Ina Opperman

By Ina Opperman

Business Journalist


FSCA fines Viceroy Research R50 million for false Capitec statements

Lesetja Kganyago, governor of the Reserve Bank called them a hit squad. The partners in short-sellers Viceroy Research call themselves a “group of individuals that see the world differently”.


The Financial Sector Conduct Authority (FSCA) has fined Viceroy Research R50 million for its false Capitec statements, after finding that it had contravened Section 81(1) of the Financial Markets Act when it published false, misleading or deceptive statements, promises or forecasts regarding material facts about Capitec in January 2018, that the partners should have known were not true.

In addition, after the partnership was informed that what it published was false, it failed to publish full and frank corrections as required by Section 81(2) of the act.

ALSO READ: Capitec bank slammed as ‘wolves in sheep’s clothing’ in damning report by Viceroy

Viceroy Research’s Untrue statements

According to the FSCA, Viceroy Research made a statement, promise or forecast that:

  • Capitec had to write-off more than 42% of the gross collectable principal debt due to it in the financial year 2017
  • Capitec had a pervasive practice of rescheduling the loans of its delinquent clients through issuing new loans to these clients
  • Capitec’s loan book was irreconcilable by approximately R3bn
  • Capitec was guilty of reckless lending and would lose a court case that would trigger a class action lawsuit
  • the class action lawsuit would result in Capitec being ordered to pay R12.7bn to its former and current clients
  • “Capitec’s board is largely and unsurprisingly made up of several executives from both PSG and Steinhoff”
  • Capitec needed to recognise an additional R11.37bn of impairments to accurately reflect its liabilities.

ALSO READ: UPDATE: Capitec shares fall sharply after research group says loan book overstated

Administrative penalty for Viceroy Research

The administrative penalty includes Viceroy Research’s partners, Aiden Lau, Fraser John Perring, and Gabriel Bernarde and they are jointly and severally liable to pay the R50 million within 30 days. According to the FSCA it took into account:

  • The need to deter this kind of conduct: the FSCA says a contravention of section 81 of the act is a serious offense that can cause significant harm to investors, listed entities, and the broader market, and therefore the penalty should be a deterrent.
  • The degree of co-operation in relation to the contravention: the FSCA says it had to enlist the help of the US Securities and Exchange Commission (SEC) to compel a representative of the partnership to be questioned under oath.
  • The nature, duration, seriousness and extent of the contravention: the FSCA says the partners made a concerted effort to publish the statements as widely as possible, knowing that Capitec is a systemically important financial institution in South Africa and that these statements had the potential to trigger a run on the bank.
  • Loss or damage suffered by any person as a result of the conduct: the publication of the statements immediately caused the Capitec share price to decline by 23.12%.
  • The extent of any financial or commercial benefit arising from the conduct: the partners gained financially from the decline in the Capitec share price.
  • Whether the person has previously contravened a financial sector law: the FSCA says there is no record of the partners contravening a financial sector law previously.
  • The effect of the conduct on the financial system and financial stability: the FSCA says Capitec is a systemically important financial institution in South Africa and the partners’ false statements and failure to publish corrections posed a clear and present threat to the stability of the South African financial system.

“This penalty is particularly significant because it shows just how far the Financial Management Act reaches. Although the Viceroy Research Partnership and its partners are not financial institutions, and are domiciled in a different jurisdiction, their comments about South African listed securities make them subject to the stipulations of the act. The penalty also makes it clear that breaching our financial sector laws has serious consequences,” Unathi Kamlana, FSCA commissioner, says.

ALSO READ: Capitec Bank CEO says Viceroy report ‘factually, completely incorrect’

“Everyone subject to SA laws”

He says he takes a “dim view” of the Viceroy Research business model, as the partnership did this for a profit-sharing arrangement with a client. Kamlana added that he hopes the FSCA’s action will act as a deterrent.

“Everyone who comments on South Africa falls under our laws.”

After the Steinhoff debacle the FSCA also investigated Viceroy Research, but found that in that case the partnership’s findings were correct. The partnership issued a report on Steinhoff in December 2017, shortly after it fell apart.

Kamlana says the FSCA also investigated possible insider trading and prohibited trading practices in terms of the Financial Management Act in Capitec securities during the period of the publications, but has not found any evidence of it.

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