/ 8 August 2013

First Strut: ’20 years of mega fraud’

First Strut's Andy Bertulis has denied any wrongdoing.
First Strut's Andy Bertulis has denied any wrongdoing. (Clarissa Sosin, M&G)

First Strut was allegedly involved in the multiple financing of single assets, VAT fraud, black economic empowerment fronting, dodgy invoicing, bribes and more. Insiders say the wonder is that it went undetected for so long.

If there is a record for the most massive and longest-running (yet somehow undetected) con job ever to take place in South Africa, then the First Strut saga may have shattered it.

That's if charges are brought and the courts are convinced that the alleged con men are guilty.

A stream of allegations suggest that for 20 years two men, both apparently salt-of-the-earth businessmen, built and ran an empire that now appears to have been engineered from the outset as a vehicle for fraud and a laundry list of related white-collar crimes, a Mail & Guardian investigation can reveal.

The impact will be most felt by banks but also directly affected are thousands of employees and creditors – and, indirectly, all of South Africa, because of delays in the building of the crucial power stations, Medupi and Kusile.

For two decades, they allegedly lied, cheated, bribed, stole and faked with such skill that major banks and other investors lined up to lend them money. Insiders say that this money then mysteriously multiplied to give their ever-growing manufacturing empire, which in reality teetered on the brink of catastrophe much of the time, the appearance of good health.

Sources refused to be identified for a variety of reasons, including fear, although the alleged frauds seem to have been committed without violence.

And the alleged scam might still have been going on had the two not bitten off more than they could chew, leading one of them to lose his nerve and opt out in the most terminal way possible.

That is the picture emerging from the ruins of First Strut, once one of South Africa's biggest privately held companies and now likely to be at the root of the country's biggest-ever loan defaults, which could ultimately cost the economy several billion rands, sources said.

It is an astonishing story of con men conning one another while being conned in turn, with a constant stream of smaller thefts going on in the background. But perhaps more astonishing is that the two men implicated, Jeff Wiggill and Andy Bertulis, ran the operation undetected for so long. The only outward sign could have been their extravagant lifestyles, but then they were supposed to be successful businessmen.

Unbelievable conclusion
Wiggill is dead, shot in the head on a dusty roadside near Soweto next to his sleek Bentley in June.

Bertulis has denied both wrong­doing and knowledge of wrongdoing, though he would not comment in detail when approached by the M&G.

But as the dust starts to settle following the catastrophic implosion of First Strut, people with intimate knowledge of events have levelled a slew of allegations against the two, which taken as a whole even some of the sources still find hard to believe.

"Some of us knew that there was weird stuff going on but we all thought there was just a little bit of fiddling [of the books] here and there," one former First Strut executive said this week.

"In June we started to compare notes and talk to one another, and we got our minds just blown. It was … the scale of it, it was just impossible."

But half a dozen sources have independently reached almost the same unbelievable conclusion.

"In this company there was not a single transaction that was entirely legitimate," a former First Strut insider said. "Every deal had a little something extra, or a twist. All of it was dodgy, all of it."

Both Bertulis and Wiggill appeared to be not only legitimate but also somewhat noble, speaking often of their desire to create jobs and promote local manufacturing. Wiggill attributed his success to God and Bertulis featured in a major entrepreneurship competition sponsored by auditing firm Ernst & Young and First National Bank.

Empowerment credentials
Behind the scenes, however, according to widely corroborated allegations, lurked fraud that permeated almost every aspect of the sprawling business they had created through acquisition. According to some of the sources, First Strut and some of its divisions forged empowerment credentials, generated false and inflated invoices, faked inter-group trade, engaged in rampant nepotism, bribed both customers and suppliers, intentionally created conflicts of interest and ran value-added tax (VAT) scams.

The company also appeared to master the trick of turning a single physical asset into several times its worth in cash by borrowing against it many times, a trick that now has banks scrambling to find the property and equipment they had thought secured loans running into hundreds of millions of rands for some institutions.

"There would be a machine that would be financed five times over by five different banks," said a source with knowledge of First Strut's operations. "There were even cases where they went back to the same bank six months later and the bank financed the same machine they had already financed."

That, according to a different source who worked with Wiggill and Bertulis in 1993 at the company that would become the sprawling First Strut empire, was not a new phenomenon.

"I was going through a file, looking for a document, and to my horror I discovered all sorts of weird and wonderful things," the source said about an incident 20 years ago. "There was machinery that had been financed three times over, vehicles they had bought for themselves and put through the [company] books and claimed VAT on. They were writing themselves cheques – that kind of thing."

When confronted with the paperwork, the source says, both Bertulis and Wiggill reacted with anger.

