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FSCA opens insider trading probe over transactions in Huge Group shares

That will ‘cover disclosures and transactions in Huge Group securities during January 2021’, it said on Thursday.
Image: Moneyweb

The Financial Services Conduct Authority (FSCA) has begun an insider trading investigation that will “cover disclosures and transactions in Huge Group securities during January 2021”, it said on Thursday.

TechCentral understands that this investigation may be related to transactions in the JSE-listed telecommunications group’s shares by third parties who may have had prior knowledge of its planned bid to buy software services group Adapt IT, which it announced to the market on 27 January.

Meanwhile, the FSCA said it found insufficient evidence to conclude that Huge Group used a share buyback programme to manipulate its share price higher ahead of its all-share bid for software services group Adapt IT. However, it said the investigation will remain open while it “continues to investigate other transactions in Huge Group securities that may constitute prohibited trading practices”.

It emerged in mid-March that the FSCA was investigating Huge Group after a shareholder, Kerem Aksoy, lodged a complaint against the company at the regulatory authority. Aksoy is the managing member of US-based investment advisory firm Glacier Pass Management.

News24 reported at the time that Huge was actively buying its own shares through December and into January — so much so that most trades in the often-illiquid share were because of the buyback programme. The insinuation was that Huge Group manipulated the share price, which rose by about 40% over a six-week period, to make it more feasible to launch its all-share offer for Adapt IT.

‘Insufficient evidence’

The FSCA probe focused on transactions in Huge Group shares between 1 December 2020 and 28 February 2021.

The FSCA said it has “concluded that there is insufficient evidence to find that repurchase transactions by Huge Group during the investigation period constituted prohibited trading practices as defined in section 80 of the Financial Markets Act”.

“Should any new information come to hand that may warrant these transactions to be revisited, the FSCA could again investigate these transactions.”

The regulator said, too, that it intends to engage with licensed exchanges – this includes the JSE – and the broader market regarding the rules applicable to share repurchase programmes.

“The aim will be to gather information on whether the present rules provide sufficient investor protection when a listed company is significantly the largest purchaser of its own thinly traded shares. This is because the consequences, as in this case, may be to affect a share price. This is a matter of concern for us as the regulator of the financial markets.”  — © 2021 NewsCentral Media

Duncan McLeod is Editor of TechCentral, on which this article was first published here.

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COMMENTS   1

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If the AGM agreed to the repurchase arrangement, and shareholders were made aware of it, which party will be harmed by the process that supports the share price? They would have issued a SENS to inform the market about the decision by the shareholders to buy back shares.

I understand that this will lead to abnormal price movements in a thinly traded company. Still, how is it any different from a highly liquid company like Facebook when it uses credit at near zero per cent interest to repurchase its own shares? The effect of these repurchases, which were financed by cheap credit, implies that the Federal Reserve manipulated the market by spending other people’s money. This is more or less similar to what the Huge Group did on a smaller scale.

It is about the integrity of the market I suppose. Investors and clients must be able to trust the integrity of the market mechanism. This is where the FSCA comes into the picture.

End of comments.

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