Close to R40-billion in damages claims have been lodged against individuals and companies that allegedly abetted Brett Kebble’s staggering corporate fraud either as co-conspirators or through negligence. This is probably the biggest raft of damages claims in South African history.
The claims, mostly brought in the last few weeks, allege that complicity by co-directors and professional lapses by other corporate entities allowed Kebble to get away with stealing billions of rands worth of shares from the companies he controlled. The amounts being claimed back are based on the highest value reached by the disputed shares.
All the parties have denied wrongdoing or liability. The legal action follows the collapse of merger talks between two companies once controlled by Kebble — his main corporate vehicle, JCI, and Randgold & Exploration (R&E).
R&E was the victim of a process whereby Kebble and his associates secretly disposed of the company’s shares and used the proceeds to prop up his other companies. The money was also used to benefit the alleged conspirators personally, and enabled them to try to buy their way out of trouble using political connections.
Plans to merge JCI and R&E collapsed because the Johannesburg Stock Exchange refused to relax its requirement that shareholders be provided with a full set of audited accounts before being required to vote on a merger.
A merger would have swept most of the claims and counter-claims between the two companies under the carpet — supposedly preserving value and saving shareholders the costs of drawn-out litigation.
But critics have complained that this would protect those who either know, or should have known, what was going on. In particular a merger might let off the auditors, banks and stockbrokers who made money out of Kebble while he pillaged his shareholders.
Pressure for a merger had largely been driven by the directors appointed to both boards at the behest of Investec Bank, a significant JCI stakeholder.
As Kebble’s empire teetered on the brink of collapse in 2005, he relinquished control of JCI and R&E to a ‘rescue strategy” conceived by Investec. The plan saw Kebble and his cronies, including the suspect in his murder, John Stratton, removed from both boards.
They were replaced by management teams dominated by Investec nominees, including Peter Gray, who became chief executive of both companies.
From an early stage Gray came under criticism for this dual role given that it was soon obvious that R&E had a massive claim against JCI.
Indeed, it was only after he and Investec director David Nurek resigned from R&E’s board in July this year that the company went on the offensive against JCI.
In August R&E issued massive claims against JCI, Investec and Gray himself.
Others in the firing line include Kebble’s erstwhile ANC Youth League associates Lunga Ncwana and Songezo Mjongile, and his former co-directors Chris Lamprecht, Hendrik Buitendag, John Stratton and Charles Cornwall.
Another company alleged to have illegally benefited from R&E assets is mining giant Goldfields, which faces an R11-billion claim because of its purchase of the assets and liabilities of Western Areas gold mine, which Kebble allegedly subsidised by selling R&E assets.
But it is the scrutiny of the diligence of various professional service providers that will be of particular interest. Auditors PricewaterhouseCoopers and Charles Orbach face claims running into hundreds of millions, as do T-Sec — where Gray was previously CEO — and bankers Investec and Societé General.
The claims have highlighted the slow pace of the Scorpions investigation into the financial side of the Kebble saga, dubbed the ‘Empire K” project.
The investigation was made public in April 2006 and search and seizure operations were carried out in March 2007.
National Prosecuting Authority spokesperson Tlali Tlali told the Mail & Guardian this week: ‘Empire K is a big and highly complex investigation. It is progressing at a reasonably satisfactory pace and the team is confident that some legs of the investigation will have been finalised by December 2008.”
Peter Gray: A dubious saviour?
From the start, the appointment of Peter Gray to rescue Brett Kebble’s empire was controversial, writes Sam Sole.
Firstly, he was appointed to lead both Kebble companies, JCI and R&E, and was prone to the same potential for conflict of interest that Kebble had exploited.
Secondly, he was perceived as someone close to Kebble, having been a frequent dinner guest and having served as CEO at what was, in effect, Kebble’s pocket brokerage firm, T-Sec.
It was Gray who commissioned the forensic investigations into the frauds committed during the Kebble era. These investigations highlighted the role of T-Sec in processing and cashing the vast allegedly illegal share disposals carried out by Kebble and his accomplices.
Now R&E is holding T-Sec and Gray personally liable in a R650-million claim.
The summons alleges that Gray:
- was a confidant of Kebble’s;
- knew that Kebble constantly needed large cash withdrawals;
- facilitated such cash withdrawals which were funded by the sale of various shares;
- knew that Kebble had opened a number of ‘anonymous” trading accounts with [T-Sec] —;
- knew or should have known that these accounts would be used to dispose of various listed shares and to divert the proceeds of the sales to accounts other than those of the true owners of the shares.
The summons claims: ‘A reasonable stockbroker would have been suspicious of almost a billion rand passing through its bank account to the credit of trading accounts, none of which were in the name of the registered and/or beneficial owner of the shares.”
Gray, who is still chief executive of JCI, did not respond to questions about the claims.
A statement from T-Sec noted: ‘T-Sec and its co-defendants have taken legal advice and shall defend all aspects of the claims against them. In addition, we view the action and the allegations on which it is based as spurious, opportunistic and defamatory and subject to further legal advice and will seek appropriate recourse against its authors, coupled to our defence of the action.”