Similar stories are told by a wide range of former employees and executives of First Strut. Though many of those source had been with the company only for a handful of years while it expanded rapidly, all said they had gained the impression that tampering with books and documents had clearly been standard practice long before they had joined.

None of those who were willing to speak were willing to be named, fearing for future jobs, current deals or possible risk to themselves and their families. But, despite rumours that Bertulis has a bad temper, none of the M&G's sources could cite a single instance in which threats or physical harm had come into the picture.

"These were nice guys," one former executive said, somewhat puzzled, when asked whether those with knowledge of wrongdoing had stayed quiet out of fear.

"No man, these weren't guys who broke knees or dropped hints. They talked people around. That Andy [Bertulis] could sell ice to an Eskimo. The ones who knew, who did invoices and stuff, were well taken care of."

The gentle approach seems to have bought secrecy for decades – but that came at its own cost. Several executives cite cases in which poor performance went unpunished, where staffers took advantage of the company or even openly stole from it, and where no action was taken.

"Andy [Bertulis] would just say, 'back off this person', and everything would go away," said one source. That created an environment in which trickles of money, individually tiny but collectively large, constantly flowed out of the company, he said.

Just how much money is at issue, and where it is, is unclear. Financial institutions have calculated their exposure to First Strut at about R3-billion in total. How much of that is actually secured will take time to determine.

One source with inside financial knowledge estimated that First Strut may have assets of about R1-billion, another said creditors would be lucky to get more than 20c for every rand they are owed.

Prosperous business moguls
Some of the money went to Wiggill and Bertulis, company executives now believe, both of whom lived the extravagant lifestyles of prosperous business moguls – fancy cars, expensive watches, overseas holidays and largesse spread among friends and family.

One source said it was striking how many of the people who spoke at Wiggill's memorial service had mentioned his generosity. However, "there was not a wet eye in the house".

Several sources believe Wiggill and Bertulis also kept one another in the dark about the extent to which each was allegedly fleecing the company they owned jointly, but neither was particularly greedy.

But as the house of cards came tumbling down, both Wiggill and Bertulis allegedly raided the company one last time, and for substantial amounts, the latter stashing physical and paper assets out of reach of liquidators, the former channelling cash to his family and attempting to secure life-policy payouts for his life partner. Conservative rumours put the value of one life policy at R30-million, with numbers as high as R150-million being proffered.

These allegations could not be substantiated and, although detailed questions were put to Bertulis, he responded with a blanket denial.

However, those who dealt with Bertulis after the death of Wiggill – his business partner for decades and a key linchpin to his financial success – remarked on how a man known for his materialism was eerily calm and composed in the face of what is likely to be certain financial ruin.

"There are people who are very angry at Andy [Bertulis], people who probably want to hurt him," said one former employee. "Then you see him walking around like he still owns the place, talking about how he is going to buy one of the factories back."

Another source said Bertulis "looked like he knew something we didn't".

Accounts and evidence
In affidavits relating to the liquidation of First Strut, Bertulis said Wiggill alone had known the details of various financial structures and transactions, implying Wiggill would have been solely responsible for any fraud or other transgressions.

That claim of ignorance has been roundly dismissed by a wide range of individuals who between them say they had informed Bertulis of problems, confronted him with instances of fraud and had knowledge of his personal involvement in illegitimate deals.

"Andy [Bertulis] was in all of those meetings," said one.

Towards the middle of this year, insiders say, Wiggill and Bertulis made a concerted effort to engineer another financial miracle, one that would involve a black empowerment deal and funding from the Industrial Development Corporation, all facilitated by a shadowy but apparently well-connected fixer.

Those attempts continued until Wiggill's murder and, on the night of his death, Wiggill spoke to Bertulis about plans for the next day. But secretly Wiggill had already started to plan his exit by way of assisted suicide, according to inside accounts and evidence concerning the murder.

The acquisition of the steel manufacturer Cosira in late 2012 had not gone entirely as planned – although both men allegedly knew that Cosira was in more trouble than its books suggested and, although they had managed to raise R500-million for the transaction, their group's cash flow was rapidly drying up.

"Jeff was the crooked accountant, the guy with the smarts," said one source in hindsight. He would have seen [the implosion] coming before Andy. He bugged out." – Additional reporting by Sam Sole

Key questions not answered

Despite reports at the weekend that he had left the country, or had tried to do so, Andy Bertulis was seen in Johannesburg this week and responded to an SMS – if only to refer all questions to his lawyer.

However, his lawyer, Michael Strauss, would not answer specific allegations put to him about First Strut's co-founder.

Strauss said that, after consulting Bertulis, "a principle decision has been taken, due to the numerous and false allegations against him that continue to be published in the various media, not to litigate the matter in the media, as a trial against him may never eventuate".