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Why Business Leadership SA is taking Viceroy to task

It’s not about imposing sanctions against individuals behind Viceroy but creating a transparent market for short selling.

For Bonang Mohale, the straight-shooting CEO of Business Leadership SA (BLSA), Viceroy must be praised for red-flagging fraud at Steinhoff that led to the spectacular downfall of the retailer’s disgraced former CEO Markus Jooste.

“Viceroy needs to be congratulated for having exposed the theft and deceit at Steinhoff,” Mohale tells Moneyweb.

Short-seller Viceroy unveiled patterns of off-balance sheet transactions that Steinhoff had used to artificially inflate earnings at a time when there was an information vacuum about the extent of fraud, which earned the retailer the title of “SA’s Enron”.

But the ethics of how Viceroy obtained data and compiled its Steinhoff report, which propelled the short seller to prominence in financial market circles, leaves a lot to be desired, says Mohale.

Viceroy has faced renewed scrutiny from BLSA on Thursday, as the business lobby group has accused it of substantially plagiarising its report on Steinhoff from the work of London-based Portsea Asset Management.

“If Viceroy’s research was fact-based, well researched and had no other ulterior motives, we would support it as the voice of business,” says Mohale, who adds that the mandate of BLSA is to understand how fake news impacts financial markets.

A study by research house Intellidex, which was commissioned by BLSA, found that the wording of Viceroy’s Steinhoff report is identical to a report issued by Portsea six months before Viceroy published its report on December 6, 2017.

It appears as if Viceroy used data sourced by Portsea without citing it and effectively presenting it as its own. This, Intellidex argues, gave Viceroy – founded by disbarred social worker Fraser Perring and two 24-year old Australians, who all have limited financial market experience – undue influence as its report blew the lid off the complex web of Steinhoff’s fraud.

According to Intellidex, Steinhoff’s shares fell by more than 40% after Viceroy released its report, resulting in Viceroy profiting from the sell-off as it took short positions.

Taking short positions or short selling is the legal and age-old practice of borrowing a share with a view that its price will fall instead of rising over time and booking profits.

Viceroy has been accused of destabilising other companies based in SA, Australia, and the US by releasing damaging research and profiting from share price declines given its wide short position – Steinhoff style.

It recently took aim at Capitec Bank, alleging the lender was concealing significant write-offs by refinancing loans that customers were unable to repay. Viceroy’s Capitec report, which was considered shoddy and widely criticised widely by the Reserve Bank and National Treasury, led to a more than 7% slide in the lender’s share price.

Read: Viceroy takes aim at Capitec

Viceroy hits back at Capitec

Stuart Theobald, Intellidex chairman and lead author of the BLSA-commissioned report, says there is a clear case to show Viceroy’s research was an attempt at market manipulation and distorting share prices.

“In our view, most of Viceroy’s research is conviction-based research, meaning it takes a negative view of a company and then it goes out to find information that supports the negative view. Our view is that the intention of Viceroy’s reports was to move the share prices,” says Theobald.

BLSA handed its report to market regulators on Thursday. The report might be used by the JSE and Financial Sector Conduct Authority after the National Treasury asked both regulators to launch a market abuse investigation into Viceroy after wild swings in Capitec’s share price.

Theobald says the BLSA report is not intended to help market regulators implement sanctions against individuals behind Viceroy, but shed light on the practice of short-selling. It’s also about promoting an environment of transparency as unlike SA, disclosing short positions to regulators in the UK and Australia is a norm.

If done right, short selling can increase market efficiency, information flow, and counteracts the negative impact of passive investing, says Mohale.

“We are not against short selling. But there is bad and good short selling. And we need to make a distinction. Markets work best when there is transparency, honesty, and openness. Our current regulation is not adequate to deal with the bad short selling we have seen in the last six months,” he says.

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“Viceroy needs to be congratulated for having exposed the theft and deceit at Steinhoff,” I agree.

Why are Viceroy the culprits here?? Does it matter how they got their information? Fact is, they got it and put it out there, and they were right otherwise Steinhoff shares would’ve bounced back a long time ago!!
After seeing yesterdays PWC report about CEO’s earnings at 24 Bar a year, yes, 2 Bar a month, surely at this amount of money these exhorbitantly paid CEO’s should be well ahead of Viveroy in gathering and using this info!!?? When I see unjustifiable numbers like this it makes me want to be Viceroy!!!

