IN THE HIGH COURT OF SOUTH AFRICA GAUTENG DIVISION, PRETORIA

Transcription

1 / v IN THE HIGH COURT OF SOUTH AFRICA GAUTENG DIVISION, PRETORIA APPEAL CASE NO.: A354/2017 (Enforcement Committee of FSB) CASE NO.: 17/2016 (1) REPORTABLE: YES / NO (2) OF INTEREST TO OTHER JUDGES: YES/NO (3) REVlSED. In the matter between: FOURIE, ROBERT Appellant and THE DIRECTORATE OF MARKET ABUSE FINANCIAL SERVICES BOARD First Respondent Second Respondent JUDGMENT VAN DER WESTHUIZEN, J [1] This is an appeal from the Enforcement Committee {the Committee) of the second respondent. That Committee held an enquiry into the conduct of the appellant and delivered a judgment in which the

2 2 Committee found the appellant guilty of the contravention of the provisions of s 80 of the Financial Markets Act, 19 of 2012, (the FMA) and imposed an administrative penalty of R2 million upon the appellant. [2] The contraventions of the FMA upon which the Committee premised its finding of guilty, relate to the provisions of s 80(1)(a) read with s 80(3)(a) and (b). [3] The hearing before the Committee was preceded by an interview in terms of the provisions of s 84(4)(a) of the FMA. The appellant participated in the said interview and provided explanations for his conduct during the period under investigation. The appellant made a number of concessions, the most important of which related to his intention. I shall return to those concessions later. [4] The appellant, though invited to appear before the Committee by submitting an affidavit and/or appearing in person, did neither. Consequently, the Committee held the hearing in the absence of the appellant and without the benefit of his input. The Committee accordingly only had the transcription of the interview conducted at which the appellant participated. His "excuses" why he did not participate at the hearing before the Committee have no merit. He could have attended in person, whether he had the necessary funds for legal representation or not. He was not obliged to obtain legal representation. He chose not to attend at his own peril. [5] Section 80 of the FMA provides as follows: "80. Prohibited trading practices (1) No person - (a) may, either for such person's own account or on behalf of another person, knowingly directly or indirectly

3 3 use or participate in any practice which has created or is likely to have the effect of creating - (i) a false or deceptive appearance of the demand for, supply of, or trading activity in connection with; or (ii) an artificial price for, that security; (b) who ought reasonably to have known that he or she is participating in a practice referred to in subparagraph (a), may participate in such practice. (2) A person who contravenes subsection (1)(a), commits an offence. (3) Without limiting the generality of subsection (1), the following are contraventions of subsection (1): (b) approving or entering on a regulated market an order to buy or sell a security listed on that market with the knowledge that an opposite order or orders at substantially the same price, have been or will be entered by or for the same or different persons with the intention of creating - (i) a false or deceptive appearance of the trading activity in; or (ii) an artificial market price for, that security; (c) approving or entering on a regulated market orders to buy a security listed on that market at successively higher prices or orders to sell a security listed on that market at successively lower prices for the purpose of unduly influencing the market price of such security; (d) approving or entenng on a regulated market an order at or near the close of the market, the primary purpose of which is to change or maintain the closing price of a security listed on that market;

4 4 (e) approving or entering on a regulated market an order to buy or sell any security which order will be included in any auction during an auction call period and cancelling such order immediately prior to the auction matching, for the purpose of creating - (i) a false or deceptive appearance of the demand for or supply of such security; or (ii) an artificial price for such security; (f) effecting or assisting in effecting a market comer; (g) maintaining, at a level that is artificial, the price of a security listed on a regulated market. (4) For the purpose of subsection (1), the employment of pricestabilising mechanisms that are regulated in terms of the rules or listing requirements of an exchange does not constftute a practice which creates an artificial price for securities which are subject to such price-stabilising mechanisms. (5) For the purposes of subsection 3(a), a purchase or sale of listed securities does not involve a change in beneficial ownership if a person who had an interest in the securities before the purchase or sale, or a person associated with that person in relation to those securities, has an interest in the securities after the purchase or sale." [6] The appellant appeals against both the finding of the contravention of the provisions of s 80 of the FMA, and in particular against the finding relating to the transgression of s 80(1 )(a) of the FMA, and the penalty of R2 million. [7] The appellant's conduct that formed the subject of the interview, and the subsequent hearing before the Committee, and which is common cause, can be summarised as follows:

