Kebble returns to haunt Investec

IT was an inauspicious start to a legal case that could go down in South African history in more ways than one. On Monday, the High Court in Pretoria — the “Palace of Justice” — started hearing the case of the Randgold and Exploration minority shareholders versus Investec, the controversial niche investment bank.

The case of the minority shareholders is simple: Investec allegedly stopped Randgold from suing all relevant parties who held shares that belonged to Randgold. These shares, which were effectively under the control of the late Brett Kebble at the time, were sold and used to raise about R1.9-billion in cash back then.

It is a massive case, with the evidence running close to 15 000 pages.

Forensic reports, long in the public domain, and unchallenged, show clearly that, of the R1.9-billion in stolen cash, R896-million went to JCI (Kebble’s key company), R522-million went to Western Areas (Kebble’s biggest personal investment), R378million went to Kebble and his father Roger, and R106-million went to Investec to settle various of Kebble’s company and personal debts.

But minority shareholders are furious that Randgold did virtually nothing to reclaim this money. It didn’t sue JCI or Western Areas — conveniently for Gold Fields, which bought it. Randgold did sue Investec, however — but that case was settled, conveniently for Investec, with the bank paying not a cent.

In fact, the only case that Randgold had any enthusiasm for was against its previous auditors, PwC, which had not received a cent of stolen cash. The case has just been settled for R150-million, but even then the auditing firm did so on the basis that it admitted no wrongdoing.

In this week’s court case, however, Investec is facing a tough challenge.

The minorities are asking that the court applies the Roman Dutch law of condictio furtiva, which means they are asking for the highest value of the goods after they were stolen.

So, while R1.9-billion was stolen, the replacement value of the underlying shares that were stolen in the first place is a far more breathtaking R20.7-billion.

Not all the shareholders are suing though, just those with 4.7-million Randgold shares, which puts the value of the claim at R1.35-billion. Depending on how you look at it, this is potentially the biggest civil damages claim in South African history.

Far more ominious for Investec, however, is the possibility that the realities of its troubled (and con- cealed) dealings with Kebble will be publicly aired. Investec started doing business with Kebble in 1997, when he mounted one of the most daring — and secret — of takeovers by snatching JCI from the jaws of a BEE deal.

The larger-than-life Kebble was always in debt and, eventually, by the time he was gunned down, he and his companies owed billions.

Things got complicated two years before Kebble died when, in 2003, Investec awoke to the reality that it had a large exposure to a non-performing loan given to Kebble’s companies, JCI and Western Areas.

To deal with this, JCI and Investec entered into a “simulated scrip lending agreement” under which JCI loaned certain shares owned not by itself, but Randgold, to Investec.

But what was happening in practice was Investec was lending cash to JCI, which was borrowing using security that Kebble had stolen from Randgold. Investec, it appears from the court papers, was never at risk.

Those stolen shares pledged to Investec as security were then sold by Investec’s London branch when Kebble couldn’t pay up R271-million. Investec then kept about R79-million of that to repay debt Kebble and his companies owed Investec’s Johannesburg branch.

Publicly, Investec says it is not worried about the case. But behind the scenes Investec has deployed a small army of lawyers to attack the case from every possible angle.

The bank first used the argument that the Randgold shareholders have no right to bring the case, that they have no locus standi.

Rather more surprisingly, Investec’s lawyers have argued that the Randgold minorities simply have no rights at all. Their argument, unprecedented in this country, is essentially that the nominee companies that hold the shares on behalf of others have rights, not the shareholders. This is controversial as the nominee companies, such as banks, only hold the shares on behalf of the owners of that stock.

Those close to the case believe that Investec’s strategy is one of attrition.