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Short-seller Viceroy accused of plagiarism in its Steinhoff report

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JOHANNESBURG — Short-sellers are certainly necessary for the global capitalistic system, but they can also be an interesting grouping of mavericks. Viceroy has recently found itself on the back-foot after going after Capitec earlier this year in what many analysts described as problematic research. But there are more problems emerging from its previous Steinhoff research. Viceroy shot to fame over its Steinhoff report, but research company Intellidex says that Viceroy plagiarised another firm’s report. While this may harm Viceroy further, it does also pose the question as to whether it matters at all if they copied and pasted parts of their Steinhoff report from elsewhere? After all, there’s a good chance they still would have profited from their Steinhoff short positions regardless. – Gareth van Zyl

By Roxanne Henderson

(Bloomberg) – Short seller Viceroy Research, which has targeted companies from Australia to the US, was accused of plagiarism in a report issued on Thursday by Intellidex (Pty) Ltd., a South African research and media company.

The study found almost identical wording in sections of Viceroy’s report on Steinhoff International Holdings NV as those contained in an analysis six months earlier by Portsea Asset Management LLP, according to Intellidex, which has offices in London, Boston and Johannesburg. London-based Portsea declined to comment.

Viceroy’s report into Steinhoff, released shortly after the global retailer announced accounting irregularities, gave the firm “considerable influence” in the South African market because it was so widely spread in the days that followed and provided some explanation of what had happened at the company, Intellidex said. Steinhoff’s shares have plunged 94 percent since it disclosed a probe into its books in December.

Portsea didn’t send Viceroy any research, Viceroy said in the email on Thursday. Viceroy receives “significant amounts of data anonymously” via email, some of which may come from funds, and which is included in its research where “it is valid,” it said.

Won’t last

Viceroy’s influence won’t be sustained because the quality of its work varies so widely, Intellidex said. The reports range from coherent and robust calculations on Syrah Resources Ltd. to weak methodology that relies “on little more than anecdotes, ad hominem attacks on management and no attempt at balanced assessment,” like with Capitec Bank Holdings Ltd. and Advanced Micro Devices Inc., Intellidex said.

The headquarters of Steinhoff International Holdings NV stand in Stellenbosch, South Africa. Photographer: Waldo Swiegers/Bloomberg

In response, Viceroy said its research is “thoroughly back-tested” and any evaluation of its quality is inevitably subjective. “Our work speaks for itself and the report does not disprove any of the content,” the firm said.

The study was commissioned by Business Leadership South Africa, a lobby group including chief executive officers of some of the country’s largest businesses, to provide insight into short-selling activities in the country, Intellidex said.

Internally funded

While Capitec is a member of the business grouping, and would’ve indirectly funded the research, “this is not a report that has been paid for” by the South African lender, BLSA CEO Bonang Mohale told reporters in Johannesburg.

The four authors of the report, including Intellidex Chairman Stuart Theobald, also called into question the credentials of Viceroy’s three members and the company’s business model. The company seems to be working with hedge funds and other short sellers to generate negative publicity while taking on the legal risk that comes with that, Intellidex said.

“We have no business relationship with any individuals or funds cited in Intellidex’s report, and our work is funded internally,” Viceroy said, denying that it works in concert with funds. The firm has a network of industry consultants used on a “case-by-case basis under strict non-disclosure agreements.”

Viceroy uses journalists by giving them embargoed copies of their reports so these are published simultaneously with their release, Intellidex said. “This serves to amplify the impact of Viceroy’s research,” it said. “Indeed, it is often the media coverage, rather than the reports themselves, that move the share prices of its targets.”


South Africa’s capital markets need to function with the utmost integrity

Business Leadership South Africa statement:

Today Business Leadership South Africa is publishing a new, ground-breaking report on the growing phenomenon of short-selling activity in South Africa.

The research, conducted by reputable research house Intellidex and titled Investment Research in the Era of Fake News, focuses on Viceroy, the short seller, which has published negative reports on prominent South African companies including Steinhoff and Capitec.