5 5 (a) The appellant was employed by ICAP as a senior registered securities dealer in relation to derivative securities listed on the JSE; (b) During June/July 2013, on seven separate days the appellant engaged in numerous deliberated trades in Sunflower Seeds Futures Contracts, which were derivative securities on the Commodity Derivatives Market operated by the JSE; (c) The appellant engaged in 113 trades during the said period, most of which were single contracts with two that involved two contracts. Each trade reflected a sale with a corresponding buy; (d) Each of the trades was conducted within a short space of time on each day; (e) Although, on the face of it, each trade involved a willing seller and a willing buyer, the seller and the buyer were one and the same person, i.e. the appellant; (f) Every sale and purchase did not result in the change of any beneficial ownership and ICAP remained the beneficial owner of the security; (g) The aforesaid conduct created a deceptive appearance of demand for, or supply of, or trading activity in connection with the said security, which it was not. (8) The appellant concedes that his aforesaid conduct contravenes the provisions of s 80(1) of the FMA. however, he submits that at best it constitutes a contravention of s 80(1 )(b) of the FMA, but not of s 80(1)(a) of the FMA. After considering the matter, the Committee found a contravention of s 80(1)(a) and not of s 80(1)(b) of the FMA, the

6 6 appellant appeals against the finding of contravention of s 80(1 )(a) of the FMA. [9] There is no merit in the appellant's aforesaid submission for what follows. [1 OJ The appellant conceded that his intention was to create an impression that there was lively activity in a market that traditionally was an illiquid market, but which was not the case. He hoped to create the impression that he was a hotshot dealer and thus entice other clients to make use of his services. At that time, his only client in that market left him to participate directly in the market through another broker. The appellant's clear intention was to create a false perception, knowing full well that it was not the true position. He wanted to manipulate the specific market to his exclusive advantage. His aforesaid intention clearly constitutes a contravention of the provisions of s 80(1)(a) of the FMA. [11] The submission that at best the appellant only contravened the provisions of s 80(1)(b) of the FMA, it is not sustainable not only because the appellant had been a trader for a number of years but also because it is inconsistent with his own admissions during the interview. (12] Mr Allison, who appeared on behalf of the appellant, conceded, and in my view correctly so, that the appellant's admitted aforementioned conduct and intention, as clearly appears from his explanation at the interview, constitutes a contravention of the provisions of s 80(1 )(a) of the FMA. [13] It follows, in my view, that the appeal against the finding of the Committee in respect of s 80(1)(a) of the FMA stands to be dismissed. [14] The appeal against the imposing of the penalty of R2 million is on a different footing.

7 7 [15] It is submitted on behalf of the appellant that the Committee did not exercise its judicial discretion as envisaged by the provisions of s 60 of the Financial Institutions (Protection of Funds) Act, 28 of 2001 (the FIA) for what follows. [16) It is further submitted on behalf of the appellant that the Committee has imposed an excessive penalty in the face of the circumstances in casu. [17] In particular, it is submitted that forcing an offender to return to compliance with the various applicable statutory provisions is not the only goal in respect of the respondents' obligations. The imposition of a penalty is not only to punish the offender, but also to prevent future recurrence. The appellant further submits that to account for the gravity of the violations is but one factor. The other side is to consider the particular violation and to commensurate with that violation. [18) What impacts upon the imposition of a suitable administrative penalty is the absence of guidelines in this instance. Such guidelines would ameliorate against arbitrary impositions of penalties. 1 [19] In its judgment, and in particular that portion that deals with the determination of administrative sanction, the Committee opined that the Committee had resolved to be guided by the triad of sentencing when considering the imposition of an administrative penalty. The triad to which the Committee deferred to is that of the personal circumstances of the appellant, the circumstances relating to the commission of the offence/violation and the interest to society, i.e. in the present instance the integrity of the markets. [20] The Committee further referred to certain factors that are set out ins 3 of the FIA, to be taken into consideration. Those are: 1 See Director of Public Prosecutions, Pretoria v Alberts 2016(2) SACR 419 (GP) at [22)

