Time for Alexan­der Forbes to make right

Weekend Argus (Saturday Edition) - - GOODPASTIMES -

In­creas­ingly be­lea­guered fi­nan­cial ser­vices com­pany Alexan­der Forbes con­tin­ues to be­have like a tru­cu­lent school­boy rather than a com­pany that holds in its hands the re­tire­ment for­tunes of many thou­sands of South Africans.

It is not sur­pris­ing that many of the key play­ers in­volved in at­tempt­ing to get the com­pany to be­have in a re­spon­si­ble way are los­ing pa­tience. This in­cludes the gov­ern­ment, the reg­u­la­tor and the cu­ra­tor of the re­tire­ment funds in which Alexan­der Forbes fa­cil­i­tated the strip­ping of sur­pluses.

In my view and in the view of th­ese par­ties, Alexan­der Forbes is us­ing le­gal fil­i­bus­ter­ing to avoid mak­ing good for the er­ror of its ways in the 1990s, when th­ese dis­grace­ful events occurred. This view was con­firmed by act­ing Judge JF Roos of the Gaut­eng High Court when he threw out an ap­pli­ca­tion by Alexan­der Forbes to “join” var­i­ous other par­ties in a le­gal action by fund cu­ra­tor Tony Mostert to sue Alexan­der Forbes for more than R1 bil­lion. The judge said the Alexan­der Forbes ap­pli­ca­tion is “so mis­con­ceived that it amounts to a vex­a­tious pro­ceed­ing”.

Those are pretty strong words for a judge to use.

And this was fol­lowed in short or­der by Dube Tshidi, the Reg­is­trar of Pen­sion Funds and the chief ex­ec­u­tive of the Fi­nan­cial Ser­vices Board (FSB), telling the par­lia­men­tary fi­nance com­mit­tee that a num­ber of re­tire­ment fund ad­min­is­tra­tors are us­ing an avalanche of lit­i­ga­tion to block the FSB and the cu­ra­tor in their at­tempts to re­cover the sur­plus money on be­half of the funds and ul­ti­mately their mem­bers, most of whom are pen­sion­ers.

Tshidi said that what is hap­pen­ing could im­pact on the fu­ture li­cens­ing sta­tus of the re­tire­ment fund ad­min­is­tra­tors.

Alexan­der Forbes’s re­sponse to the judg­ment, Tshidi’s state­ments to Par­lia­ment and Per­sonal Fi­nance’s re­ports on the is­sues was not con­tri­tion. It was more tru­cu­lence. The re­sponse was con­tained in both a let­ter that An­ton Os­sip, Alexan­der Forbes’s group head of op­er­a­tions, emailed to clients last Fri­day and in a state­ment from Bruce Camp­bell, the out­go­ing chief ex­ec­u­tive of Alexan­der Forbes, pub­lished in Per­sonal Fi­nance last week.

AF­FECT ON LI­CENCES

It al­most seems as if Alexan­der Forbes would rather com­mit com­mer­cial sui­cide, and in the process un­der­mine the en­tire pri­vate sec­tor re­tire­ment-fund­ing struc­ture, than play a pos­i­tive role.

Os­sip in his re­sponse vir­tu­ally dis­misses the re­marks made by Tshidi that this in­tran­si­gence over the mak­ing good to pen­sion­ers could im­pact on ad­min­is­tra­tion li­cences.

Os­sip says there are in to­tal at least five ad­min­is­tra­tors and large in­sur­ers that would po­ten­tially be af­fected by this, and “in our opin­ion this is un­founded and un­law­ful”.

The ques­tion that Os­sip, Camp­bell and the board of Alexan­der Forbes have to ask is: what if Mostert is suc­cess­ful in his claims against com­pa­nies such as Alexan­der Forbes, San­lam and Wynne Jones? And even more so if Alexan­der Forbes is con­victed of crim­i­nal of­fences re­lated to its fa­cil­i­ta­tion of the sur­plus strip­ping.

Can Tshidi al­low a com­pany that is con­victed of fraud, or loses a civil case where al­leged fraud is the ba­sis of the R1-bil­lion claim by Mostert, to con­tinue to be a cus­to­dian of our re­tire­ment sav­ings? I think not.

This is par­tic­u­larly so where the same com­pany was the main per­pe­tra­tor in the se­cret prof­its de­ba­cle ex­posed by Per­sonal Fi­nance four years ago, where money was “not law­fully” taken out of the pock­ets of re­tire­ment fund mem­bers.

It would, in my opin­ion, make a mock­ery of the leg­is­la­tion that is there to pro­tect re­tire­ment sav­ings and it would dis­credit the reg­u­la­tor too. There are in­flu­en­tial peo­ple in gov­ern­ment who share this view as well.

What makes all this far worse is the ab­sur­dity, in my lay­man’s view, of the le­gal ar­gu­ments be­ing used by Alexan­der Forbes.

In a nut­shell, it is ar­gu­ing that Mostert can­not sue Alexan­der Forbes, be­cause the re­tire­ment funds of which he has been ap­pointed cu­ra­tor (by no less than the Gaut­eng High Court, by the way) do not ex­ist. The rea­son they do not ex­ist is be­cause they were dereg­is­tered by the FSB.

