WHO SHOT THE SHERIFF?
Until now, there’s been no sheriff calling anyone to account in the wild west that is schools group Pembury. Will an allegation of stock manipulation change that?
Valued at just R41m, Pembury Lifestyle Group (PLG) is one of the smallest companies on the JSE. But it isn’t always the size of the company that matters; sometimes a minnow assumes outsize importance because of the fractures it reveals in the institutions set up to make sure our market isn’t run with all the discipline of Boris Johnson’s straw-coloured mop.
Pembury, which set up 11 schools to provide “affordable quality education” to more than 2,400 children, while also opening a string of retirement villages, is just that example.
Which isn’t to say its fate isn’t important to the 1,800 investors who sank R200m into it at R1 a share, only to see the price fall to its current 10c. It’s just that it’s more an examination of the JSE’S resolve to tackle nefarious behaviour — a pledge former CEO Nicky Newton-king made in 2018 amid angst over how it missed Steinhoff’s R106bn fraud.
But let’s start at the beginning. When PLG listed in March 2017, it was a dream come true for CEO Andrew Mclachlan, an “entrepreneur” with a degree in construction management who is lauded in the annual report for his “naturally clear vision, confidence and courage”.
It all soon began crumbling. Financial directors whipped in and out of the job as if it were a waiting room, two sets of auditors quit and disturbing claims emerged that not only were some of the schools not registered, but Pembury was also selling “life rights” in retirement villages it didn’t own.
Last October, a new board under chair Martin Nel was hired to sort it out. But in Mclachlan’s mind PLG was his company; nobody was going to pitch up and boss him around.
One director who clashed with him, Njabulo Mthembu, told the FM in February it was the “craziest thing” he’d seen in his career. “I can’t operate under this madness,” he added.
And it is madness: already this year, the list of those who quit “with immediate effect” include new auditors Nexia SAB&T, finance director Willem Marais, Mthembu, and its sponsor and company secretary Arbor Capital.
Damningly, PLG director Bheki Sibiya told investigative TV programme last week: “You may find that [Mclachlan] is to PLG what Jacob Zuma was to the country.”
Quite how toxic it is became frighteningly clear during a conversation that Mclachlan had with Nel at a coffee shop in January, which Nel secretly recorded. In the transcript, Mclachlan threatens to fire anyone who speaks against him, and boasts of how he plans to destroy Marais’s career: “I am going to see to it that [he is] struck off the board for at least a year … I do not have time for him. Ek gaan hom nog goed pakslae gee [I am going to give him a hiding].”
It’s a common theme. He says he will sue the finance director who was in place before Marais for R4m, while
presenters “will be arrested”, and he’ll be suing the programme’s parent company, Multichoice, for R20m as a “class action”. Directors who speak against him must be fired too. “Njabulo needs to be buried, because he says things,” he says. And when Nel says: “Ja, but you cannot just fire everybody,” Mclachlan replies: “I can, I can.”
Well, you might say, that’s just your average case of
CEO megalomania; if you make that illegal, some companies in this town will be rudderless.
Except late in the coffee shop conversation, there are some curious references to what may be a bid to manipulate the share price. At one point, Mclachlan says the price fell to 2c, but: “We start supporting it to keep it at 7c.”
Mclachlan adds that it is his son Jason who is doing it: “I cannot do it — Jason every now and again will buy 10, just to keep it up,” he says.
However, section 80 of the Financial Markets Act makes it an offence to manipulate share prices by creating “a false or deceptive appearance of the demand for, supply of, or trading activity in connection with; or an artificial price for that security”.
The FM’S analysis of the trading patterns didn’t pick up Pembury’s stock falling to 2c — the lowest it has hit is 3c, in April 2019. But there are days when it rockets on tiny volumes, like November 29, when the stock soars 50% to 9c based on a purchase worth just R130.
So isn’t this something the JSE, or the Financial Sector Conduct Authority, should be concerned about?
Shaun Davies, director of the JSE’S market regulation division, tells the FM that his department “will be reviewing trading in Pembury shares with reference to [that] recording”. And he adds that if you direct someone else to manipulate shares, you can still be held accountable.
The JSE’S Andre Visser says the exchange is also “investigating various matters as it pertains to compliance by the company”, including breaches of the listing rules, the way it addressed “reportable irregularities” flagged by its auditors, and the resignations of auditors and finance directors.
But as Pembury still hasn’t even provided its financial results for the year to December, the JSE seems likely to suspend the listing. Which will leave the investors out of pocket and trapped in an entity they can’t exit.
Mclachlan didn’t answer the FM’S questions, though he did say: “The transcript was completely misconstrued.”
Nel, however, tells the FM that he remains chair of the company. Aren’t meetings with Mclachlan awkward?
“I don’t worry about awkwardness, I worry about what is right and wrong,” he says. “I thought of resigning, but then I thought, what about the poor minority shareholders, who put in R200m? It leaves a bad taste in your mouth, since Andrew still seems to think he can do whatever he wants.”
In a country that already has an accountability problem, it’s the sort of signal you’d think the JSE wouldn’t want to send to the other 380 listed companies.
‘I thought of resigning, but then I thought, what about the poor minority shareholders, who put in R200m? It leaves a bad taste in your mouth’