The report, based on research over the last few months, has made damning findings on Viceroy’s reports.

“Among other findings, our research has found that Viceroy’s research report on Steinhoff was substantially plagiarised from a report produced by a different hedge fund six months earlier. In addition, there are several problems with other Viceroy reports, including Capitec and Advanced Micro Devices, such as unsupported exaggerations, poor reasoning and misunderstandings of the markets they operate in,” said Dr Stuart Theobald, the chairman of Intellidex and one of the authors of the report.

“In our view, Viceroy has used the status it gained from its Steinhoff report, which benefitted from the fact that it was published at a point when there was major demand for information about accounting failures in Steinhoff, in order to publish spurious and weak reports that have the effect of damaging share prices. We urge the public to critically examine the content of Viceroy’s reports which, we have argued, fails to meet professional research standards,” said Dr Theobald.

BLSA, which represents CEOs of the largest companies in South Africa, commissioned Intellidex’s research on short selling as part of its commitment to promoting inclusive growth and transformation and job creation and positioning business as a national asset.

“There was shock and confusion about Viceroy’s Capitec report among both regulators and Investors when it first came out. There was a swirl of rumour about other companies Viceroy may target. Activist short selling is a new phenomenon in South Africa and we felt it was important to commission research that would draw out the facts and equip the public to separate good from bad practices. We commissioned the research primarily because our role as BLSA is to ensure our members and business in general build, protect and grow their investments to create shared prosperity and jobs in our economy,” said Mr Bonang Mohale, BLSA’s CEO.

Bonang Mohale, CEO of Business Leadership South Africa (BLSA)

“Our members have signed an Integrity Pledge which commits them to root out corruption and anti-competitive behaviour. Accordingly, it is also important that as part of enhancing our understanding of the functioning of our capital markets, we ensure that they do so with utmost integrity.”

Mr Mohale said: “Short selling can play a positive role in exposing corporate wrong-doing and improving the efficiency of markets. BLSA believes the economy benefits from robust criticism of corporate activity from the media as well as investors, whether they are long or short. However, it is
important that this criticism be based on a reasonable assessment of the facts. It would harm the economy if negative aspersions are cast about companies, not because they represent genuine beliefs based on research, but because they are intended to damage the value of companies for
profit. Such market manipulation is itself a form of corruption.”

Mohale calls on authorities to strengthen market regulation to ensure that all players in our capital markets operate with the highest standards of corporate ethics.

“We hope the Intellidex report contributes to the debate about corporate ethics and the need for regulation to catch up with sophisticated and subtler but equally damaging forms of market manipulation especially in an advanced economy like ours. Specifically we should consider enhancing transparency by introducing regulations requiring disclosure of all short positions. This already happens in Australia, the UK and the US. By tracking short positions, authorities are able to determine when some or other social media campaign is connected to traders’ positions. This will also ensure the public has a better context in order to be able to interpret information that is spread about companies,” said Mr Mohale.

Viceroy Research website

About the report’s findings, Dr Theobald said: “We note also that the South African Reserve Bank commented on the day of the release of the Viceroy research that Capitec was well capitalised, solvent and had adequate liquidity. It later said it had confidence in the data and financial statements of the bank, and that the substantive allegations made by Viceroy were not accurate.

The National Treasury has also described Viceroy’s actions as ‘reckless’ and ‘not acting in the public interest’.”

Dr Theobald added: “There is plenty of excellent short-side research, however our analysis indicates that Viceroy’s work does not fit in this category. Users of short-side research should ask two questions: does the research represent the genuine beliefs of the authors, and does the research
contain adequate evidence and reasons for the beliefs it expresses?

In Viceroy’s case, the answer to the second question is mostly ‘no’, while in some cases we are forced to conclude the answer to the first question is also ‘no’. Given that, we must conclude that the function of Viceroy’s research is not to share new facts and analysis, but rather to damage the share prices of companies for it to generate a profit. This behaviour is not in the public interest and may well be illegal in terms of market manipulation rules.”

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