on the JSE after the firm accused it of predatory lending, has borne fruit.
The regulator scored a legal victory last week when the high court ruled it was within the regulators’ province to pursue and fine Viceroy.
The judgment empowers the FSCA to pursue offshore entities that cause harm to SA financial services groups.
The FSCA fined the US-based Viceroy, its partners Aiden Lau, Fraser John Perring and Gabriel Bernade R50m for the “damaging” and “false” report into Capitec’s businesses practices.
The judgment handed down by judge Nicolene Janse van Nieuwenhuizen found the Financial Services Tribunal erred when it found that the FSCA lacked jurisdiction over the person of the Viceroy partners because they are foreign litigants not domiciled within the jurisdiction of SA’s courts.
The tribunal’s decision, which the FSCA has now successfully overturned, had in effect allowed Viceroy to not face the wrath of SA authorities.
“The importance of proper regulation is borne out by the facts in casu. The misinformation that was widely distributed and publicised in SA by the respondents had a disastrous effect on one of SA’s prominent financial institutions,” reads the judgment.
“To absolve the respondents from being liable for their conduct merely because they will at no stage be physically present in SA is not in the interest of justice.
“The amount of the administrative penalty, to wit R50m, will undoubtedly be welcomed in the dire economic circumstances prevailing in SA and the ever-shrinking fiscus.”
The Viceroy report, which outgoing Capitec CEO Gerrie Fourie described as the worst day he had with the bank in his 25 years with the lender, caused ripples in the market when it landed in January 2018.
The report, “Capitec: A Wolf in Sheep’s Clothing” called for then-minister of finance Malusi Gigaba to place Capitec into curatorship, accusing the lender of “refinancing delinquencies”, among other allegations.
Viceroy at the time said it had obtained legal documents that showed Capitec advised and approved loans to “delinquent customers to repay existing loans”.
However, the allegations by Viceroy quickly evaporated after the SA Reserve Bank said Capitec was solvent, well capitalised, had adequate liquidity and met all prudential requirements.
On the day the document was published, Capitec’s share price fell by more than 20% to an intraday low, wiping more than R24bn off its market capitalisation, before it recovered to end 3% down on the day.
Viceroy shared the report with a hedge fund before publication. It was estimated that the hedge fund made a profit of about R82m from shorting Capitec securities.
Viceroy had an agreement with the hedge fund, and it received 12.5% of the net profit from short positions that the fund took in Capitec securities.
“If one has regard to the purpose and object of the regulation of financial markets, its importance far outweighs the necessity to serve any documents that initiate the enforcement of financial regulation on a peregrinus [a foreign litigant that is not domiciled within the jurisdiction of the court] personally to find jurisdiction,” Janse van Nieuwenhuizen said.
“The development of the common law in this regard will ensure the effective regulation of financial activity that takes place globally.”
Capitec has since moved on from the Viceroy saga, adding more than 6-million new clients since then, with the group’s share price up 300% over the past five years.
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