After a wait of more than 15 years, about 15 500 pensioners and members of seven pension funds, whose surpluses were stripped by employers in the early 1990s, will be paid out a total of R730 million within the next six months.
The curator of the funds, Tony Mostert, announced that payments totalling R118 million to the surviving members and pensioners of one of the affected funds, the Mitchell Cotts Pension Fund, started this week.
The Financial Services Board (FSB) has confirmed that it has approved a surplus apportionment scheme for the Mitchell Cotts fund.
Jurgen Boyd, the FSB deputy executive in charge of pensions, says similar surplus apportionment schemes prepared by Mostert are currently being considered by the FSB for the Datakor Pension Fund, Lucas SA Pension Fund, Prestolite Pension Fund, Power Pack Pension Fund, Sable Industries Pension Fund and Picbel Voorsorgfonds.
And in a significant move, financial services company Alexander Forbes has reached a plea bargain agreement with the State for its role in facilitating the surplus stripping.
The plea bargain does not cover former employees of the company, who allegedly fraudulently arranged the authorisation by the FSB of transactions that allowed most of the money to be laundered, in a complex arrangement, back into the hands of the employers that sponsored the retirement funds and their advisers.
The two events mark a major victory for the FSB and Mostert, of law firm A L Mostert and Company, and his legal team, including advocate Lucas van Tonder, who have doggedly been fighting a six-year battle against a phalanx of heavyweights using every possible weapon. This included a vicious campaign of vilification of the FSB, Mostert and even Personal Finance, the only publication that has consistently reported on the saga.
The major financial recoveries were made last year as a result of Alexander Forbes settling a civil case with Mostert.
It was the decision by Alexander Forbes to settle with Mostert that broke the long-standing stalemate and assisted Mostert in collecting from the other big players, most significantly Sanlam.
The money recovered by Mostert is subject to surplus distribution legislation, which includes the tracing of fund members and pensioners, and the auditing and approval of the apportionment schemes by the FSB.
Mostert expects the distribution to qualifying members, including pensioners, to be completed within six months.
He says the Mitchell Cotts surplus apportionment scheme has been approved in record time with the prompt assistance of the FSB, and that payments are currently being processed.
The six-year campaign by Mostert to recover the surplus funds has cost millions of rands in legal and other fees, reducing the amount available to pensioners, whose numbers have been steadily declining as the years have passed by.
The appointment of Mostert followed complaints by two fund members eight years ago, which the FSB decided to investigate after finding them to have merit.
Mostert took on the curatorship on a contingency fee basis, as there were no funds available to pay the costs.
Edward Kieswetter, who was appointed chief executive of Alexander Forbes last year, says that the plea bargain will finally lay to rest the excesses of Alexander Forbes in the 1990s.
In terms of the plea bargain, Alexander Forbes will pay a fine of R10 000 and will make an additional R5.4 million available for distribution to pensioners, which is on top of the R342 million it paid Mostert to settle the curator’s civil claim.
Kieswetter has moved rapidly since his appointment last year to “do the right thing” by settling the civil claims of Mostert, settling the criminal charges and firmly entrenching a corporate culture of placing customers first at the country’s largest retirement fund administrator.
The company’s reputation was severely undermined by the way former employers and executives took advantage of unsuspecting retirement fund members in the 1990s by illegally facilitating the surplus stripping and “unlawfully” making secret profits by bulking fund bank accounts.
The admission by Alexander Forbes in the plea bargain is likely to have an impact on a number of employers and other retirement fund service providers that face both criminal charges and civil claims for their role in the surplus-stripping saga.
Unlike Sanlam, which both facilitated and benefited from the surplus stripping, Alexander Forbes never made any money from the transactions.
Sanlam, unlike Alexander Forbes, has never been charged criminally for its role.
The architect of the surplus scheme, former Nedcor executive Peter Ghavalas, has also pleaded guilty to charges of fraud and theft for his part in the surplus stripping.
Hurdles on the path to victory
More than 15 500 stakeholders, including pensioners, of retirement funds subjected to surplus stripping between 1993 and 1998 have had to suffer unnecessary financial hardship, while many have died before the recovered money could be made available for distribution, the curator of the funds, Tony Mostert, says.
He says that his task was made exceptionally difficult by a number of factors, including:
* The concealment of documentation and information relating to the history of the funds “so as to prevent exposure of the unlawful transactions”.
* Each and every defendant vigorously contested the claims. In all there were more than 30 litigants, all of whom had “formidable legal representation”. The litigants raised one technical defence after another to resist paying back the surpluses.
* Personal attacks, which spilled over onto the Financial Services Board (FSB) and its inspectorate division. Mostert says he could not defend himself as it was not always possible to report on the successes he was making in recovering the funds, such as the quantum of the Alexander Forbes settlement, which was subject to confidentiality until the Sanlam matter could be settled.
Mostert says that the attacks directed at him, the registrar of pension funds, Dube Tshidi, who is also the chief executive of the FSB, as well as the criminal prosecution team, were a result of his opponents having “no bona fide defence”.
Mostert says despite all this he has, since his appointment in 2005, managed to recover R953 million, with a target of more than R1 billion.