How­ever, what Alexan­der Forbes con­ve­niently for­gets is that the al­leged dereg­is­tra­tion of the funds took place as a re­sult of the al­legedly mis­lead­ing in­for­ma­tion it sub­mit­ted to the FSB. Now I turn to an ap­pli­ca­tion that Tshidi, in his joint ca­pac­ity as reg­is­trar and FSB chief ex­ec­u­tive, has now, as a con­se­quence of the Alexan­der Forbes de­fence, made to the Gaut­eng High Court, namely to set aside the sec­tion 14 cer­tifi­cates ob­tained by Alexan­der Forbes from the FSB for the pur­pose of the sur­plus strip­ping.

In an af­fi­davit to sup­port the ap­pli­ca­tion, Tshidi says the ef­fect of the de­fence of Alexan­der Forbes is to de­lay the fi­nal­i­sa­tion of the cu­ra­tor­ship and the wind­ing up of the funds, prej­u­dic­ing the in­ter­ests of mem­bers and pen­sion­ers of the funds, the plight of some of whom “is acute”.

He says he can­not in the pub­lic in­ter­est al­low this to con­tinue San­lam and Wynne Jones are also named as re­spon­dents.

Tshidi al­leges the is­su­ing of the cer­tifi­cates to the funds was an “im­pugned de­ci­sion”, as a con­se­quence of “mis­rep­re­sen­ta­tions and non-dis­clo­sure of the facts” by Alexan­der Forbes. This, he al­leges, was un­law­ful by virtue of Alexan­der Forbes hav­ing acted in “bad faith” and per­pe­trated a fraud on the Reg­is­trar of Pen­sion Funds. “The im­pugned de­ci­sion (by the reg­is­trar) was ob­tained fraud­u­lently.” And what is more, he says, Alexan­der Forbes knows this to be the case from its own in­ter­nal doc­u­men­ta­tion and the ev­i­dence of its own em­ploy­ees and agents.

Tshidi points out that if it had any doubt about the fraud in­volved, this should no longer be the case, since the ar­chi­tect of the sur­plus-strip­ping scheme, a for­mer Nedcor se­nior ex­ec­u­tive, Peter Ghavalas, con­fessed to his part in the al­leged fraud and has since detailed to the State and Mostert how it worked and who was in­volved.

I would also sug­gest that Alexan­der Forbes, un­der its cur­rent man­age­ment, must also know this to be the case, or else it would not be at­tempt­ing to find a set­tle­ment, al­beit in a half-hearted sort of way. It would not be do­ing so if it felt it was to­tally in­no­cent of any wrong­do­ing.

Tshidi says what is dis­turb­ing is that de­spite this knowl­edge of an im­pugned de­ci­sion, Alexan­der Forbes it­self has not taken steps to set aside the im­pugned de­ci­sion of the reg­is­trar. In his af­fi­davit, Tshidi spells out in de­tail how the sur­plus-strip­ping scheme was struc­tured and im­ple­mented, al­low­ing the sur­pluses to be trans­ferred into the pock­ets of em­ploy­ers, with nu­mer­ous peo­ple, in­clud­ing Ghavalas and the re­tire­ment fund of the Life­care Hospi­tal Group (now Life Eside­meni), Life­care, tak­ing a cut as well.

Alexan­der Forbes was also the ad­min­is­tra­tor of the Life­care re­tire­ment fund and would or should have been aware, in my opin­ion, of what was hap­pen­ing to the money.

Alexan­der Forbes is also ar­gu­ing that it did not ben­e­fit from the al­leged fraud.

But Roos dealt with this in his judg­ment, say­ing it would not mat­ter where the money ended up. The fact is that the whole scheme went ahead on the ba­sis of the applications made by Alexan­der Forbes to the reg­is­trar. Without that, no one could have ben­e­fited.

Os­sip makes men­tion in his email to clients that Alexan­der Forbes would like “to find a speedy and fair res­o­lu­tion to the mat­ter, and are us­ing all ef­forts to achieve this. We are, how­ever, sub­ject to our un­der­writ­ers’ timeta­bles.”

In con­firm­ing this to Per­sonal Fi­nance, Camp­bell, who had noth­ing to do with the al­leged fraud and has in his ten­ure over the past 18 months put in place struc­tures to make Alexan­der Forbes a more eth­i­cal out­fit, says that Alexan­der Forbes can­not sim­ply ad­mit guilt, as the in­sur­ance com­pa­nies in­volved would then not pay out.

AC­CEPT­ABLE SET­TLE­MENT

My view is that, with the wel­ter of ev­i­dence that sup­ports the al­le­ga­tions against it, Alexan­der Forbes should reach a set­tle­ment that is ac­cept­able to the reg­is­trar, the State and the cu­ra­tor.

And if the in­sur­ance com­pa­nies do not come to the party, Alexan­der Forbes should sue them. As I un­der­stand it as well, an ac­cept­able set­tle­ment would see Alexan­der Forbes join­ing forces with the State and the cu­ra­tor to get the real re­cip­i­ents of the stripped sur­pluses to pay – and to pay in a hurry.

Camp­bell is on his way out as chief ex­ec­u­tive by year end. He should re­alise that he could be judged for not set­tling this is­sue un­der his watch.

And if I were Ed­ward Kieswet­ter, the deputy com­mis­sioner at the South African Rev­enue Ser­vice, who has been an­nounced as Camp­bell’s suc­ces­sor, I would refuse to take of­fice un­til this ghastly af­fair has been fi­nalised.

As I have said, if Alexan­der Forbes does not come to its senses, it may soon be too late for it to sur­vive. Key play­ers have lost pa­tience with its tru­cu­lence.

‘MEM­BERS PREJ­U­DICED’

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