Investec may face FSB probe following inflation report
Trade union Solidarity has requested an investigation into financial services company Investec’s claim that the South African inflation rate was miscalculated and should be 2% lower.
The union argued that the directors might have contravened the Securities Services Act, as directors bought millions worth of shares in the company before the announcement was made, knowing that it would influence the company’s share price.
Solidarity requested registrar of securities services and Financial Services Board (FSB) CE Adv Dube Tshidi, to investigate the possibility of malpractice relating to Investec’s announcement.
Investec’s shares surged by 17% during the week the announcement was made, and Solidarity requested the investigation by letter, in terms of Section 76 of the Securities Services Act of 2004.
“We found that one of the founding members and current directors of Investec, Bernard Kantor, bought shares in the company to the value of almost R24,1-million before the announcement was made. Investec CEO Stephen Koseff, bought shares to the value of about R7,5-million,” stated Solidarity deputy secretary general Dirk Hermann.
The Investec directors were “not making any comments,” when phoned by Engineering News Online on Wednesday afternoon. However, on Tuesday, South African daily newspaper Business Report quoted Koseff as saying that "Investec had not benefited unfairly from a report released by its asset management unit last week”.
News service Sapa quoted Tshidi as saying that the FSB did receive the request from Solidarity and that it had not made a decision yet.
"The union is concerned about the possibility that Investec’s announcement on July 14 was only aimed at boosting their share price,” said Hermann.
Directors dealing in securities were announced by Investec, as required by the stock exchange, and this information was available on the company’s website, dating back to 2000.
The union relied on the consumer price inflation index (CPIX), and the inflation rate as this formed a basis for wage negotiations in which Solidarity participated.
“It is suspected that they were aware of the announcement that was about to follow and that this would have an influence on Investec’s share price. If this can be proved, it would mean that Kantor and Koseff contravened the Securities Services Act,” continued Hermann.
In its letter to the registrar the union mentions several reasons why it is of the opinion that Investec’s announcement was misleading and aimed at boosting the company’s share price.
Solidarity also alleged that Investec’s remarks regarding the changed weighting of the inflation basket was misleading.
The union also voiced concern about Investec’s allegation that the expected repo rate hike in August 2008 might not happen as a result of their announcement.
“They implied that the SARB was not aware of the changes that the reweighing would make to the measurement of inflation and blindly followed the figures that SSA gave them. The truth is that the inflationary trend in the economy is still there, regardless of any reweighing,” sad Hermann.
“It is this trend, in addition to the absolute level of inflation, that the SARB combats by raising the repo rate. The new weights were public knowledge long before Investec’s announcement, and the SARB was probably aware of it even before that. To imply that the repo rate will now be lowered in the near future is misleading and deceptive,” Hermann commented.
In response to the Investec announcement, Stats SA indicated that the difference between its official inflation rate and Investec’s estimates arose from the reweighting and rebasing of the CPI to be implemented in 2009.
“It is important to note that there is no error in Stats SA’s CPI calculations. Any difference in the rate of inflation given the old and new weights is not the result of errors but of a careful and logical process of keeping up with current changes in the economy as far as practically possible,” Stats SA confirmed.
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