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Sunday, March 1, 2009
Inside report

The Financial Services Board (FSB) reported earlier that the Enforcement Committee, established in terms of the Securities Services Act (the Act), at a hearing on 30th and 31st October 2007 considered a case against a Mr Michael Berman, the key individual of a financial services provider, namely Velocity Trading (Pty) Limited; and Mr Neil Stacey, a registered securities trader and the Head of Sales Trading at HSBC Securities SA (Pty) Limited, an authorised user of the JSE Limited.

The case was referred to the Enforcement Committee by the Directorate of Market Abuse after an investigation was conducted into certain share transactions in Ifour Properties Limited and SA Retail Properties Limited. The respondents were charged with contravening section 75 of the Act (using or participating in a manipulative, improper, false or deceptive trading practice), and a penalty of R2 million each was imposed.
As a result of the investigation, the Registrar of Financial Services Providers withdrew the authorisation of Velocity Trading (Pty) Limited to render services as an investment manager. The withdrawal was on the basis that Mr Berman was not fit and proper to hold such an authorisation.
Mr Berman appealed against the decision of the Enforcement Committee to impose a penalty of R2 million. The appeal was heard on 9th February 2009, before the FSB Appeal Board. It was submitted on behalf of Mr Berman that he could only afford a penalty of R250 000, and based inter alia on this fact, the penalty should be reduced to R250 000.
The Appeal Board stated that:
“Having regard to the importance of deterrence in the determination of the quantum of the penalty to be imposed, we agree with the approach of the Enforcement Committee that a ‘large’ penalty was called for. In determining how large that amount should be, ‘affordability’ which appellant’s [Mr Berman] counsel submitted should be taken into account, is not a relevant factor in deciding whether the penalty imposed was appropriate in the context of the proportionality principle.”
The Appeal Board also found that:
“In our view a penalty of R1 million would have been sufficiently appropriate to send the correct message to the public that this type of conduct will not be tolerated and at the same time impress upon would-be offenders that it would not be worth their while to embark on this type of conduct.”
The Appeal Board therefore reduced the penalty to R1 million and ordered that every party (The FSB and Mr Berman) pay their own costs.
The full judgment of the Enforcement Committee and the FSB Appeal Board is available on the FSB website at www.fsb.co.za, under the “Market Abuse” tab.

Note to Editors

The Securities Services Act, No 36 of 2004, created an administrative enforcement process in the form of an Enforcement Committee in 2005, to deal with market abuse contraventions (insider trading, market manipulation and false or misleading statements). This gave the FSB the ability to deal with these cases administratively. The Committee considers cases on the pleadings. The Enforcement Committee has the authority to impose administrative penalties, cost orders and compensatory orders on offenders.
On 1st November 2008 the jurisdiction of the Enforcement Committee was extended by legislation to hear contraventions and non-compliances of all legislation administered by the FSB. Since that date the Enforcement Committee can hear cases relating to all the industries that the FSB regulates.
The Enforcement Committee is chaired by Judge Eloff, the retired Judge President of the Transvaal. The additional members of the Committee were appointed for their legal knowledge or their expertise relating to the industries that the FSB regulates.
 

Copyright © Insurance Times and Investments® Vol:22.3 1st March, 2009
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