Details of how three senior Saambou officials set up elaborate operations involving a string of companies that received payments and loans to buy shares and improve Saambou’s capital position are contained in the charge sheet against the three. These transactions were initiated after Saambou was unable to secure funding in the marketplace to cover bad debts.
The three — Saambou’s former CEO Johan Myburgh, director Charles Edwards and financial manager Gerhardus de Clercq — were arrested and released on R50 000 bail each in the Pretoria Regional Court last week.
Saambou’s collapse is one of the largest in South African corporate history. It was the country’s seventh-largest bank with 350 000 clients. Thousands of investors lost money.
Saambou was suspended on the Johannesburg Stock Exchange on February 11 2002 with a share price of R2,80 and a market cap of R467,5-million. The share price had been as high as R13,60 between the beginning of 1999 and its date of suspension.
On March 31 2002, Saambou had a net deficit in assets of some R2-million, having lost its entire primary and secondary capital.
The 103-page provisional charge sheet details the 10 charges of fraud, one of theft and two counts of contravening the Companies Act.
The charge sheet alleges that the Saambou officials conspired to misrepresent the financial position of the bank, recklessly fiddling with the company’s financials to maintain investor confidence and to prevent the share price from falling.
The charge sheet also alleges that the accused made loans to directors and officers of companies in the Saambou group, and other parties, to purchase shares in Saambou Holdings (SH). The aggregated total as of March 31 2001 stood at over R139-million.
Also included in the charge sheet are allegations that, on March 31 2000, R148,5-million of the R531,3-million insurance cover available to Saambou was exposed to the credit risk of Saambou instead of third parties.
William Frater of Frater Asset Management told the Mail & Guardian that the case probably represents both a failure in fiduciary duties, or acting in the interest of the company, as well as failure to exercise due care and skill.
Frater says that, on the basis of case history, there has been a large number of successful prosecutions in cases of fraud and conflict of interest, but South African law still needed to be tightened, something that will probably happen during the current review of the Companies Act .
The charge sheet alleges that, in 1999, Saambou identified a need to increase the capital required to cover doubtful debts of more than R1-billion. This would allow the bank to obtain favourable ratings from credit rating agencies and attract more deposits.
With South Africa’s smaller banks experiencing distress, it was difficult for Saambou to source further funding. This led the bank and its holding company to take part in a number of transactions aimed at increasing primary and secondary capital.
The transactions detailed in the charge sheet involve a number of special-purpose companies in the Saambou and Primevest groups that had money and shares transferred between them.
One of those companies was CMI, a wholly owned subsidiary of the Saamvest Holdings Trust (SHT). CMI was set up in January 1997 with the sole business interest of a performance swap agreement with Saambou.
CMI would protect the primary capital of Saambou, while the Prime-vest group benefited from the income stream generated by the execution of CMI business with Saambou.
Another key special-purpose company was Primevest Equities Trading No2 (PVET2), a wholly owned subsidiary of CMI.
The charge sheet alleges that PVET2 was set up in April 1998, with its main business interest being an agreement whereby PVET2 would issue preference shares to Saambou and the proceeds of this transaction would be used to invest in SH preference shares.
The last key special-purpose company was Primevest Equity Investments (PEI), a wholly-owned subsidiary of the Primevest Holdings company.
The charge sheet alleges that, on October 29 1999, Saambou claimed to have placed 20-million preference shares on the market, which had been acquired by PVET2, on the condition that they could raise the capital for the acquisition.
It is also alleged that the accused knew PVET2 could not raise the funds for the transaction and had committed R255,7-million of its resources to the funding of PEI, CMI and PVET2 for the subscription to 14,6-million preference shares issued by SH at a value of R167,9-million.
The charge sheet states: “In order to fund the subscription for the preferences shares issued by SH on October 29 1999, the share exchange, the PVET2 investment, the PEI loan, the SH commission deposit and the Saambou commission deposit were performed.”
On October 29 1999, Saambou made three separate payments to PEI amounting to R59,5-million. Two of the payments, one for R24-million by Saambou and the other a R23-million made by SH, were commission deposits. These payments were in respect of commission that was only set to be calculated in September 2004. The third payment was a R12,5-million interest-free loan, agreed on with PEI and paid to PVET2.
The charge sheet alleges that all three of these transactions had considerable risk and, despite the accused being fully aware of these risks, they effected the payments, which, instead of being written off in Saambou’s books, were shown as assets.
A further transaction took place on October 29 1999 whereby Saambou paid an amount of R115 000 to PVET2 for 11 500 redeemable preference shares that were to be redeemed in September 2004.
PVET2’s only material assets at the time were 1,335-million compulsory redeemable preference shares and 4,6-million compulsory convertible preference shares issued by SH.
The charge sheet alleges that a letter from CMI to PVET2, sent in February 2000, confirmed that a share exchange had taken place, in which CMI exchanged the 5,935-million ordinary shares it held in SH for the 5,935-million preference shares held by PVE2.
It is alleged that the directors of Saambou decided that the business of CMI was to be restricted and a special resolution was lodged with the Registrar of Companies on March 31 1998 limiting CMI to specific business interests.
In violation of this resolution, the directors of CMI agreed to it being involved in the share exchange, even though the exchange was not in the interest of CMI or Saambou.
The charge sheet states, in count three, dealing with the theft of over R57-million, that the accused did “unlawfully and with the intention to steal, dispose CMI of 5 935 000 listed ordinary shares in SH”.
These allegedly stolen shares were sold on the open market between October 8 and 26 1999, and the proceeds of R57,7-million were placed as a deposit with Saambou by PVET2.
Myburgh, Edwards and De Clercq are set to return to the Pretoria Regional Court on November 22, when the case is expected to be referred to the High Court.