PEMBURY BOSS IN THE DOCK OVER ‘LIFE RIGHTS’ HUSTLE
Very few heads of companies are ever brought to book for fraud in SA, but that appears to be changing
It might seem like there’s scant accountability for CEOs behaving badly, but the worm may finally be turning. First, Tongaat Hulett’s former CEO Peter Staude was charged with fraud in February; this week, another CEO of a JSE-listed company appeared in court on charges of fraud.
The story dates to March 2017, when Andrew McLachlan, the CEO of the Pembury Lifestyle Group (PLG), listed the company with a grand plan to roll out “affordable quality education” to 2,400 children at 11 schools, while operating a string of retirement villages.
At the time, private education was hot property, and 1,800 South Africans bought into the vision, ploughing R200m into the group by buying shares at R1 a share.
It ended up as the poster child for value destruction.
By the time PLG was suspended from trading on the JSE in June 2020, the share price had cratered to 10c amid disturbing reports that its schools weren’t registered and that serious shenanigans were taking place in the C-suite.
The board was at war too. In 2020, one former PLG director, Njabulo Mthembu, told the FM that McLachlan “has little regard for governance, and it’s his way or the highway”.
That year, PLG’s former auditor Moore went so far as to file for its liquidation due to unpaid bills, and its successor, Nexia Sab&T, soon quit “with immediate effect”. If it sounded like the Wild West, it was.
And this week, it all caught up with McLachlan.
On Monday, he was charged with fraud in the Palm Ridge specialised commercial crimes court for selling “life rights” in retirement villages that Pembury didn’t own.
He was released on R5,000 bail, while the case has been remanded to June 2.
In this case, Karen Goldblatt, 86, paid R855,000 for “life rights” at Pembury’s Melrose North “retirement village” in 2017. The brochure itself was clear what this meant: “What you are purchasing is the right to occupy a specific unit for the remainder of your life.” There was just one glaring problem: PLG didn’t own the property, so it had no business offering anyone an indefinite right to live there. When the real owner, Pacivista, found out what was happening, it applied for a court order to terminate the lease with PLG.
Yet in that court hearing, McLachlan denied that PLG had sold life rights. But acting judge Vuyani Ngalwana was having none of it. “In truth, and in law, it is a sale agreement of a life right,” he ruled.
In the charge sheet presented to court this week, prosecutors say McLachlan intentionally failed to reveal that PLG wasn’t the owner of the building and that it had “no right or permission to sell occupancy and/or life rights”.
By doing this, prosecutors say he contravened the Housing Development Schemes for Retired Persons Act of 1988.
This shouldn’t have been news to anyone. Back in 2018, PLG’s auditor Moore lodged a “reportable irregularity” with the Independent Regulatory Board for Auditors over the fact that PLG had sold life rights even though this didn’t comply with that act.
Characteristically, McLachlan has come out guns blazing, telling the FM this week that “the charges are vexatious and malicious”. But he adds that the PLG board will not comment until they have seen the evidence, which “appears vague”. Despite this, remarkably, McLachlan claims Pembury’s recovery is on track. He says that in the past six months he has “made major changes”, cutting costs, reducing staff, improving cash flows and focusing on “growing the assets of PLG into larger school operations”.
Perhaps. But PLG remains suspended from the JSE because it still hasn’t produced audited financial results for 2019, 2020 or 2021.
Last month, it said it was “negotiating with Moore” to come back and finish the audit, and it was “raising funds” to pay for that audit. Which hardly inspires confidence.
Either way, for those elderly people who paid for “life rights” and then realised they’d bought no such thing, the criminal charge is some consolation.
While those who bought units in other PLG retirement villages were booted out, at least those who bought into PLG’s Melrose North venture escaped this fate.
In 2019, Auria Senior Living which operates retirement villages bought Pacivista, and opted to honour those life rights contracts.
Barry Kaganson, CEO of Auria, tells the FM: “We felt a moral obligation to those people, because we saw what happened in other Pembury retirement villages, where people paid for life rights but were then kicked out, and left with nothing.”
There’s no doubt in Kaganson’s mind that McLachlan should never have sold those life rights. “Many of those residents are now out of pocket, and they have a claim against McLachlan for it. At least now they’re seeing justice take its course,” he says.
Which, as anyone who has watched the authorities stumbling around in the dark when it comes to Steinhoff will tell you, is a rare and welcome phenomenon.
South Africans ploughed R200m into the group. It ended up as the poster child for value destruction