Gupta JSE abuse probe may draw international investigators

South Africa’s stock-market regulator said it started a formal investigation into trades in Oakbay Resources and Energy Ltd., a company controlled by the politically connected Gupta family, and may seek assistance from international supervisory bodies.

A preliminary probe into the November 2014 dealings has been completed, and if needed, the Financial Services Board will contact counterparts in other countries, the Pretoria-based authority said in an emailed response to questions on Monday.

It can approach regulators in more than 100 nations that have signed the International Organisation of Securities Commissions Multilateral Memorandum of Understanding to combat cross-border fraud and misconduct, the FSB said, declining to be more specific.

The FSB probe ratchets up the pressure on the Guptas, who are embroiled in a corruption scandal linked to President Jacob Zuma, a friend of the family and the father of one of their business partners.

At least one international company that has done business with firms controlled or linked to the family is being investigated by the U.S. Department of Justice and the Securities and Exchange Commission, while a U.K. lawmaker has demanded some British lenders be probed for handling transactions for the family. The Guptas haven’t been charged and the family and Zuma have denied any wrongdoing.

“International authorities are our only hope,” said Ben Theron, the chief operating officer of Johannesburg-based civil society group, the Organisation Undoing Tax Abuse. Local “law enforcement agencies have been particularly quiet and absent,” he said.

Puffed Up

Gary Naidoo, who has previously commented on behalf of the family, said he no longer works as a spokesman for Oakbay and two requests for comment to an email address he provided went unanswered.

An attempt to locate a media spokesman for Sahara Computers, a business controlled by the Guptas, failed and a call transferred by the receptionist at the Johannesburg-based company to one of the directors went unanswered. A lawyer representing the Guptas in a court case said she doesn’t know who can comment on behalf of the family.

A trove of emails seen by Bloomberg showed that family money was used to inflate the share price of Oakbay Resources on its Johannesburg Stock Exchange debut three years ago.

The Guptas boosted the value of Oakbay by lending money from a Dubai bank account to a Singapore firm, which then transferred cash to Oakbay in South Africa via Hong Kong in exchange for shares, the emails seen by Bloomberg show.

A director at the Singapore company was then instructed by an Oakbay employee to sell 20,000 securities, according to the emails. On the day trade opened, 20,000 shares changed hands and closed at 10.08 rand, setting Oakbay’s market value at 8 billion rand ($564 million).

That’s more than 48 times full-year revenue whereas most Johannesburg-based mining companies have sales that exceed their market value. The company delisted its shares in July after directors resigned and its sponsor and transfer secretaries quit.

“Each investigation has its own set of complexities that determine the length,” the FSB said. “We will issue a press release when the investigation is finalized.”

The Dubai Financial Services Authority, Hong Kong’s Securities and Futures Commission and the Monetary Authority of Singapore are signatories to the memorandum of cooperation.

Earlier this year, the Johannesburg Stock Exchange referred details of trading in Oakbay’s listing to the FSB’s Directorate of Market Abuse for further investigation, according to JSE Chief Executive Officer Nicky Newton-King.

The Gupta family has been accused of using its friendship with Zuma to interfere with cabinet appointments and win contracts from state companies in what has become the biggest scandal in South Africa since the end of apartheid in 1994.

The FSB’s investigation into Oakbay’s shares in November 2014 is separate from the 100,000 rand fine it imposed on Cape Town-based trader James Gubb last month. Gubb bought and sold shares with himself and the transactions “created a false and deceptive appearance of the trading activity of the Oakbay share and also created an artificial price,” the FSB said on Oct. 31.

Gubb’s trading took place on March 31 this year, the same week former Finance Minister Pravin Gordhan was fired. Gubb said in an emailed statement that his trade was a form of protest against the relationship between the family and Zuma. The transactions together amounted to less than 400 rand, according to data compiled by Bloomberg.

Read: Guptas inflated company share price through trading by Singapore firm

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Gupta JSE abuse probe may draw international investigators