News / Legal Brief
Feb 14,2016
Matters relating to insider trading do not often come before the South African courts as the Enforcement Committee of the Financial Services Board (“FSB”) routinely investigates and deals with such matters.
The matter of Zietsman and Another v Directorate of Market Abuse and Another 2016 (1) SA 218 (GP) involved an appeal to the High Court against a finding of the FSB and is one of a very few reported judgements in South Africa dealing with insider trading.
Although in this matter, the charges of insider trading were brought under the Securities Services Act 36 of 2004 (“SSA“), which has since been repealed by the Financial Markets Act 19 of 2012, this judgement remains relevant as the definition of “inside information” and the offence of “insider trading” are identical in both Acts.
The pertinent facts in this matter were that Mr Zietsman and his company, Harrison and White Investments (“Appellants”) embarked on a strategy of acquiring a controlling interest in Africa Cellular Towers Limited (“Listco”), a company listed on the alternative exchange of the JSE.
A due diligence investigation and valuation of the business of Listco were undertaken, during the course of which the Appellants came into possession of information that Listco had secured a loan from the Industrial Development Corporation to the amount of R99 million, subject to the finalisation of the agreements relating to such loan (“Relevant Information”).
Certain Listco shares were acquired by the Appellants at a time when it was public knowledge (as a result of a SENS announcement) that Listco had secured a loan, but neither
(i) the identity of the lender, nor
(ii) the amount of such loan had been disclosed to the public.
After the shares were acquired by the Appellants, the details of the loan were announced on SENS and the share price of Listco shares increased dramatically.
The question before the court was whether –
By way of defence, the Appellants contended that the Relevant Information did not constitute “inside information” as the Relevant Information was, amongst other things –
The Appellants consequently did not believe or “know” that they had inside information as contemplated in the SSA and accordingly did not contravene the insider trading provisions of the SSA.
After reviewing the law on insider trading in Europe and the United Kingdom, the court rejected the Appellants’ contentions and held that ‑
Accordingly, the court held there was no basis for setting aside the FSB’s finding that the Appellants were guilty of insider trading.
In determining an appropriate administrative sanction, the court was of the view that it was irrelevant that the Appellants had made no actual profit from the insider trading, but ultimately suffered a loss (they did not sell their shares following the share spike and Listco was subsequently placed in liquidation).
The penalty of R1 million that was imposed by the FSB was informed by (but not equal to) the potential profit the Appellants could have made from the insider trading and the court found there was no basis to set aside that penalty.
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