Retirement fund administrator Alexander Forbes has made a "substantial" offer to resolve a R950-million claim against it for its role in the allegedly fraudulent stripping of surpluses of retirement funds in the 1990s, reducing the retirement benefits of thousands of members and pensioners.
The offer still has to be accepted by Tony Mostert, the curator of the plundered retirement funds, who says his decision depends "on the outcome of critical pending developments within the next few weeks".
If Mostert does not accept the offer, it will be up to the High Court to decide on the issue.
However, indications are that this offer will break the stalemate that has existed for about six years and will open the way for Mostert to get money back from the parties that benefited from the surpluses.
While Alexander Forbes facilitated the surplus stripping, it never got a share of the plunder, now worth more than R1.1 billion.
Dube Tshidi, the chief executive of the Financial Services Board (FSB), has welcomed the offer, saying Alexander Forbes "has finally, under its new leadership, realised that it is not and never will be bigger than the people who invest with it. This is a sign, I hope, of good things to come from Alexander Forbes."
The stalemate was broken by the appointment this year of Edward Kieswetter, the former deputy commissioner of the South African Revenue Service, as chief executive of Alexander Forbes.
There was an immediate change of attitude, and the company entered into what Mostert describes as "extremely helpful, fruitful and genuine negotiations which will go far to bring others to book".
Kieswetter told Personal Finance: "We want to resolve this matter once and for all and as quickly as is practical. It's the right thing to do and we are strongly committed to doing the right thing.
"By resolving the dispute with the curator we can begin the process which will allow the curator to make sure that the affected funds are reimbursed, thereby channelling funds to the people (pensioners) who have money due to them as swiftly as possible."
The actual amount and all the other terms of the settlement offer, apart from being called "substantial" by both Kieswetter and Mostert, have not been disclosed.
An important part of the deal is that Alexander Forbes will now assist the curators in recovering money from the parties that actually benefited from the surplus stripping. This includes a number of listed and unlisted companies, financial services giant Sanlam, and retirement fund administrators Jacques Malan and Wynne Jones.
Mostert is confident that, with the co-operation of Alexander Forbes, including the disclosure by the company of full details of the plunder by all parties, "all the joint wrongdoers will be brought to book".
Kieswetter says the decision to make the offer, which is supported by the Alexander Forbes board, was reached after positive negotiations with Mostert, with the participation of the FSB's Tshidi.
Kieswetter says he is "very optimistic that our offer will be accepted, allowing the matter to be finally put to rest. I hope that the other participants in the schemes will follow this lead and can be persuaded to do the right thing and allow the curator to obtain the funds from the respective parties".
He says part of his new role at Alexander Forbes is "to ensure that the company earned a reputation for doing the right thing".
If the offer is accepted, Alexander Forbes will finally put behind it the tawdry history of the 1990s, when the savings of thousands of retirement fund members and pensioners were treated as merely a way to maximise profits in numerous unacceptable ways.
Back in the 1990s, when the surplus stripping occurred, Alexander Forbes had a reputation for sharp practices - which included the infamous secret profits made by bulking retirement funds' bank accounts.
In the process of these unacceptable practices, senior executives of the company made themselves fabulously wealthy.
Alexander Forbes and other retirement fund administrators were forced by the FSB to make good on the secret profits. However, until now, Alexander Forbes and others, including financial giant Sanlam, have resisted paying back in full the plundered surpluses.
Some companies, such as hospital group Lifecare (now Esidimeni) and its retirement fund, which were also involved in laundering the surpluses, reached an early settlement with Mostert, while others, including the architect of the surplus-stripping scheme, Peter Ghavalas, have been forced to pay up as part of plea bargain agreements on criminal charges.
Over the past year, Alexander Forbes's then chief executive, Bruce Campbell, entered into negotiations with Mostert, but the company continued to launch and fight an avalanche of often spurious litigation over the surplus stripping.
Some of Alexander Forbes's legal moves were roundly condemned by the High Court. The litigation also prevented Mostert from progressing with his claims against the other parties that benefited from the surplus stripping.
The affected retirement funds in the surplus-stripping cases are Mitchell Cotts, which was stripped of a surplus of R23.6 million (now R172 million with interest); Lucas of R14.9 million (now R87 million); Picbel of R41 million (now R127 million); Sable of R36 million (now R179.4 million); Cullinan/Power Pack of R41.8 million (now R145 million); and two Datakor funds and Cortech of a total of R138 million (now R421 million).
There was a difference with the Datakor and Cortech funds in that all the assets of the three funds were processed through the complex structures used to launder the surpluses to the ultimate benefit of Sanlam. With investment returns, the total amount now owing to the pensioners in all nine funds exceeds R1.1 billion.
Alexander Forbes was accused by the FSB in court papers of facilitating the surplus stripping by getting the FSB to make an "impugned decision", as a consequence of "misrepresentations and non-disclosure of the facts", and this "perpetrated a fraud on the Registrar".
The result of Alexander Forbes's action was that employers and others were able, in a complex money-laundering operation, to get their hands on the money, which was due to fund members and pensioners.
The FSB, which initiated criminal proceedings against numerous companies and individuals involved in the plunder of retirement fund surpluses the 1990s, is now at odds with the National Prosecuting Authority (NPA).