Of course it matters how they got their information. The pot is calling the kettle black. Plagiarism and passing it off as your own work is fraud. Fraud by Steinhoff’s executive and fraud by Viceroy are equally illegal and wrong. Viceroy’s apparent attempt to make money from stolen information, and then from manipulating the share price of another company at the expense of SA investors (and pensioners) are clearly not the actions of a knight in shining armour.

Louis: there is a R75,000,000,000 difference between the two pots / kettles!

You cannot in any sane argument imagine a world in which the whistleblowers are held to grammar, footnote and plagiarism standards when they publish facts about slimeballs like Steinhoff.

Public company analysis, finance and reporting used to be about Substance Over Form. Sadly it is now about the correct use of footnotes. Whatever they paid for smearing the whistleblowers is a shocking abuse of BLSA funds.

COULD INTELLIDEX FIND ANY INCORRECT FACTS IN THE SHORT REPORT?

WAS STEINHOFF TELLING THE TRUTH FOR THE LAST DECADE AND A HALF? YES, NO, TOO CAPTURED TO VENTURE AN OPINION?

”The difference between my quotation and those of the next man is that I leave out the inverted commas”

George Moore (1852-1933)

Methinks, Steinhoff shareholders which are using nominee entities to facilitate their trade in listed stocks should take note that beneficial shareholders –
Those who buy shares with their own money and allow the shares to be held in the name of nominees, mainly for convenience of administration, (it has been unofficially estimated that more than 90% of shares listed on the JSE are so held), don’t have any rights!
In a case where dozens of furious minority Randgold shareholders with 4.7m shares are determined that Investec cough up R1.356 billion. They instituted a claim against Investec for what was deemed oppression of minority rights and have alleged that Randgold was manipulated into accepting the final legal settlement.
Investec and its many lawyers argued that where an owner of shares has elected to register their shares in the name of a nominee, the nominee, and not the owner of the shares, is the correct person to bring an application in terms of section 252.

The perception created now is that BLSA will target whistleblowers. Viceroy report on Steinhoff saved fund managers from putting new pension flows into this massive fraud.

It would be nice if BLSA took this really seriously and themselves investigated the fraud and maladministraion of listed businesses in South Africa.

For instance the banks like ABSA and Investec continue to fund Markus Jooste with depositors money knowing he acted fraudulently at Steinhoff. Surely we should try and stop the disasters before they happen.

They are “taking Viceroy to task”, as Viceroy has tarnished the image of SA Inc, exposing our falling standards in auditing, asset management, regulation and competence.

Caught with their pants down, BLSA is lashing out, trying to make Viceory seem to be the incompetent, irrational ones. Classic South African defence strategy; instead of cleaning house we try point fingers and blame others.

However, Viceroy does not seem entirely innocent either. Their approach sends fear into the market and would help short sellers make a lot of money if they get their timing right. Rather difficult to take a side here, especially since a lot of their work (dubious as it may be at times) has brought to light massive scandals and fraud and also shown up many “prestigious” individuals and companies.

Methinks BLSA should rather address real problems (falling productivity, reduced competitiveness, rampant corruption and destructive race-based populist policies) than cry about Viceroy and their research methods.

Financial publications need to be more circumspect and careful about publishing research releases by organizations that have a vested trading interest in share price volatility. Without being furnished with the underlying research methodology and being able to independantly verify its reliability, they could become complicit in aggravating the volatility of targeted stocks,which is the pap on which traders feed, to the detriment of individual investors.

“We are not against short selling. But there is bad and good short selling. And we need to make a distinction. Markets work best when there is transparency, honesty, and openness. Our current regulation is not adequate to deal with the bad short selling we have seen in the last six months,” he says – No it isn’t.

You should be against short selling – there is no such thing as “good and bad short selling” Short selling is the Weapon of Financial Mass Destruction and the quicker that it is regulated to only allow genuine short sellers by the real owners of the securities, as pure hedging, the better.

Ban the practice of script lending and short selling will disappear.

What about viceroy fail attempt on capitec
Viceroy is the scumbag

Really BLSA? VICEROY is your most important issue right now? Just exposing yourself as the mouth piece of white capitalists in SA…

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