Time for Alexander Forbes to make right
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.
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.