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LONDON — Apparently if you are considering getting involved in insider trading, the last thing you should do, is google the term. That is how a MIT post-doctoral staff member was caught. There are several other cases in the US; Martha Stewart and Rajat Gupta come to mind where high-profile executives were caught and served time for insider trading. But is there the possibility that somebody got away with insider trading and avoided detection in South Africa on Nenegate? The claims of a whistle blower that Trillian CEO, Eric Wood knew six weeks before that Finance Minister Nhlanhla Nene was going to be sacked in December 2015 and have profited handsomely from it, has been investigated by Parliament, the Johannesburg Stock Exchange and the Financial Services Board who found no wrongdoing. Wood who called himself South Africa’s best trader is the only man left standing at Trillian Capital. He is currently involved in a court battle with Eskom, trying to claw back R600m of Eskom fees after McKinsey paid back R902m to Eskom. It is not the only parastatal where the Gupta-linked Trillian Capital’s tentacles reached. Transnet acting chief executive officer Mohammed Mahomedy told the Zondo Commission of inquiry earlier this month how Trillian Capital was paid millions of rands for work it had not done. Ryk de Klerk probes the possibility that insider trading had taken place during Nenegate and how the perpetrators could have managed to avoid detection. The article was first published in Business Report. – Linda van Tilburg
The dark side of insider trading
By Ryk de Klerk*
Welcome to the dark side of insider trading on prior knowledge and avoiding detection.
In the parliament inquiry into state capture a whistle-blower alleged that the Trillian CEO knew six weeks beforehand that the former finance minister was going to be sacked in December 2015 and profited handsomely – apparently hundreds of millions of rands – when the rand crashed on the announcement. However, in their probes the Johannesburg Stock Exchange and Financial Services Board found no wrongdoing.
Yes, you may ask that if it is true that a person made huge profits from what major announcement will be made and the timing thereof how was it possible that it cannot be detected. Obviously, if the person in question bought huge amounts of US dollars with rands beforehand – effectively meaning the strategy of selling of the local currency with the objective to buy the positions back at a profit – through South African banks or agencies it could or should have raised the red flag and the authorities would or could have picked it up.
The timeline of the firing of Mr Nene is very interesting, though and may give some clues as to how it could have escaped detection. The announcement of the removal of Mr Nene as minister of finance was made on Wednesday, 9 December 2015 at around 20h00 when the South African, UK and European markets were closed. The rand dived in the aftermath of the announcement and continued its downward spiral over the next two business days amid consternation over the president’s decision. It was exacerbated over that weekend by rumours of the resignation of deputy president Ramaphosa – yes, to keep the bad news flowing.
Late on Sunday evening it was announced that Mr Pravin Gordhan has been appointed as the minister of finance and the rand recovered strongly in the Asian markets on opening. It is therefore quite possible that the short position in the rand was reversed in the Asian markets. If that was the case, it means that the original short positions (buying US dollars and selling rands or just taking a short position in the rand) could have been taken in some Asian country or countries or even other countries.
The positions could have involved derivatives such as put and call options, futures, currencies themselves or outright sales of the rand against virtually any other currency. Front companies or individuals and even banks may have been involved and scored handsomely from the trades. One thing is certain, though and that is the profits made from the trades remain in the foreign bank accounts and will not be repatriated.
What it means is that the loot may be shared by anyone who had been privy to the information beforehand and the funds moved to their accounts anywhere else except to South Africa. If the looting indeed took place it should be viewed as high treason. However, the chances of the perpetrators being brought to book are very slim. Who they are will remain a mystery.
This type of situation can and probably will recur time and time again. Ruffle the feathers through unexpected announcements can be profitable and untraceable when properly planned.
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