Enforcement committee cracks its whip

05 November 2007 Gareth Stokes

In August, FAnews Online reported on a market manipulation case brought by the Financial Services Board (through its Enforcement Committee) against Michael Berman (the first respondent) and Neil Stacey (the second respondent). Readers can view our original article here.

The case relates to two trades in listed shares on the JSE conducted in such a manner as to "window dress" share portfolios. The first trade involved 500 SA Retail shares which Berman put up for sale at a price of R8.75. He then placed a buy order for the same 500 shares on behalf of the Mayibentsha Fund for whom he also managed funds. This trade was made at the end of March 2005 in the hope of inflating the value of the client portfolio at the close of the quarterly reporting window.

The second trade involved a series of orders for iFour shares which Berman placed at a price of up to R9.40 per share. The ruling price at the time the order was placed was R8.70 and the FSB believed the order was placed in such a way as to ‘bid up’ the price of the share to make a client portfolio look better.

Voice recordings provide damning evidence

The Enforcement Committee panel heard evidence which included recorded telephone conversations between Berman (key person at Velocity Trading) and Stacey (Head of Equities Trading in the Sales Trading department at HSBC Securities). Certain statements made by each of the respondents clearly support that both parties appreciated the intended outcome of the trades.

Berman's initial order to purchase iFour shares included the instruction: “can you buy all the way up to 940c?” It was an unusual request as the bulk of the shares on offer at the time were at 870c and 885c. When Stacey questioned the instruction, Berman simply said: “that’s what I want to do.” Stacey placed the trade as instructed. Subsequently Berman telephoned Stacey again and the two agreed to delay a final order to purchase 100 iFour shares to ensure the final trade went through at the agreed level of 940c.

The evidence was more damning in the SA Retail manipulation. This recorded transaction started with Berman commenting: “I want to do some doctoring here.” Probably not the best way to begin a conversation about trading shares on one of your client’s portfolios. These comments were instrumental in the Enforcement Committee concluding that the second respondent was aware of Berman’s intentions when putting on the trades.

Huge penalty imposed

Berman admitted wrongdoing to the committee, which found that evidence supported his admission. The committees task was thus to determine an appropriate penalty for the transgression – bearing in mind the Directorate for Market Abuse was looking for a R10 million fine. “As far as the First Respondent is concerned, we take careful note of the evidential material adduced. We accept that to impose a penalty of the order suggested by the Director of Market Abuse will be ruinous.” The committee noted Berman’s request for leniency but suggested pleas of poverty should not lead to lighter sentences.

With Stacey, the committee had to establish guilt. They determined that “proof on balance of probability was indicated.” Furthermore: “As far as the Second Respondent is concerned we accept that he has a good and unblemished record, but we do not accept that he was unaware what the First Respondent was up to.”

On Thursday, 1 November 2007, the Financial Services Board issued a press release with details of the Enforcement Committee’s findings. The respondents were each found guilty of contravening section 75 of the Insider Trading Act and fined R2 million. The full transcript of the case can be viewed on the FSB website at

Editor’s thoughts:
Market manipulation is a serious offence and should certainly be stamped out. From this case, which is the first of its kind, it certainly appears that transgressions by smaller traders and fund managers will be easier to spot and prosecute. Such transactions could easily ‘disappear’ in portfolios where hundreds of transactions are made on a daily basis. Is the R2 million fine excessive – or is it exactly the deterrent needed to prevent future market manipulations? Send your comments to

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