He says there are still substantial claims against a number of parties, including Johannesburg businessman Simon Nash, listed company Cullinan Holdings, to which Nash was linked at the time, and retirement fund service providers Aubrey Wynne-Jones and Jacques Malan.
Mostert praised the FSB for its support and the tenacity of his legal team.
Alexander Forbes puts things right
The most important motivation for Alexander Forbes in reaching a settlement on the civil claims and criminal charges was to ensure what is right for the pensioners of the funds affected by surplus stripping, Alexander Forbes Group chief executive Edward Kieswetter says.
“I am pleased that now they will finally benefit. The settlement this week closes the book on that episode in our history.”
Kieswetter says Alexander Forbes “strives to impact positively on people’s lives, whether they be our clients or our colleagues.
“It was with this aim in mind that Alexander Forbes settled the civil claim and entered into a plea bargain with the State.
“While everyone has the right to a fair hearing, large organisations can often afford protracted legal battles whilst the consequences on ordinary people are not always top of mind. Taking rapid and decisive responsibility for the actions of our former employees to conclude this matter was the only correct way to resolve it.”
Kieswetter says the reputation of Alexander Forbes suffered as a result of the surplus-stripping saga, while the resources and time allocated to the litigation would have been better spent “delivering on the primary intent of our organisation, which is to better serve our clients”.
He says the Alexander Forbes of today is a substantively different company to what it was 10 years ago. It has new owners and different leadership, while the organisational dynamics and ethos have changed from that which gave rise to unacceptable behaviour in the past.
“Alexander Forbes is committed to doing the right thing,” Kieswetter says.
He says that in 2006 Alexander Forbes initiated a process to scrutinise its business activities. An independent auditor and a firm of attorneys were invited into the business to assist in completing the process.
“This exercise was self-imposed and unprecedented in the industry, and examined our business practices from top to bottom. We acted immediately upon receiving their findings and continue to seek and implement the highest standards of corporate governance,” Kieswetter says.
Update on the people and companies involved
Seven individuals and institutions have received sentences in terms of plea bargains for their role in stripping surpluses from retirement funds in the 1990s, to the detriment of fund members. They are:
* Financial services company Alexander Forbes, which this week was fined R10 000 and ordered to pay a further R5.4 million to pensioners for six counts of contravening the Financial Institutions (Protection of Funds) Act.
* Peter Ghavalas, a former senior executive of Nedcor and the architect of the retirement fund stripping scheme. In September 2009, Ghavalas was ordered to pay R18.6 million in compensation to the affected funds and he received a 15-year prison sentence, suspended for five years.
* Rowland Bailey and his wife, Shirley, who benefited from the surplus in the Mitchell Cotts Pension Fund. In September 2007, Bailey received a total of 19 years’ imprisonment (suspended for various periods) for fraud, contravening the Financial Institutions (Investment of Funds) Act and money laundering. His wife received a five-year prison term, suspended for five years.
* In August 2008, Cape businessman Jan Pickard Junior received a two-year prison sentence, suspended for five years, for his role in the theft of a R28.8 million surplus in the Picbel Group retirement fund. Pickard had to repay R31 million and was fined R200 000.
* Last year, Datakor’s former chief executive, Michael McEvoy, and its former financial director, Derrick Pettitt, were found guilty of three counts of contravening the Financial Institutions (Investment of Funds) Act and sentenced to five years’ imprisonment, suspended for five years. They were each ordered to pay R1 million in compensation. It is possible the sentence will be taken on review by the Financial Services Board for replacement with a heavier sentence.
Simon Nash and his company, Midmacor Industries, are currently on trial on charges of fraud, theft and contravention of the Prevention of Organised Crime Act, that relate to the surpluses stripped from the Sable and the Cullinan/Power Pack funds.
Nash is the executive chairman of engineering company Cadac. The Cadac Pension Fund, of which he is also chairman, was recently placed under the provisional curatorship of the curator of the affected funds, Tony Mostert, following allegations that, among other things, Nash was illegally using the pension fund’s assets to finance transactions for the benefit of Cadac Pty Ltd and his criminal case.
The National Prosecuting Authority has confirmed that the following have been charged but have yet to go on trial:
* Alexander Forbes’s former senior executive, Peter Martin, for allegedly facilitating the stripping of most of the affected retirement funds.
* Aubrey Wynne-Jones and Wynne-Jones & Company Employee Benefits Consultants. The charges relate to the Sable, Cortech, Datakor and Cullinan/Power Pack retirement funds.
* Jacques Malan and his retirement fund administration and consulting company, Jacques Malan and Partners. New charges relating to some of the funds were laid against them last year after the initial charges were withdrawn.
* Johannes Roets, the Sankorp executive who was seconded as the chairman of Datakor at the time of the surplus stripping.
* William Graham Somerville, the chief executive of hospital group Esidimeni (known as Lifecare at the time) and the chairman of the Lifecare retirement fund, through which most of the surpluses were allegedly laundered.
There is also a possibility that Sanlam could still face criminal charges for its alleged part as a facilitator and/or beneficiary of the stripping of the Picbel, two Datakor and the Cortech retirement funds. Last year, Sanlam agreed to pay Mostert, without admission of guilt, R333 million in settlement of a R1.1-billion civil claim.