Sir Arthur Conan Doyle, the creator and author of the Sherlock Holmes series, purportedly sent a telegram to 12 men of “great virtue and respect”. All the telegram said was “Flee! All has been discovered”. Within 24 hours, the story goes, all 12 had fled the country.

Sadly, the story is an urban legend. Conan Doyle was a prankster, but there is no record of him ever having sent such a telegram. It’s more likely someone concocted the story and attributed it to Conan Doyle, perhaps as a suggestion that could form the basis of a tale. 

The notion behind the urban legend is that many more people than you think have done something in their lives of which they are not proud and have a worryingly guilty conscience. So much so, that on the first suggestion, they would pack it all up and run.

Compare, if you will, Conan Doyle’s notional five-word warning with this one: “Jy het altyd my opinie gevra … Steinhoff gaan lank sukkel om al die bad nuus en Amerika te verwerk so daar is beter plekke om jou geld te belê, vat onmiddellik die huidige prys en delete hierdie sms en moenie aan enige iemand noem nie.” 

Or, in translation: “You always asked my opinion … It will take Steinhoff a long time to work through all the bad news and America, so there are better places to invest your money; take the current price immediately and delete this SMS, and don’t mention it to anyone.”

Would you, reading that comment, think that: 

1. You should hold your shares?
2. You should consider maybe selling at some point?
3. That you should flee because all has been discovered, dumping the stock along the way?

The question is relevant because the Financial Sector Conduct Authority (FSCA) has just cut the penalty imposed on former Steinhoff CEO Markus Jooste for insider trading to R20-million from the original R161-million — a reduction of almost 90%. This after the finding was fundamentally revised by the FSCA’s appeal body, the Financial Sector Tribunal. The quote above is the message Jooste sent before the collapse of Steinhoff’s share price to four friends, three of whom took his advice and saved themselves millions.

One question before the tribunal was whether this comment was specific enough to constitute insider trading; the FSCA found it was; the tribunal found it was not, although Jooste was determined to have contravened a different section of the legislation, hence the residual fine.

This issue of specificity was just one of a mountain of issues brought against the FSCA’s finding by Jooste. It is obvious he is following the precepts of a certain former president, using what might be described as a Stalingrad strategy. One by one, the FSCA and the tribunal knocked over his objections, but Jooste has indicated he may still take the case to judicial review. But already, he has scored a huge victory.

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The question for me is whether this victory is justified, or whether perhaps, faced with this barrage of legal issues, the tribunal just got worn down by Jooste’s tanks of Stalingrad. I’m not a lawyer, but if it’s not insider trading to tell your friends to sell their shares “immediately”, then it’s really hard to know what is. It’s that word ‘immediately’ that sticks in my craw.

It may be true that Jooste is not passing on specific information like, for example, the possibility that the auditors would refuse to sign off on the audit six days later. But if you tell a friend that the company has problems, the problems are going to last a long time, they should sell immediately, and then delete the message, how is that not specific enough? How much more specific do you have to be?

The chair of the tribunal, Louis Harms, cited a Singaporean case on this issue, Public Prosecutor v G Choudhury. In this case, the term ‘specific information’ in its insider trading legislation was held to refer to “information which has an existence of its own quite apart from the operation of any process of deduction”.

Harms concluded that the information must be capable of being identified and of being expressed unequivocally. The FSCA has done exactly what this case suggested it should not do: reach a conclusion by deduction, he said in the finding.

The information that the auditors were unlikely to sign off on the audit and, as the former deputy president of the Supreme Court of Appeal points out, was not the information specifically mentioned in the SMS. Harms also points out that one of the recipients didn’t think it was particularly new information and that the investigators considered it “vague”.

Yet, if the FSCA came to its conclusion by “deduction”, this is the most basic form of deduction imaginable. If a CEO of a company, not some minor employee or stock analyst, unbidden, sends an SMS to his mates and tells them to sell their shares immediately because the company is in trouble, what’s to deduce? Does it really make a material difference if he doesn’t explain, in an SMS, all the gory details? It is he who has made the deduction that the auditing issues constitute bad news, not the FSCA, and he has passed on the crucial information very specifically: this is bad, sell now. It’s true, one of the recipients didn’t think it was news, but three others did and sold their shares pretty sharpish.

If this is not an absolutely textbook case of insider trading, then honestly, I don’t know what is. If Harms is right, then the legislation is lacking and needs clarification. To me, the tribunal’s finding is just another example of the general failure of a culture of accountability in SA, particularly of the financial type. DM/BM