UPDATE 2-S.Africa regulator launches insider trading probe into Pinnacle shares
(Adds details from court documents, writes through)
By David Dolan
JOHANNESBURG, April 29 (Reuters) - South African regulators are investigating possible insider trading in shares of technology firm Pinnacle Holdings prior to the announcement of an executive's arrest, a senior official said on Tuesday.
The probe is the highest-profile investigation into suspected insider trading on Africa's biggest bourse in recent years and comes after $135 million worth of stock market value was wiped out in two days of declines in Pinnacle shares last month.
The investigation comes after Pinnacle director Takalani Tshivhase was arrested in March on charges he offered a bribe to a senior police officer to win a contract. Tshivhase has denied the charges and Pinnacle said it has no reason to doubt him.
However, the company did not announce the arrest for 20 days, during which time Tshivhase, Chief Executive Arnold Fourie and another director all sold Pinnacle shares equivalent to about 1 percent of the company.
Solly Keetse, head of the Department of Market Abuse at South Africa's Financial Services Board, told Reuters the regulator had launched a formal investigation into possible insider trading in Pinnacle shares.
He declined to say if the regulator was looking at Tshivhase and Fourie, only that it was investigating potential insider trading prior to the publishing of the information about Tshivhase's arrest.
The Johannesburg Stock Exchange (JSE) has told Reuters it was investigating whether the company violated rules on timely disclosure.
News of the charges in late March knocked $135 million or 43 percent off Pinnacle's share value in two days, and although the stock has since recouped some of its losses, it was down 8 percent at 13.10 rand by 1343 GMT on Tuesday. Before the arrest was announced it was worth 20 rand.
Tshivhase's case at Pretoria's Specialised Commercial Crimes Court was last week postponed until July in order to give the defence more time to prepare.
According to court documents seen by Reuters, Tshivhase allegedly met with Bonginkosi Ngubane, a lieutenant general in the South African Police Service, at the luxury Palazzo hotel in suburban Johannesburg on Jan. 16.
Tshivhase allegedly tried to offer Ngubane a 5 million rand ($470,800) bribe if the officer would ensure the police service bought 3,000 handheld MaxID devices from Pinnacle. Ngubane is named as the complainant in the case, meaning he brought the charge against Tshivhase. Reuters was not able to reach Ngubane for comment.
Police use the devices in field operations to check suspects' fingerprints and car registration details. The deal would have been worth 162.6 million rand to Pinnacle, based on the 54,185.63 unit price in a 2011 contract between the firm and the police.
The court documents also allege that Pinnacle overcharged the police by more than double in the 2011 deal.
Pinnacle's disclosure of Tshivhase's arrest came several days after he, Fourie and another company director George Wiehahn sold a combined 28.6 million rand worth of shares, regulatory filings show.
The sales were equivalent to nearly 1 percent of the company's market value at the time.
Pinnacle has said Fourie's 23 million rand share sale was a "forced sale" determined by the exercise of options.
Tshivhase's sale had been requested months before his arrest, it said, adding Wiehahn also obtained permission for his sale.
The company has said it waited to announce the allegations until a formal charge was brought against Tshivhase. Its first announcement of his arrest came a day after the formal charges.
Fourie has said the charges were based on a "huge misunderstanding".
Under JSE rules, directors cannot trade in the shares of their company when "there exists any matter that constitutes unpublished price-sensitive information".
The rules state that inside information can include information such as the "incapacity of a senior director". ($1 = 10.6193 South African Rand) (Editing by David Holmes)