Zietsman and Another v Directorate of Market Abuse and Another

JurisdictionSouth Africa
CourtGauteng Division, Pretoria
JudgeTuchten J and Avvakoumides AJ
Judgment Date01 October 2015
Citation2016 (1) SA 218 (GP)
CounselJJ Brett SC (with D Mahon) for the appellants. E Labuschagne SC for the respondents.
Hearing Date17 August 2015
Docket Number20217/2014

Avvakoumides AJ (Tuchten J concurring): B


[1] This is an appeal from a determination ('the determination') of the enforcement committee, established in terms of s 10(3) of the Financial Services Board Act 97 of 1990 ('the enforcement committee' and 'the FSB Act'), dated 5 August 2014. C

[2] The appeal is brought in terms of s 6F(1) of the Financial Institutions (Protection of Funds) Act 28 of 2001, read with rule 51 of the rules regulating the conduct of civil proceedings in the magistrates' courts of South Africa. D

[3] The case came before the enforcement committee in the form of a referral ('the referral') by the respondents in terms of s 6A – D of the Financial Institutions (Protection of Funds) Act 28 of 2001 ('the PFA').

The charges E

[4] The charges against the appellants were that the first appellant contravened the provisions of s 73(2)(a) of the Securities Services Act 36 of 2004 ('the SSA'), that the second appellant contravened the provisions of s 73(1)(a) of the SSA and that, as a result, the appellants ought to receive an administrative sanction, including payment of penalties in terms of s 77(1) and (2) read with s 77(5) of the SSA. F

Judgment of the enforcement committee

[5] The enforcement committee determined that information pertaining to the amount of the Industrial Development Corporation ('IDC') loan facility constituted inside information as defined in the SSA and that the appellants were guilty of insider trading as charged. G

Administrative sanction

[6] The enforcement committee, after taking all the facts into account, fined the appellants the sum of R1 million and ordered the appellants to pay the costs of the case, all jointly and severally. H

Identification of issues on appeal

[7] The appeal is against the determination and the appellants submitted that the referral should have been dismissed with costs.

[8] The respondents submitted that the enforcement committee was correct in its finding and in issuing the administrative penalty. I

Grounds of appeal

[9] The grounds of appeal relied upon are the following:


The enforcement committee erred in rejecting the version of the appellants on the affidavits before it. J

Avvakoumides AJ (Tuchten J concurring)


A The enforcement committee erred in deciding the matter against the appellants in light of the material disputes of fact which were present in the affidavits and which ought to have been resolved in the appellants' favour.


The enforcement committee ought to have found that, factually, the B appellants were not aware at the time of the trades in question that a loan had in fact been granted to Africa Cellular Towers (ACT), but only had limited, vague and unreliable information in respect of a possible future loan.


The enforcement committee ought to have found that the information available to the appellants at the time of the trades in question C did not constitute 'inside information' as defined in s 72 of the SSA, because:


the information was not 'likely to have a material effect' on the price or value of the ACT shares;


the information was not 'specific or precise';


D there is no material difference between the information available to the appellants at the time of the trades in question and information that had already been 'made public' prior to the trades;


the appellants consequently did not believe or 'know' that they had inside information as required by s 73 and s 77 of the SSA.

Arguments on appeal E

[10] The appellants argued that, in establishing that the IDC had approved of a loan to ACT, a company listed on the alternative exchange of the Johannesburg Stock Exchange ('the JSE'), in the sum of R99 million, F the appellants were not possessed of knowledge that would affect the trading price of the shares in ACT. The appellants submitted that at the time that they came to know about the loan, there were no details of the loan to show whether ACT would be able to pay the loan and neither were the terms of the loan known.

G [11] During the middle of 2010 the second appellant initiated a strategy to commence operating in the renewable-energy sector. On 28 August 2010 the first appellant opened an FNB share-trading account. On 30 August 2010 the first appellant purchased the first acquisition of 15 000 shares in a company called at regular intervals from 31 August 2010, H with the intention of retaining the shares in pursuance of a strategy to acquire a controlling share in ACT and access certain operational capabilities within ACT.

