A forensic report into the Public Investment Corporation’s investment with VBS Mutual Bank recommends criminal charges against the PIC’s former boss and two executives who allegedly took ‘gifts’ from the bank to look the other way
Disgraced Public Investment Corporation (PIC) executives, including former boss Dan Matjila, could face criminal charges related to allegedly receiving bribes in return for overlooking glaring risks and anomalies associated with VBS Mutual Bank. This enabled the corporation, which is Africa’s biggest asset manager, to sink hundreds of millions of rands into the broken bank.
A forensic report into the PIC’s investment with VBS, seen by the Mail & Guardian, reveals that the once powerful Matjila received a R2.4-million loan in March 2017 from the now defunct mutual bank. The report, which was commissioned by the PIC, was handed to the board in April.
Matjila has appeared before the commission of inquiry into allegations of impropriety regarding the PIC.
The allegation that he received R2.4-million surfaced after United Democratic Movement leader Bantu Holomisa wrote to the commission, claiming that he had seen the loan allegations in a forensic report. Matjila, through his legal representative, denied any knowledge of the loan.
But the report, produced by forensic investigations company Nexus, found that: “Dr Matjila was granted a loan in VBS, in his capacity as CEO [chief executive officer] and [with] his direct involvement in the second and third rights issues, [so] he had a duty to disclose that he received such a loan.
“In the absence of documentation from VBS, we are unable to conclude whether such a loan constitutes a gratification as envisaged in Precca [Prevention and Combating of Corrupt Activities Act].”
The report notes that: “In light of the close relationship between VBS and senior officials/executives within the PIC, and investments made by the PIC in VBS, at the time, we conclude that a reasonable suspicion of a corrupt relationship existed between VBS and these officials as envisaged in section 34 of Precca. This creates an obligation on the management of PIC to report the suspicion to the SAPS [South African Police Service].”
The PIC referred all questions about the report and its implementation to acting board chair Xolani Mkhwanazi, but he could not be reached at the time of going to print.
Two other former executives, the former legal and compliance head Ernest Nesane and fired risk executive Paul Magula, could also face criminal charges. They allegedly netted more than R18-million in gratuitous payments, mortgages and loans to themselves and businesses registered under them.
Lifestyle audits were conducted on Nesane, Magula and Matjila as part of the forensic audit. These uncovered that the three had received more than R11-million in loans, with favourable repayment terms that are not market related, which were never declared.
Boqwana Burns Attorneys, the law firm representing Matjila, said he stood by his assertion that the allegations of him receiving a loan from VBS are false. The firm added that it has since received a copy of the Nexus report and would comment once it has studied it.
The report found that Nesane and Magula, as well as receiving almost R10-million in home and vehicle loans, also received R4.8-million and R5-million, respectively, in payments from VBS majority shareholder Vele Investments. This was paid into the business accounts of companies owned by them.
Some of these loans and payments, which the report characterises as suspicious and reportable under the Prevention and Combating of Corrupt Activities Act, came at times when Nesane and Magula — acting as PIC deployees on VBS’s board of directors — were active participants and recommenders of investments, without declaring their interest. The report concludes that: “One can infer that there is a reasonable possibility that they were aware of the misrepresentations made by VBS to PIC.”
It goes on to say: “The evidence has revealed that the possibility exists that misrepresentations were made to the PIC PMV (portfolio management and valuations) team by VBS.”
Nesane this week said he could not comment, because he had not been interviewed during the investigation and has not even seen the report. Magula could not be reached on two separate cellphone numbers.
The investigation found several instances where misrepresentations and other critical milestones in VBS accessing funds from the PIC coincided with payments or granting of loans to Magula and Nesane.
It also cited evidence given by the two to advocate Terry Motau, during his investigation into VBS’s collapse, that the payments were for them to look the other way.
The recommendation of criminal charges is just one accountability measure. Others include having the three former executives declared delinquent directors under the Companies Act, as well as further investigation into whether hundreds of millions given to VBS to invest in listed equities ended up being used for other purposes.
The report detailed how Magula and Nesane, as the two PIC executives deployed to VBS to safeguard its investment, prejudiced the
fund, not only by failing to report direct conflict, but also for signing off on crucial approvals that allowed the bank to access funding from the PIC.
This includes a R350-million revolving facility granted to VBS in 2015 for a special fuel contracting financing book. The bank had created the facility for emerging black fuel suppliers that managed to get contracts with state-owned entities but who required funding. Conditions of the finance were that the companies would cede their contracts to VBS and the PIC as security. The report found that this was not done in all instances.
Magula and Nesane were also found to have failed to safeguard the PIC’s interests when they signed recommendations on November 20 2017 that the PIC participate in a rights issue of nine million shares, valued at R90-million, made by VBS.
At the time, the PIC’s exposure to VBS was R18-million in equity and the R350-million revolving credit facility. Critically, the PIC’s participation in the rights issue was months after national treasury had written to VBS informing it that the bank was not allowed to accept investments from municipalities. This information would have come to the attention of Magula and Nesane as VBS board members, but they failed to inform the PIC of the potential risk in light of the notice.
The report also found problems of poor oversight and monitoring, as well as no defined delegation of authority in the transactions. The one constant thread is conduct amounting to a dereliction of duty by Magula, Nesane and Matjila.