HOW LOW CAN YOU GO?
Pinnacle’s R1bn-plus ‘bribery’ catastrophe
A DINNER with a police lieutenantgeneral at the faux-Italian Montecasino entertainment complex 14 months ago left a sour aftertaste for Pinnacle director Takalani Tshivhase this week, when he appeared in court in connection with bribery charges related to the meal.
It was at the entertainment complex, north of Johannesburg, that Tshivhase allegedly offered the policeman a R5-million kickback to ensure Pinnacle scooped a police tender worth an estimated R165-million for MaxiID machines.
The machines are used to scan fingerprints and link to a database, allowing police immediate access to a suspect’s criminal history.
Tshivhase, chairman of Pinnacle’s ethics committee and a director since 2003, is due in court in connection with the charges on April 24.
After Pinnacle was forced to reveal his arrest, the company’s share price crashed 30.6% this week, wiping out more than R1-billion in value.
But the problems for Pinnacle go much further.
Besides the police inquiry, Pinnacle faces a JSE investigation over why it took 20 days from Tshivhase’s arrest to the formal announcement to investors — an announcement which came only after a police statement was released and technology news website Techcentral had reported the story.
To make matters worse, Tshivhase, CEO Arnold Fourie and executive director George Wiehan are said to have sold shares during the period from Tshivhase’s arrest to the announcement, raising questions about possible breaches of JSE rules.
The JSE’s listing rules state clearly a director may not deal in company securities “at any time when he is in possession of unpublished price-sensitive information in relation to those securities”.
That Pinnacle’s stock lost nearly half its value in the two days after the information became available opened up the possibility of insidertrading investigations.
Trading on price-sensitive information that is not publicly available to one’s own advantage is illegal.
However, the Financial Services Board’s head of market abuse Solly Keetse said the regulator had not yet launched a formal investigation into the Pinnacle case.
Tshivhase was arrested on March 5 and released on bail the same day. The announcement was made only on March 25, the company said, because it had acted on legal advice that said it should report the matter “immediately after a charge was formally made” against Tshivhase at the Specialised Commercial Crimes Court in Pretoria on Tuesday.
But between those dates, Tshivhase sold R4-million worth of Pinnacle shares on March 19th. Fourie and Wiehan also announced share deals in mid-March.
Pinnacle, however, said Tshivhase had been granted permission to sell those shares in January, while the R23-million share sale related to Fourie was the result of a bank exercising an option. Wiehahn, who sold shares worth R1.6-million in mid-March, dumped a further 161 518 shares on Tuesday this week, the day the news broke, netting R2.7-million. The last Wiehahn share sale was announced only on Thursday.
On Friday, however, Pinnacle said the Elandre Fourie Family Trust, linked to the CEO, bought the company’s shares to the tune of R3.6million on Wednesday.
Market experts flayed Pinnacle for not having revealed the arrest earlier — while its own directors were busy selling shares.
Brokerage Imara SP Reid recommended that investors sell their shares in Pinnacle and rather invest in rivals EOH or AdaptIT.
“According to media reports, the arrest took place on March 5 — before the results presentation on March 10. Was management not aware of this and, if so, why was this not disclosed then?” it said.
Another brokerage, Vestact, said Tshivhase had not been found guilty of anything yet, so investors were “selling first and asking questions later. [But if] he is found guilty, then plenty of question marks will abound with regard to any government business the company has [as well as its] business practices themselves.”
Governance experts were equally critical. “I don’t like the look of this at all,” said Geoff Everingham, professor emeritus of accounting at the University of Cape Town, who served on the committee that compiled the King corporate governance code.
“Dealing (in shares) with the knowledge of this pending case would be completely contrary to the spirit of not trading when possessing inside information,” he said.
Everingham said that even if there was “legal compliance, there are ethical issues”.
But Ansie Ramahlo, executive director at the Institute of Directors, said the Tshivhase matter was an “extremely difficult situation for the board. They acted on legal advice, holding back information. To go to the market prematurely with charges that may not have materialised would also have been an error in judgment.
However, Ramahlo said: “I am not convinced going to market with the news earlier would have led to a different result. The market is not convinced that all is under control, and it requires leadership and good communication”.
Pinnacle has not said much about this, other than that Tshivhase “denies all allegations of attempted bribery, and will defend the charges”. Pinnacle said it was satisfied there was “no reason to doubt the veracity of Mr Tshivhase’s denial” from evidence available to it.