8 8 (a) The nature, duration, seriousness and extent of the contravention; (b) Any loss or damage suffered by any person as a result of the contravention; (c) The extent of the profit derived or loss avoided by the appellant from the contravention; (d) The impact which the appellant's conduct may have on the relevant sector of the financial services industry; (e) Any previous failure of a fiduciary duty or law; (f) Any previous finding posed or compensation paid for the contravention based upon the same set of facts; (g) The deterrent effect of the administrative sanction; (h) The degree to which the appellant co-operated with the Enforcement Committee; (i) Any other factor, including mitigating factors the appellant submitted that the Committee considers being relevant. [21] Counsel for both parties made reference to comparable cases but these were few and some of them could be distinguished from the present case. Counsel for the respondent conceded that at the end of the day each case has to be decided on its own merits. The fact that, for a number of reasons, similar cases are settled out of court, results in the paucity of relevant case law. Whilst it is true that the Courts and the Tribunals which preside over such cases must be guided by the salutary intention of protecting the financial markets and the wider

9 9 South African economy, wild swings in the penalties which might be seen to be unrelated to the facts of each case ought to be avoided. Consistency and certainty are still as relevant as all the other factors which are to be considered in imposing penalties some of which are mentioned supra. [22) The appellant, at his own peril, did not attend the hearing before the Committee as recorded earlier. Consequently, the Committee was oblivious to any relevant personal circumstances of the appellant, other than that which could be inferred from the aforementioned interview. [23) Furthermore, in the absence of evidence of any prejudice that could have been suffered as a result of the appellant's conduct, the Committee was at a loss of evaluating the impact that could have been expected. [24] The Committee, in the absence of any gainsaying evidence on the part of the appellant, was compelled to rely on the appellant's inability to accept liability for his violation of the relevant provisions of the FMA. That continued inability is clearly gleaned from the appeal against the finding by the FMA of the contravention of s 80(1 )(a). [25] Having considered the aforementioned factors, the Committee merely imposes a penalty of R2 million. How that amount is arrived at is not explained in the judgment. It is for that reason arbitrary. [26) In that regard, it is submitted on behalf of the appellant, and with reference to a published list of penalties the Committee imposed over a period of five years, that the range of penalties between R to R that were imposed in three instances in respect of contraventions of s 80(1) of the FMA should be considered applicable in the present instance. In the said list the penalties range from R to in excess of R2 million and relate to various contraventions of various sections of the FMA.

10 10 (27] However, each of the three instances relate to a settlement in respect of the payment of an agreed penalty. None of those are of any relevance in the present instance. The appellant did not participate at the hearing and did not submit any mitigating circumstances to the Committee. In a sense the appellant presented a lackadaisical attitude. He only has himself to blame. (28} However, such attitude does not warrant an irrational and excessive imposition of an administrative penalty. The penalty must be commensurate with the violation. [29} Mr Bham, submitted on behalf of the respondents, that the penalty imposed is necessary when regard is had to the deterrent effect of the penalty to be imposed and to protect the integrity of the market. That submission ignores the balance to be afforded to the three factors of the triad, or for that matter the factors referred to in s 3 of the FIA, supra. [30} It is trite that a court would not readily interfere with a penalty imposed by a tribunal sitting as a tribunal of first instance. However, where there exists such a striking disparity between the penalty imposed by that tribunal and that which the court of appeal would have passed, such warrants reconsideration and consequent interference.2 [31] When regard is had to the potential prejudice that third parties could suffer, the selfish attitude on the part of the appellant in his conduct complained of, the appellant's approach to the enquiry and the subsequent hearing before the Committee, the integrity of the market, other facts in the present instance referred to above, and the factor of prevention of future similar contraventions, it would in my view require the imposition of a lesser penalty, commensurate with the violation in the present instance. 2 See State v Dzukuda et al 2004 (SA) 1078 (CC) [23}-[24]

11 11 [32) In the absence of guidelines, such penalty may appear arbitrary. However, considering the published penalties imposed over the fiveyear period referred to earlier, the present instance clearly does not fall within the range of R to R The appellant's conduct warrants the imposing of a higher penalty. I am of the view that a penalty of R would be appropriate. [33) In the result, I propose the following order. (a) The appeal against the finding of the Enforcement Committee of the second respondent in respect of the contravention of s 80(1)(a) of the Financial Markets Act, 19 of 2012 is dismissed; (b) The appeal against the imposition of the penalty of R by the Enforcement Committee of the second respondent is upheld and the imposed penalty is set aside; (c) The penalty of the Enforcement Committee is substituted with a penalty of R to be paid by the appellant. ( d) No order is made as to the costs of the appeal. I agree and it is so ordered. SAM BAQWA F THE HIGH COURT

12 12 On behalf of Applicant: Instructed by: A E Bham SC Jay Mothobi Inc On behalf of Respondent: A Allison Instructed by: Thompson Attorneys