Johannesburg - The R1bn lawsuit against Nedbank arising from single stock future (SSF) transactions that went awry in 2008 may also place Absa Capital's SSF activities under scrutiny.
On Friday, Nedbank warned shareholders on the Stock Exchange News Service (Sens) it was facing "lengthy legal proceedings" after three businessmen - Dave Mostert, Mervyn Key and Ivor Stratford - suffered serious financial losses trading SSFs in property group Acc-Ross (now renamed Pinnacle Point).
According to the Sens announcement Mostert, Key and Stratford allege Nedbank created a superficial market for Acc-Ross shares by buying a sizeable stake in the property developer as a hedge for its clients' SSF positions. This, according to the plaintiffs, created an artificial market for Acc-Ross shares, inflating apparent demand.
Brian Kennedy, head of Nedbank Capital, dismissed the claim as being "vague and opportunistic." However, some analysts believe the businessmen are pursuing the claim not because it may be successful, but because it will force Nedbank to disclose further details around trading activities leading up to the collapse of SSF positions which sank broker Cortex Securities.
Cortex acted as a broker for SSF contracts in Acc-Ross/Pinnacle Point, Blue Financial Services, empowerment group Sekunjalo and IT firm Convergenet.
Accusations of manipulation
Cortex clients defaulted on their margin calls. Absa, the underwriter of the positions, took ownership of these shares by default - costing the bank R1bn in 2009. Cortex has been kept alive by Absa so that the bank can ultimately retain its claim over the broker's clients.
Traders who were burnt in the 2008 blow-out have previously cried foul, arguing that brokers and underwriters identified vulnerable positions in illiquid stocks to manipulate share prices and margin levels to force clients into default.
Those who have been vocal on this matter include Huge group directors James Herbst and Anton Potgieter, former African Dawn CEO Marius van Tonder and financial advisory firm Arcay. However, The JSE has criticised Arcay for encouraging the use of SSFs as a way to raise cheap capital.
In forcing Nedbank to disclose the trading activity in Acc-Ross/Pinnacle Point shares, the plaintiffs may discover market irregularities in terms of price and market making. Having known what traders' SSF positions were, the underwriters could have intentionally prejudiced these positions by manipulating demand.
Since the SSF fallout, Absa Capital has seen an exodus of senior officials, including CEO John Vitalo, MD of private equity André Pieterse and his deputy André la Grange.
- Fin24.com