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FSB probes three ICT entities

Martin Czernowalow
By Martin Czernowalow
Johannesburg, 30 Sept 2014
Three ICT companies are under investigation by the FSB.
Three ICT companies are under investigation by the FSB.

The Financial Services Board (FSB) is investigating three companies that operate in the local ICT space, in connection with possible insider trading and prohibited trading practices.

According to the FSB, the allegations against the companies are being probed by the Directorate of Market Abuse (DMA), an FSB committee that is "mandated to investigate and, in appropriate circumstances, take enforcement action in cases of market abuse on the financial markets".

Under investigation for possible insider trading are Ellies and MICROmega, says the FSB. The Ellies probe dates back to October last year - a period that covers three separate share trades by two of the company's directors.

On 15 and 17 October, Ellies director Grant Melville sold 200 000 shares, in separate tranches, for a total of R1.37 million. In a separate trade, on 22 October, the company informed the market that CEO Wayne Samson bought 100 000 shares, valued at R611 189.

In a second investigation into possible insider trading, the DMA is looking into a share-buyback by MICROmega, when the company informed shareholders on 30 July last year that it has repurchased 5.55% of its issued share capital - a total of 5.5 million shares.

The shares were repurchased in numerous tranches, during the period 1 August 2012 to 18 July 2013. The value of the buyback totalled R16.8 million, which the company said at the time was part of a recapitalisation programme.

The third ICT company probe is into possible prohibited trading practices by ConvergeNet Holdings, dating back to the period November 2008 to March 2009. At this time, ConvergeNet was in discussions to acquire 74% of Chrystalpine Investments 9, whose only asset was a 100% stake in Andrews Kit, trading as Contract Kitting, for a purchase consideration of R147.1 million.

It is understood the transaction, which was approved in the latter half of 2009, could have raised competition concerns in the market. This company is now one of its few remaining assets.

Pinnacle cleared

Earlier this month, the FSB dropped an investigation into allegations of insider trading at Pinnacle, a probe that was launched in April. The FSB was examining trades that took place in March between when Pinnacle executive Takalani Tshivhase was arrested on allegations of bribery, as well as when the listed company informed shareholders of the fact - 20 days later, when Tshivhase was formally charged.

The FSB announced its decision to abandon the probe some weeks after the said charges against Tshivhase had been dropped due to insufficient evidence.

The FSB explains the DMA can refer cases of insider trading to the FSB Enforcement Committee. In such cases, the enforcement committee may order the alleged offender to pay to the FSB 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. Market manipulation and false reporting cases can also be referred to the enforcement committee that can impose a penalty and a cost order on the alleged offender," says the FSB.

"In addition, market abuse transgressions are criminal offences in terms of the Act. The director of public prosecutions may institute criminal action against any person. It is not the function of the DMA to institute criminal prosecutions, but it would provide all information necessary to assist the director of public prosecutions."

Solly Keetse, head of the DMA, cannot comment on any ongoing investigations. He says that, despite the DMA always trying to apply timeframes to investigations, in reality things can take longer. "The wheels of justice turn slowly, and it sometimes takes a long time to conduct a proper and thorough investigation."

The FSB says that, since 1999, the DMA, and its predecessor, the Insider Trading Directorate, investigated a total of 347 cases. Of these, 254 were closed because there was no, or insufficient evidence of contravention. "In 77 cases, the DMA decided to proceed with enforcement action. The penalties imposed on offenders to date amounts to more than R99 million."