The phantom faces behind the Viceroy Research reports remain hidden
But one analyst says the attention given to Viceroy is disproportionate and is driven by fear and panic after the company’s Steinhoff exposé
The name is enough to spread mayhem among South African traders. And all Viceroy Research is willing to disclose is that it is three people working out of New York to protect investors.
Stocks including Africa’s largest generics drugmaker and biggest real-estate investment trusts were sent reeling this week on speculation that they were in Viceroy’s sights. More than $3bn was wiped off the value of property stocks alone in just four days, prompting South African regulators to scrutinise trades to determine whether a formal probe is warranted.
Viceroy became known overnight in SA after releasing a damning report detailing oddities in Steinhoff International’s financials a day after the retailer unexpectedly admitted to accounting irregularities. The group only started publishing reports in December 2016, covering five other companies in Australia, Israel and the US, and hasn’t released anything related to the South African market since the Steinhoff analysis.
"There are no faces behind the reports," Sasfin Wealth deputy chairperson David Shapiro, who has been trading stocks in the city since 1972, said. "I’ve been watching markets for ages and have never heard anyone other than SA giving credibility to a house that has no face. It’s very sinister. Dark."
It’s not the first time that Viceroy — which on its website describes itself only as "a group of individuals that see the world differently" — has been caught in the crossfire. US biotech firm MiMedx filed a lawsuit in October to try to identify who was behind negative Twitter comments that drove down its share price, citing Viceroy as one of the defendants. The Viceroy Twitter handle leads you to its website, which is hosted by WordPress.com, a low-price site offering blogs and domains.
Viceroy sent an e-mailed response to Bloomberg from a Gmail account on Friday. Here is a summary of some of its answers:
• Which city do you operate from?
• Is it correct that there are three staff members?
Yes, and we also use consultants where needed.
• What are their names?
We are anonymous.
• Viceroy has said it keeps names under wraps out of security concerns, but activist shareholders and investigative journalists disclose their details publicly, why doesn’t Viceroy do the same?
We prefer to avoid the distraction altogether; our belief is the research should do the talking.
• How much money does Viceroy have in assets under management?
We do not discuss this.
• South African regulators are investigating the role of rumours around Viceroy and subsequent share movements, what’s your comment on this?
We welcome any investigation into impropriety. Viceroy does not speculate or gossip about its research, and thus encourage people not to speculate on the identity of any companies we are researching and advise caution in trading on gossip. Viceroy complies with the laws and has not released research or discussed our focus prior to publication.
• Did Viceroy set up a short position in Aspen Pharmacare Holdings Ltd. and/or the listed property stocks before the rumours began?
We do not set up positions to benefit off rumours, our positions are both long and short and are based on our research.
• To stop the rumours, could Viceroy not just say which company it’s looking into?
That would be unprofessional, as our work is based on thorough analysis and publicly auditable. Naming the company may actually constitute market manipulation as this de-facto opinion would be baseless without our report. The speculation of widespread fraud on the JSE is reflective of a system where regulators are struggling with a lack of funding, allowing bad people to abuse the system, abuse the people and take advantage of underfunding in the government. We are most willing to assist regulators in this regard where we can.
• Is Viceroy a registered company? Is it a hedge fund?
We maintain our structure confidentially.
• If Viceroy is a legitimate business, why does it use WordPress and Gmail?
To preserve our anonymity. We are not a marketing machine — we are a small team of professionals, and we use the most efficient tools possible to convey our message securely. This gives us more time to focus on our core work: investigative research.
• How much money has Viceroy made by shorting Steinhoff?
We will not disclose this figure. Our ethos is protecting consumers, investors and integrity by making sure all the facts are known. We are not only about financial gain — we consulted with analysts in relation to Steinhoff post the release of our report, with all fees paid into South African charities.
"There is nothing wrong with making money out of shorting stocks," said Magda Wierzycka, CEO of asset manager Sygnia. "However, I am beginning to be concerned that they are now using public relations to generate volatility."
Revelations that Steinhoff may have cooked its books and the resignation of CEO Markus Jooste and billionaire chairperson Christo Wiese spooked investors, giving Viceroy more significance than it would have usually had, she said.
"There was a huge cult built around Christo Wiese and Markus Jooste," Wierzycka said. "The icons of South African business have been brought down."
To bolster his finances Wiese has had to sell about R4.2bn worth of his shares in retailer Shoprite, while Jooste has been auctioning off his racehorses. Wiese’s net worth has plunged from more than $5bn before December to $2.3bn, according to the Bloomberg Billionaires Index.
The decline in Wiese’s fortunes mirrors the almost 90% collapse of Steinhoff’s share price since December 5. While Viceroy’s report wasn’t the beginning of Steinhoff’s misery, the stock plummeted 63% in Johannesburg on the day the research was published, its biggest one-day decline to date.
"I can’t think of a case that has caught the attention of the investment community in the way Viceroy has captured attention following the Steinhoff story," Adrian Saville, CEO of Cannon Asset Managers, said on Friday, adding that he had been in the market for more than three decades.
"In the same breath, Steinhoff’s price collapse represents one of the largest single-company capital declines in our market history," he said. "Viceroy has been awarded ‘whale status’ by investors," Saville said, referencing the trader known as the London Whale, who lost at least $6.2bn for JPMorgan Chase in 2012.
Viceroy isn’t the problem, said Jean-Pierre Verster, a fund manager at Fairtree Capital. It’s the way people are responding to rumours, with social media only fanning speculation, he said.
"The attention given to Viceroy is disproportionate and is driven by fear and panic after their Steinhoff expose," Verster said. "Viceroy’s influence is very dependent on their next report. If it is a damp squib, their influence will be much diminished."