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?

Financial Mail - - EDITOR’S NOTE - Carte Blanche Carte Blanche by Rob Rose

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’

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