Resilient’s accusers aren’t backing down

An independent investigation has cleared the Resilient Group of alleged misconduct but those who originally raised the alarm claim the truth is yet to come out.

In February, three separate analyst reports highlighted serious concerns about the JSE-listed Resilient group of companies, as did another report released in late March.

Reports by fund managers 36One, Navigare Securities, Arqaam Capital and Mergence Investment Managers alleged that the premium valuations of Resilient group shares were not a result of normal market activity but rather of share price manipulation by the company and affiliated parties.

Magda Wierzycka, the chief executive of Sygnia Asset Management, after an analysis of Resilient’s financials, described it as a Ponzi scheme.

In a Stock Exchange News Service (Sens) announcement this week, Resilient said the independent investigation, commissioned in mid-February by the board and led by former auditor general Shauket Fakie, had found no evidence of market manipulation, insider trader or misconduct, among other things.


Investigations into the trading of Resilient shares by the JSE and the Financial Sector Conduct Authority, the new incarnation of the Financial Services Board (FSB), are still underway.

The Resilient share price halved from R100 in early February to R50 in early April but it gained 27% over the past week.

But Cy Jacobs, the chief executive and co-founder of 36One Asset Management, which produced the most extensive and damning of the reports, said the fund’s view of the group had not been changed by the outcome of the Fakie investigation.

“[Its] report conclusions are surprising and inconsistent with our report and the reports of other asset managers,” he said. “We are confident that the truth will come out.”

Mergence Investment Managers also said it did not believe the investigation addressed it’s concerns and those raised by other market participants.”The scope of the investigation was narrow and the powers of the investigator limited,” Mergence said. 

36One’s and Arqaam’s reports said share price inflation was made possible by a convoluted group structure, in which four companies each own stakes in one another and trade intergroup shares frequently. Group company shares were also traded through its black economic empowerment (BEE) trusts, which were not consolidated into the group’s financials.

The motive to inflate the Resilient share price was to keep it in the Top 40 Index, which meant index tracking funds would be forced buyers of the stock, the 36One report said.

Arqaam’s report said the nonconsolidation potentially distorted the economic substance of the structure by inflating income, and the BEE structure could be underwater.

In the Sens announcement, Resilient said the scope afforded Fakie a wide discretion in his review of allegations that the shares of the Resilient companies, including Resilient, Fortress Reit, Nepi Rockcastle and Greenbay Properties, were being propped up artificially.

Fakie appointed a former senior forensic specialist with the FSB, Tony Ferreira, to assist him with the investigation.

Resilient noted that, being void of regulatory powers, the independent review could not access the full set of records of transactions in Resilient shares on the JSE to identify potential insider trading or share price manipulation, and also did not have the power to compel all parties who might possess relevant information to provide testimony or produce documents.

But Jacobs said 36One was never interviewed. “We offered to engage but we were told that there was no time to meet with us as he [Fakie] was under pressure to deliver his report.”

Jacobs said no investigation was done on property transactions by related parties and no explanation was given for why these companies “trade at such premiums to net asset value and are an aberration in comparison to their peers locally and internationally”.

According to the Sens announcement, Fakie considered a review of accounting and valuation matters as unnecessary as the annual financial statements of Resilient and relevant companies have been audited and submitted to the JSE.

In response to questions put by the Mail & Guardian, Fakie said he had been willing to meet 36One and had proposed they meet him on a Monday. But 36One could only meet on the Thursday. Because he was running behind, he could not delay the report any further and requested that input be sent to him by email.

The response from 36One was “complaining and alleging my independence for not being able delay my report and meet them on Thursday rather than providing me with further information”, Fakie said, adding that his subsequent meeting request with 36One for Thursday was declined.

Resilient said in the Sens release that Fakie would continue to offer interested parties the opportunity to present evidence of wrongdoing with a view to supplementing his report to the board if he considered it necessary.

The report made recommendations to the board about, in particular, strengthening the perceived independence of the trusts and of risks involving share activity relating to executives that were undertaken or perceived to be undertaken collectively, Resilient said.

Mergence said it imagined it is difficult to conduct an investigation into trading activity without full access to records of those trades.

Arqaam Capital and Navigare did not respond to requests for comment.

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