/ 10 August 2006

LeisureNet bosses off fraud charge, but more still in store

The former joint chief executives of the now-defunct LeisureNet group, Peter Gardener and Rodney Mitchell, were on Thursday acquitted on the main charge against them, one of fraud involving an alleged R1,9-million kickback.

However, acting Judge Dirk Uijs ruled that they had a case to answer on the alternatives to the fraud charge, as well as on a string of other charges including money laundering, theft and income-tax evasion.

Uijs’s ruling followed an application for their discharge, made after the state closed its case in June.

Mitchell’s wife Suzanne and a business associate, Hans Moser, were earlier discharged on allegations of money laundering, the only charges they faced.

The fraud charges related to a May 1999 decision by LeisureNet’s board to take over Keystone, the architectural firm that designed its gyms, in which it already held a 49% share.

In addition to the main deal, there were negotiations on an amount to be paid to Keystone majority shareholder, Cape Town architect Dawid Rabie, for the value of his ”work in progress”.

It was agreed that the work was worth R5,7-million, of which Rabie would get R2,8-million.

Mitchell and Gardener then allegedly demanded that Rabie deposit a one third share of the R2,8-million into each of their overseas bank accounts.

Uijs, reviewing this chain of events, said, however, it was clear that by the time this happened, the LeisureNet board had already decided to take over Keystone, and any after-the-fact misinformation on the kickback could not have influenced that decision.

In addition, it appeared from the evidence he had heard that when the R5,7-million price tag was agreed on, all the relevant functionaries of the company had been informed of the fact.

The subsequent agreement between Rabie, Mitchell and Gardener to split Rabie’s share had had no effect on the company’s decision-making process.

Uijs said that though it could be argued that Mitchell and Gardener acted in bad faith in the work-in-progress negotiations with Rabie, anticipating a share, this did not accord with Rabie’s evidence that Mitchell ruthlessly beat him down from his own R12-million estimate of the total value of the work.

Uijs said, however, the fact that the deal with Rabie came after the board decision did not help Gardener and Mitchell on the first alternative to the fraud charge, of contravening the Companies Act by failing as directors of the group to disclose their interest.

He said the Act obliged a director to disclose an interest in a contract even if that interest was acquired after the contract had been concluded.

In his view, a case had been made out for the accused to meet.

”They were agents of LeisureNet with a fiduciary duty to the company,” he said. ”They were obliged to make a disclosure.”

On the second alternative, of theft, Uijs said that as agents of LeisureNet, the two men were not entitled to make a secret profit at the expense of their principals, and he needed to hear their side of the case on that issue as well.

On the rest of the charges, Uijs remarked, ”the less said at this stage the better”.

Prima facie cases had been made out on these charges with far more clarity than on the Keystone charges.

LeisureNet, which controlled the Health and Racquet Club chain, was provisionally liquidated in October 2000 with liabilities of R1,2-billion and assets of only R302-million.

The hearing resumes on August 14. — Sapa