Earlier this month, the high court delivered a victory to the Financial Sector Conduct Authority (FSCA) in its battle against Viceroy Research, an outfit best known for having tanked the Capitec share price in 2018 by publishing some poor research on the bank.

The court’s decision puts right a bad precedent created by the Financial Services Tribunal, when it decided that FSCA doesn’t have jurisdiction over foreigners.

To remind you of the background, Viceroy had developed a reputation for short-side research (negative findings) that was burnished by the collapse of Steinhoff. As the firm collapsed, Viceroy rushed to publish a report that provided the first inklings of just what had gone wrong with Steinhoff.

The report got a great deal of attention in the information vacuum around the sudden and unexpected collapse of the blue-chip retail and manufacturing conglomerate. After that success, every rumour of a future target by Viceroy would cause a share price to tank.

Eventually the next report to come out — early on Tuesday, January 30 2018 — targeted Capitec, though some journalists had been given advance copies. Titled “Capitec: A wolf in sheep’s clothing”, the selling pressure was immediate and some R25bn of the bank’s market cap was wiped out in minutes.

But that trade was driven by Viceroy’s reputation, not the quality of the research report. Over the same day, as people began to read beyond the headline and authorities, including the SA Reserve Bank, rushed to Capitec’s defence, brows were furrowed. The share price recovered from a 25% fall to end the day only 3% down.

I argued at the time that the report was nonsense, based on alarmist interpretations of some numbers, and failed to meet professional standards in research. It was designed to tank the share price, not to disclose genuinely held beliefs about Capitec or to present well-founded research findings.

The FSCA undertook an investigation on Viceroy’s actions and concluded that its conduct amounted to “false, misleading or deceptive statements”, in violation of the Financial Markets Act. It imposed a penalty of R50m on Viceroy and its three principles, Fraser Perring (a disbarred former social worker in the UK), Aiden Lau and Gabriel Bernarde (both young professionals based in Australia).

It found that Viceroy had a deal with a hedge fund, Oasis, that it would get $10,000 a month to publish hit pieces on targets that the hedge fund had short positions in, as well as 12.5% of the profits. The FSCA estimated Viceroy to have made R10m out of the Capitec report.

Viceroy and its principles appealed against the decision. The financial services tribunal overturned the FSCA’s penalty on the grounds that the three respondents needed to be physically in SA to be served a summons.

This decision was not unanimous. One of the panellists, Michelle le Roux, pointed out that in a digital and global world it would defeat the objective of legislation governing our financial markets. Investors can be global, and their actions fanned by social media. “A requirement of physical service on the defendant while in SA is, in my view, unduly restricted and onerous,” she wrote.

The tribunal’s decision was indeed bizarre. The integrity of SA’s financial markets depends on being able to investigate and punish those who attempt to manipulate those markets. Today, that can be done from any location in the world. The tribunal’s precedent implied that if you want to manipulate share prices on SA markets, provided you do so from offshore you are immune from prosecution. That would obviously be hugely detrimental to the integrity of our markets.

The high court agreed with Le Roux in effect, noting that “to absolve the respondents from being liable for their conduct merely because they will at no stage be physically present in SA is not in the interest of justice”. The court found that it should be acceptable to deliver notice of an administrative penalty by any means, including electronic, where the connection between the conduct of the person and SA makes it appropriate and convenient for the regulator to exercise its powers.

The decision sets an important precedent. FSCA is now free to pursue abuse of SA markets globally with a legal precedent in hand. Thank goodness. The case now goes back to the tribunal to determine if it should enforce the penalty from FSCA, with the issue of jurisdiction now cleared up. I hope that will be a quick process.

Meanwhile, Viceroy Research continues to go after companies with negative research reports. Earlier this month it published a report targeting Indian mining firm Vedanta (debt issued by its semiconductor division specifically). Its tactics remain controversial, with Vedanta threatening legal action and having obtained independent opinion from the former chief justice of India dismissing the report and recommending legal action. The Vedanta share price took an 8% hit but recovered.

Once the fine is confirmed, the FSCA will have an interesting task on its hands to get the money from Viceroy. Its three principals now are based in the US, France and Australia. Enforcing a penalty in those jurisdictions would be an interesting exercise, but in the interests of justice.

It is important that a clear signal is sent that manipulating SA markets will have consequences no matter where you are based. Market manipulation is a serious crime in all those markets and the International Organisation of Securities Commissions provides frameworks for enforcement of securities violations.

That Capitec probably would have had shareholders based in those markets may also help enforcement. Viceroy may well have provided a helpful test case for how international enforcement of securities violations can work. The saga has some way to run still.

• Stuart Theobald is chair of research-led consultancy Krutham. This article first appeared in Business Day.