Iqbal Survé. Picture: GALLO
Iqbal Survé. Picture: GALLO

The temptation to respond with a shrug to news that SA’s market conduct regulator is  investigating trades in the share of Ayo Technology Solutions and its main shareholder, African Equity Empowerment Investments (AEEI), for possible market manipulation may well be too strong for some investors.

SA’s regulators haven’t done their reputation a whole lot of good when it comes to investigating possible wrongdoing in the corporate sector. The delays, if one takes the prolonged investigation into the Resilient stable of property companies as an example, have been negative for both parties.

For the companies involved, they had to deal with months of being stigmatised and the more than real possibility that in the eyes of many investors they were presumed guilty and therefore untouchable. That uncertainty around the Resilient group affected the whole listed property sector, seeing it drop more than 30% for 2018, which was the first since the depths of the global financial crisis in 2008.

The controversies around Ayo have been well documented and the company has been a consistent subject in the deliberations of the commission of inquiry into the Public Investment Corporation.

The controversies around Ayo have been well documented and the company has been a consistent subject in the deliberations of the commission of inquiry into the Public Investment Corporation (PIC). The Financial Sector Conduct Authority said in a report published last week the suspicious trades happened between May and June 2018 in Ayo’s case, and throughout 2018 in AEEI’s.

It is also looking into trades in the shares of AEEI’s fishing business, Premier Fishing and Brands. According to Bloomberg data, the shares in Ayo, in which the PIC controversially invested R4.3bn in December 2017, jumped 46% in May 2018, peaking at R41. They were trading at less than R17 at the end of last week.

Ayo is by no means the only company under scrutiny. Other transactions in the spotlight include trade in the shares of Atlatsa Resources Corporation, Capitec, Fortress Income Fund, Greenbay Properties and Nepi Rockcastle.

There is a question to be asked about whether the FSCA should even announce that it’s conducting such probes if it can’t ensure a speedy resolution.

In the biggest corporate scandal to hit the listed property sector, the companies in the Resilient stable lost more than R100bn in market value in 2018, amid the release of reports by fund managers and hedge funds making serious allegations regarding share price manipulation. There were also allegations that related-party deals may have been used to enhance share prices and dividends.

The FSCA announced last year it was investigating the allegations and also probing whether directors had committed insider trading. And then for months not a word, other than that the investigation was ongoing. This, of course, created uncertainty for shareholders and the companies. Then last week the FSCA announced that it had cleared the companies’ directors of insider trading. This took too long and was not fair on the people involved. 

While these findings have been welcomed as providing a degree of certainty, it’s clear from the market reaction that investors don’t see this as providing any kind of closure, with the FSCA still looking into allegations of manipulation and misleading reporting  by, and about, the companies. Resilient was the biggest gainer in the group on the day, rising just 3.6%, while Nepi Rockcastle’s share actually fell by 0.5%.

There is no denying that the investigations, which are also looking into the action of short sellers and asset managers, are complex and should not be rushed. But there should also be a reasonable expectation among investors and companies that the regulators won't take long to provide the necessary clarity.

The hollowing out of key enforcement during the era of rampant corruption and state capture during the presidency of Jacob Zuma has dented confidence; restoring it won’t be an overnight job. The longer the delays, the more the perception that regulators don't have teeth, or lack the capability to investigate, is entrenched.

And the country simply can't afford that.