[12] From 31 August 2010 to 4 November 2010 the first appellant purchased more shares in 23 trades via the FNB account, totalling I 835 805 shares. The appellants continued to acquire ACT shares up to and including 14 March 2011. In pursuit of the plans to acquire a stake in ACT, DP Cohen Consulting (Pty) Ltd ('DPCC') was instructed to compile a valuation on the business of ACT.

[13] On 24 January 2011 the IDC addressed a letter to ACT ('the approval J letter') which stated as follows:

Avvakoumides AJ (Tuchten J concurring)

'(T)he IDC has agreed to make available to your organisation a total A funding package of R99 000 000 (ninety nine million rand). The funding has been approved substantially on the terms and conditions as discussed with you. Agreements are being prepared which will contain all the terms of the facilities and which will, when duly signed, form the agreement between the IDC and yourselves . . . .' B

[14] Attached to the approval letter was a terms sheet setting out the details of the finance which had been approved and certain conditions precedent which the IDC required to be included in the agreement which would ultimately be concluded between the IDC and ACT. Neither the approval letter nor the terms sheet was provided to the appellants prior to the referral. On 26 January 2011 a meeting was held between the C respondents and members of the board of ACT, including Mr Jacques de Villiers ('De Villiers').

[15] The appellants argued that what occurred at this meeting is central to the appeal and a dispute exists in this regard.

[16] The respondents argued in turn that the appellants were aware that D the IDC and ACT were in the process of negotiations which contemplated a loan of moneys by the IDC to ACT. The appellants understood that there had been an 'approval in principle', but loan agreements had not been finalised.

[17] At the meeting of 26 January 2011 De Villiers alleged that ACT had E secured a possible loan facility of R99 million from the IDC on an 'approval in principle basis', but in the same breath the ACT representatives indicated that contracts had not been concluded for the facility, and no substantiating information was made available in support of the granting of such funding. At that meeting De Villiers also disclosed that the IDC had commenced, or was in the process to commence, a due F diligence of ACT.

[18] During the meeting of 26 January 2011 nothing in writing was presented in confirmation of the alleged funding. During the meeting of 26 January 2011 De Villiers did not inform those present, when G requested, what the conditions precedent were, whether ACT was capable of complying with any conditions precedent, what the repayment terms were and what any of the other terms of the alleged funding were.

[19] On 28 January 2011 a Stock Exchange News Service ('SENS') announcement ('the first SENS announcement') was published by ACT in which shareholders and the market were informed that — H

'the company was successful in securing debt funding and is in the process of finalising the terms of the debt facility with the potential funder which, when successfully concluded, could affect the price of the company's shares'.

[20] The first SENS announcement did not disclose the amount and other I details of the facility to the market, nor the details of the funder, as a decision was taken by the board of ACT that, although ACT had received the approval letter, those details ought not to be disclosed before the agreements with the IDC were concluded. The publication of the first SENS announcement had no effect on the share price of ACT. J

Avvakoumides AJ (Tuchten J concurring)

A [21] Subsequent to the meeting of 26 January 2011 the appellants continued to acquire shares in ACT pursuant to the aforesaid strategy to acquire a controlling share therein. The agreements with the IDC were signed around March 2010. On 11 March 2011 ACT published a further SENS announcement ('the second SENS announcement'), advising shareholders B that —

'ACT is pleased to announce that an agreement has been entered into with the Industrial Development Corporation (IDC) in respect of a R99 million funding facility, staggered over the next six years at market related rates to assist with capital expenditure and working capital C requirements of the group'.

[22] On 11 March 2011, after the second SENS announcement, the ACT share price increased by 54%, from 11 cents to 17 cents.

[23] The respondents argued further that Zietsman was the principal person in charge of a strategy by H&W (the second appellant) to acquire D a significant interest in ACT. In November 2010 Zietsman was authorised and instructed by H&W to acquire ACT shares on behalf of H&W. Ralston was also authorised and instructed by H&W to acquire ACT shares on behalf of H&W.

[24] Between 26 January 2011 and 9 February 2011 Zietsman and E Ralston came to know that the IDC granted ACT a loan facility in the amount of R99 million. The amount of the loan and the fact that the lender was the IDC were details which were not known to the public until ACT disclosed those details on SENS on 11 March 2011. The disclosure of the amount of the IDC loan facility...

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