FSB slaps R2m fines on broker, fund boss who rigged shares 2/11/2007 By Chantelle Benjamin Fines of R2m each have been imposed on an asset manager and a stockbroker found to have manipulated shares, in the first prosecution by the Financial Services Board enforcement committee under the 2005 Financial Services Act. In imposing the R2m penalties, the committee said the transactions had the effect of adjusting the aggregate market capitalisation of the relevant shares by more than R300m. The trades in question involved two JSE-listed property companies, Ifour Properties and SA Retail Properties . The accused were Michael Berman, the hedge fund manager for Velocity Trading, and Neil Stacey, a registered securities trader and head of sales trading at HSBC Securities . Rob Barrow, executive officer of the Financial Services Board , said the judgment sent a clear message that those who knowingly broke JSE rules would pay the price. The judgment discusses the importance of ensuring that the penalty is seen as sufficient to act as a deterrent to others. It tells asset managers, like Berman, that they could face severe consequences, and brokers like Stacey , that they too can be penalised. The charges against Berman and Stacey relate to trades made on the JSE on March 31 2005. The i nquiry by the committee was held on Tuesday and Wednesday. Berman was accused of manipulating the closing price of shares on that day by waiting until shortly before the JSE closed and buying them at a price higher than the market-related one. He was accused also of pushing up the price of SA Retail shares by placing an order to sell 500 of its shares at R8,75, despite the shares being traded at R8. Berman then placed an order to buy on behalf of Mayibentsha Velocity Fund Trust, which he also managed. Stacey was accused of being a willing participant and assisting Berman in manipulating the market. Berman admitted contravening the act by intentionally manipulating the price of the shares in the two companies, but requested that the committee take into consideration when considering a penalty which can be as high as R50m that profit made from the deal was between R4000 and R16000. Stacey pleaded not guilty, arguing he had no knowledge that the trades were tainted, that he had nothing to gain from the transaction, and that he had been busy that afternoon and was not paying close attention to what was going on. The committee, based on a transcript of the interrogation of the respondents by the FSB and the recorded telephonic discussions between Berman and Stacey on the day, said in its judgment that it was clear from the telephone calls that the two men knew each other well. It said it was impossible for Stacey not to have known Berman was trying to manipulate the market. Stacey did not ask for clarity when Berman introduced his discussion to buy 212 Ifour shares at higher than the going rate by saying: Lets do some doctoring here. In our view the contravention was deliberate and very serious, the committee said. Not only was there great risk of harm but it could prompt investors in the market to question the trustworthiness and the credibility of the market. This is the first hearing on market manipulation but the committee has awarded a R750000 penalty in a plea bargain agreement involving Scharrig Mining and Thabex Exploration.