Among other things, last month the NPA allowed two former senior executives of what was then a Sanlam-owned and controlled company, Datakor, to plead guilty to lesser charges relating to the surplus stripping, and to repay only a fraction of what they allegedly had personally been allowed to take out of the surplus funds.
The NPA has also reached an agreement with Sanlam not to bring criminal charges against the company despite the fact that it benefited from the surplus stripping and was the administrator of two of the funds.
The FSB is currently taking legal opinion on the issue.
In response to questions from Personal Finance, the FSB says that Tshidi, in his capacity as Registrar of Pension Funds, had "in no uncertain terms in an affidavit expressed his opposition to the settlement (with the two Datakor executives) and, in a letter to the NPA, added that the affidavit should be brought to the attention of the presiding officer should the matter be brought before court".
The FSB says the NPA, without conferring with or notifying the FSB, brought the accused before the court on a "plead guilty basis coupled with a confiscation order".
The FSB is also "not satisfied" with a response from the NPA to its request for an explanation as to why Sanlam has been given indemnity from prosecution in terms of section 204 of the Criminal Procedure Act.
Sanlam's involvement in the surplus stripping has been revealed in numerous court papers filed by Mostert.
The untested court documents allege that Sanlam, through its now defunct, wholly owned investment arm, Sankorp, benefited directly by R44.1 million from the raid on the surpluses of more than R70 million held by three retirement funds that are part of the Datakor group of companies. Sankorp was the controlling shareholder of the Datakor companies.
Court papers also reveal that two Datakor senior employees, Michael McEvoy, the chief executive, and Derrick Pettitt, the financial director, personally shared in almost R5 million of the R70 million surplus money, with the balance paid to others.
Sanlam was the administrator of two of the Datakor funds - the Datakor Pension Fund and the Datakor Retirement Fund. The third Datakor fund, the Cortech Pension Fund, was administered by Wynne Jones.
Chris Jordaan, special director of public prosecutions at the NPA, says that Sanlam has not been criminally charged because it agreed in 2006 to provide the NPA with all the information at its disposal and to give evidence against any parties.
But, he says, if Sanlam is called as a witness, it will be up to the court to decide whether to prosecute. He says that at the end of the proceedings, if the court is of the opinion that Sanlam has answered all the questions frankly and honestly (and in doing so has incriminated itself), the court will discharge Sanlam from prosecution. If it is not discharged, Sanlam may face prosecution.
Jordaan says Sanlam had become aware that some of the money eventually passed onto its books by Sankorp on the closure of the subsidiary was "tainted by fraudulent transactions allegedly orchestrated by Ghavalas and others (and in which McEvoy and Pettitt, directors of a former Sankorp subsidiary of which Sankorp was no longer the owner at the time of the transactions, were involved).
"Sanlam stated that it did not want to hold any money not lawfully acquired. It asked the State what sum was involved. At that early stage the State was aware that the amount that Sankorp had actually passed on was R44 million, and the prosecutors were interested in securing money for the disadvantaged elderly pensioners."
Jordaan says Sanlam then paid over that amount plus interest, which it had added of its own accord, resulting in a payment of R106 million.
Six people have now entered into plea arrangements with the State, allowing them to escape serving time in prison for their roles in the theft of money from pensioners. They are:
- Peter Ghavalas, a former Nedcor senior executive and the architect of the scheme that saw retirement funds stripped of their surpluses in the '90s. Ghavalas was ordered to pay back R18.6 million in compensation and was given a suspended 15-year prison sentence.
- Rowland Bailey and his wife, Shirley, who benefited from the surplus in the Mitchell Cotts Pension Fund. Bailey received a total of 19 years' imprisonment (suspended for various periods) for fraud, contravening the Financial Institutions (Investment of Funds) Act and money laundering. His wife was sentenced to a suspended five-year prison term.
- Cape businessman Jan Pickard Jr received a suspended two-year sentence for the theft of a R28.8-million surplus in the Picbel Group retirement fund. Pickard paid R21 million to the fund's curators.
- Former Datakor chief executive Michael McEvoy and financial director Derrick Pettitt pleaded guilty and received suspended five-year prison terms for three counts of contravening the Financial Institutions Act. They were also ordered to pay R1 million each in compensation despite sharing in R4.9 million (now worth R18 million) from the surpluses in 1998.
Still facing criminal charges are:
- Alexander Forbes and a former senior executive, Peter Martin.
- Aubrey Wynne-Jones and his company, Wynne-Jones and Company Employee Benefits Consultants, due to appear in court in April, relating to the Sable, Cortech, Datakor and Cullinan/Power Pack retirement funds.
- Jacques Malan and his retirement fund administration and consultation company, Jacques Malan and Partners. New charges were recently laid against them after initial charges were withdrawn.
- Johannes Roets, the Sankorp executive seconded as chairman of Datakor at the time of the stripping.
- William Graham Somerville, the former chief executive of hospital group Esidimeni (known as Lifecare at the time) and chairman of the Lifecare Retirement Fund, through which most of the surpluses were allegedly laundered.
- Simon Nash and his company, Midmacor Industries, relating to the Sable and Cullinan/Power Pack retirement funds.