FSCA: Warren Wheatley Debarment Test Trades Challenged

• Former Africa Bitcoin Corporation CEO Warren Wheatley is challenging a R5 million penalty and 20-year debarment from the FSCA.
• The sanctions stem from three 'test trades' totaling R301 in September 2022, which the FSCA alleges were share price manipulation.
• Wheatley contends these were internal system evaluations to fix errors, not an attempt to profit, despite acknowledging price movement.
• He has filed applications for reconsideration of the findings and suspension of the sanctions, arguing against deliberate misconduct and the severity of the punishment.
• The regulatory action has halted the company's plans for a R3.6-R3.7 billion capital raise and a London stock exchange listing, impacting its mission to fund South African SMEs.

While Warren Wheatley concedes that the methodology employed for these internal evaluations was ill-conceived and that some form of sanction might be justified, his primary objection lies with the FSCA's finding of deliberate misconduct and the severe nature of the penalties imposed.

Warren Wheatley, the former Chief Executive Officer of Africa Bitcoin Corporation, is currently contesting a substantial R5 million financial penalty and a 20-year debarment imposed by the Financial Sector Conduct Authority (FSCA). At the heart of this regulatory dispute are three specific transactions executed in September 2022, which Wheatley maintains were poorly conceived internal system evaluations rather than an attempt to improperly influence the share price. At the time, the company, then operating as Altvest, was preparing to introduce private and alternative investment opportunities to retail investors, a move that necessitated the acquisition of a brokerage firm servicing the Cape Town Stock Exchange.

According to Wheatley, the internal testing protocols revealed critical inaccuracies in portfolio valuations, investment cost calculations, and the assessment of taxable gains or losses. These errors, if left unaddressed, posed a risk of incorrect tax liabilities for customers and potential legal exposure for the business. With the launch of the new offering imminent and the identified problems persisting, Wheatley instructed two staff members—his wife and an analyst—to document trades using their respective accounts. His wife completed a single transaction involving three shares, while the analyst conducted two separate trades, each for ten shares. The total monetary value of these combined transactions amounted to R301.

Wheatley asserts that screenshots were meticulously captured throughout this process and subsequently integrated into a report, which was then submitted to both the brokerage and exchange management on the very day the trades concluded. Despite this, the FSCA's primary finding alleges that the three individuals colluded with a profit-making motive to manipulate the share price. Wheatley acknowledges that these R301 test trades did indeed cause some movement in the share price, citing an instance where the price increased from R6 to R6.20. However, he argues that such fluctuations were modest given the thinly traded nature of the share. He further contends that he did not subsequently sell any shares to capitalize on these movements; instead, he continued to invest, adding approximately R15 million over time and increasing his overall holding by roughly one-third.

While Warren Wheatley concedes that the methodology employed for these internal evaluations was ill-conceived and that some form of sanction might be justified, his primary objection lies with the FSCA's finding of deliberate misconduct and the severe nature of the penalties imposed. He characterizes the events as "honest mistakes," accepting that the approach was unwise but denying any malicious intent to manipulate the market.

In response to the FSCA's decision, Wheatley has formally submitted applications for both a reconsideration of the findings and a suspension of the imposed sanctions. He expressed hope that the application for suspension would be heard before the end of October, although he anticipates a considerably longer waiting period for the full reconsideration hearing regarding the market abuse regulatory debarment in South Africa. This challenge to the R301 test trades penalty highlights the stringent interpretation of market manipulation by the Financial Sector Conduct Authority, even in cases involving internal testing activities.

The severe sanctions and the ongoing legal challenge have had significant repercussions for Africa Bitcoin Corporation. Wheatley's resignation from his CEO position was a direct consequence, enabling the board to seek a permanent replacement. He notes that interim CEO Stafford Masie has played a crucial role in stabilizing the business, despite having other professional commitments. However, Wheatley himself must maintain a distance from the company's operations as long as the debarment remains in effect.

Crucially, the regulatory actions have also interrupted the company's strategic growth plans, including efforts to raise equity capital and pursue a listing on the London Aquis Exchange. The firm currently holds approximately 5.5 bitcoin, a stark contrast to its earlier ambition to secure between R3.6 billion and R3.7 billion in funding, which remains largely unrealized. The original strategy involved leveraging bitcoin as collateral to access relatively inexpensive international funding, estimated at around 3% interest. This capital was then intended to be lent to South African small and medium-sized enterprises (SMEs) at rates between 12% and 15%, offering a significantly more affordable alternative to traditional borrowing costs, which Wheatley estimates can exceed 28%. The company's vision was for bitcoin to serve as a foundational asset supporting the provision of vital growth capital to SMEs.

This case demonstrates the FSCA's strict interpretation of market manipulation, even for internal 'test trades' that impact share prices, and highlights the process for challenging severe regulatory sanctions. Lawyers should advise clients on robust internal testing protocols to avoid unintended market impact and potential regulatory exposure, and be aware of the avenues for appealing FSCA decisions.

Source: Original reporting via Moneyweb's Crypto Pod