Zietsman and Another v Directorate of Market Abuse and Another

JurisdictionSouth Africa
Citation2016 (1) SA 218 (GP)

Zietsman and Another v Directorate of Market Abuse and Another
2016 (1) SA 218 (GP)

2016 (1) SA p218


2016 (1) SA 218 (GP)

Case No



Gauteng Division, Pretoria


Tuchten J and Avvakoumides AJ


August 17, 2015


October 1, 2015


JJ Brett SC (with D Mahon) for the appellants.
E Labuschagne SC
for the respondents.

Flynote : Sleutelwoorde B

Stock exchanges — Market abuse — Insider trading and disclosure of inside information — Nature of inside information — Specific and precise — Finality not required — Belief that information not inside information constituting C defence only if reasonably held — Price sensitivity of information — Penalty in line with potential or expected profits in order — Securities Services Act 36 of 2004, s 73; Financial Markets Act 19 of 2012, s 78.

Headnote : Kopnota

The enforcement committee of the Financial Services Board (FSB) found the D appellants, Mr Zietsman and his company H&W, guilty of insider trading and imposed a R1 million administrative penalty (Mr Zietsman was chairman of H&W's board). The case against the appellants was based on their purchase, in 2011, of shares in ACT, a company in which they intended acquiring a majority interest. ACT, which was then listed on the Johannesburg Stock Exchange's AltX bourse, went into liquidation in 2012. The appellants did not sell their shares and suffered a loss as a result of its E liquidation.

The FSB found that the appellants had, when buying the shares, been in possession of non-public information that ACT would be getting a R99 million loan from the Industrial Development Corporation (IDC).

The charges were brought under s 73 of the Securities Services Act 36 of 2004. [*] F The Act prohibited (as the FMA now does) dealing in securities on regulated markets if one 'knew' that one was in possession of 'inside information'. The Act in s 77 provided for civil liability, on a balance of probabilities, for doing so. Under s 72 —

'inside information' meant specific or precise information which has not G been made public, which is obtained or learned as an insider, and which 'if . . . made public would be likely to have a material effect on the price or value of any security listed on a regulated market'; and

'insider' meant a person who has inside information


through being a director, employee or shareholder of an issuer of securities listed on a regulated market to which the inside information relates; or through having access to such information by virtue of H employment, office or profession; or


where such person knows that the direct or indirect source of the information was a person contemplated above.

In an appeal to the High Court against the FSB's decision the appellants argued, among other things, that the information in question was not 'specific or I precise' — as required by the definition of 'inside information' — because, though they knew of a possible IDC loan, they understood that it had only been 'approved in principle' and that no contract had been concluded. The

2016 (1) SA p219

appellants also argued that they did not 'know' — ie genuinely believe — that A the information made available to them constituted inside information as defined.


The core issue on appeal was whether the appellants had 'inside information' [*1] on ACT and whether they knowingly dealt with ACT shares. The dearth of B South African authorities on the topic made it necessary to resort to foreign law (para [77] at 232E), from which the following general principles emerged (para [97] at 236H – J):

Information need not be in final form to qualify as 'specific or precise'. Information relating to circumstances or an event in an intermediate phase could still be specific (and even precise), and thus qualify as inside information. C

A genuine and bona fide belief that known information was not inside information was no defence if the belief was not based on reasonable grounds. [*2]

Whether information was price-sensitive had to be determined with reference to the reasonable investor and whether he would regard the information as relevant to a decision to deal in such securities. D

More specific propositions included the following:

In deciding whether a fact had to be disclosed, its precision and its ability to significantly affect market prices were key, not its location in a protracted decision-making process (para [86] at 234E – F).

The information had to be capable, if disclosed, of significantly affecting share prices: actual influence need not be shown (para [87] at 234G). E

The future event, though uncertain, should not be impossible or improbable (para [88] at 234H).

The likely direction of any price movement was irrelevant (para [91] at 235C – F).

The information had to have an existence of its own, apart from any process of deduction (para [92] at 235G). F

'Specific information' meant information that might reasonably be expected to affect market price if it were generally known (para [93] at 235I).

Information 'likely to have a significant effect on the price' meant information of a kind that a reasonable investor would likely use in making investment decisions (para [95] at at 236B – C). G

In the present case appellants were correctly found guilty of and sanctioned for insider trading by the enforcement committee of the FSB. The FSB's determination would stand because it was clear from the evidence before it that —

the information that the IDC had approved a R99 million loan to ACT was specific and precise; H

the information was not available to the public and was price-sensitive (the sensitivity was confirmed by the spike in the share price after the disclosure of the information); and

the appellants knew they had inside information on ACT when they dealt in the shares. (Paragraph [98] at 237A – C.) I

2016 (1) SA p220

A In determining whether the R1 million penalty — which was informed by potential profit arising from the insider trading — was appropriate, the following considerations were relevant:

The FSB's reliance on potential profit was sanctioned by s 77(2) of the Act (para [99] at 237E).

The subsequent losses made by the appellants were irrelevant B (para [103] at 237H).

Appeal dismissed with costs (para [109] at 239C).

Cases Considered


Case law

C Southern Africa

Pather and Another v Financial Services Board and Others 2014 (9) BCLR 1082 (GP): dictum in para [200] applied

S v Western Areas Ltd and Others 2004 (4) SA 591 (W): dictum in para [40] applied

Tshishonga v Minister of Justice and Constitutional Development and Another 2007 (4) SA 135 (LC) ([2007] JOL 18875): dictum in para [180] D applied.


Boughey v R [1986] 65 ALR 609: referred to

Ryan v Triguboff (1974 – 1976) 1 ACLR 337: referred to.

E England

Financial Conduct Authority v Hannam [2014] UKUT 0233 (TCC): referred to

Massey v Financial Services Authority [2011] UKUT 49 (TCC) ([2011] All ER (D) 95): applied.

F European Union

Geltl v Daimler AG [2012] EUECJ C-19/11: applied

Lafonta v AMF C-628/13: dictum in paras [36] – [37] applied

Spector Photo Group NV v CBFA [2009] EUECJ C-45/08: applied.

Hong Kong

The Insider Dealing Tribunal v Shek Mei Ling G [1992] 2 HKCFAR 205: applied.


Public Prosecutor v Choudhury [1908 – 1981] SLR 165: applied.

H United States

Dura Pharmaceuticals Inc v Broudo 544 US 336 (2005): dictum at 343 applied

Securities and Exchange Commission v MacDonald 699 F 2d 47 (1983): dictum in para [35] applied

United States v Mooney US Court of Appeals 9 Cir 02-3388: applied.

Statutes Considered

I Statutes

The Financial Markets Act 19 of 2012, s 78: see Juta's Statutes of South Africa 2014/15 vol 2 at 1-915.

Case Information

JJ Brett SC (with D Mahon) for the appellants.

E Labuschagne SC J for the respondents.

2016 (1) SA p221

An appeal, under s 6F(1) of the Financial Institutions A (Protection of Funds) Act 28 of 2001, against a determination (conviction and administrative penalty) of the enforcement committee of the Financial Services Board. The matter was referred to the enforcement committee by the respondents. The appeal was dismissed (at [109]).


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...

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