Sunday, December 4, 2016

IRS Forensic Investigations- Sharemax Saga Continues

IRS Forensic Investigations
10 June 2015 ·
Sharemax Saga Continues........
SHAREMAX : RULING BY THE PRESS OMBUDSMAN
http://presscouncil.org.za/…/nova-property-group-vs-busines…
Nova Property Group vs. Business Report


Ruling by the Press Ombudsman
8 June 2015
This ruling is based on the written submissions of Ms Dominique Haese, CEO of Nova Property Group and those of Roy Cokayne on behalf of Business Report.
Complaint
Nova Property Group (NPG) is complaining about an article in Business Report of 14 April 2015, headlined Sharemax ex-directors win appeal – Order to repay two investors set aside.
NPG complains that the following sentences were incorrect, defamatory, baseless and unnecessarily harmful to its reputation:
· “Sharemax’s collapse in 2010 was precipitated by the findings of a registrar of banks investigation, that Sharemax’s funding model contravened the Bank Act, becoming public knowledge. This led to new investments drying up and it being unable to make monthly payments to investors”; and
· “The registrar of bank laid criminal charges against Sharemax for alleged contraventions of the Banks Act in March 2012.”
Standing
There is a dispute, though, over the question of whether NPG has the standing to lodge a complaint over the article – an issue with which I need to deal first.
On 5 June 2015 I ruled that NPG was not a third party complainant due to its direct and manifold links to the other affected parties (NPG vs. Personal Finance) and therefore had the standing to complain on its own behalf.
This time, though, NPG was not mentioned in the article.
This prompts me to state (this time) that the complainant’s arguments are rather confusing – in a letter to Sharemax investors, dated 6 August 2013, Haese stated: “Of further importance is the fact that Sharemax Investments ceased its activities relating to the erstwhile ‘Sharemax Group’ during or about July 2010 and never had, does not have and never will have anything to do with the Nova Group…In particular, the shareholding in Sharemax Investments is not owned by the Nova Group or any individual associated with the Nova Group and never will be. Similarly, Sharemax Investments have no Page 7 shareholding in and does not own any assets of the erstwhile ‘Sharemax Group’ and Sharemax Investments has no shareholding in and does not own any assets of the Nova Group, and never will.”
Even should this be technically correct, it is not consistent with the thrust of Haese’s arguments in her complaint. Nevertheless, I (again) rule that Nova does have the standing to complain (as argued above).
The text
The article, written by Cokayne, said that Sharemax Investments and four of its ex-directors have successfully appealed against two determinations by the Financial Advisory and Intermediary Services (FAIS) Ombud, which held the company and directors jointly liable for reimbursing two people who had invested in a scheme promoted and marketed by Sharemax.
Analysis
The first sentence: “Sharemax’s collapse in 2010 was precipitated by the findings of a registrar of banks investigation, that Sharemax’s funding model contravened the Bank Act, becoming public knowledge. This led to new investments drying up and it being unable to make monthly payments to investors.”
In later correspondence, Haese says there has never been a legal finding of any kind that such a Banks Act contravention has ever occurred.
She also:
· requests proof from Business Report that the matter has led to new investments drying up and it (Sharemax) being unable to make monthly payments to investors. “Monthly returns continued to be paid to investor[s] pre and post the 311 Scheme sanctioning”; and
· denies that Sharemax has ever collapsed. “[Instead], Sharemax Investments, as promoter, ceased its business operations.”
Cokayne refers me to correspondence on 7 October 2010 by the Deputy Registrar of Banks, advocate Michael Blackbeard, who stated: “I hereby confirm that as a result of an investigation by the duly appointed inspectors this Office was satisfied that the funding models of Sharemax and 33 property syndication companies were in contravention of the Banks Act, which included the Zambezi and the Villa.”
He says during the scheme of arrangement application process, he posed further questions to Blackbeard. One of these questions, in November 2011, related to Sharemax property syndication schemes being pyramid schemes. In response, Blackbeard explained that it was the funding model that was illegal and that a finding had not been made that it was a pyramid scheme.
On 14 February 2012, Blackbeard responds to Cokayne, stating, “This Office has requested the managers to inform SAPS that we were satisfied that the funding models were in contravention of the Banks Act.”
He concludes that these statements justified his reporting, as it was based on the information provided to him by the Statutory Regulator.
My considerations
The issues, as raised by Haese, are whether:
· there is a legal finding of any kind that a Banks Act contravention has ever occurred;
· there is proof that the matter has led to new investments drying up and it (Sharemax) being unable to make monthly payments to investors; and
· Sharemax has collapsed.
Legal finding
Haese’s argument (that there has never been a legal finding that such a Banks Act contravention has ever occurred) is irrelevant – the sentence in dispute does not say that. It mentions the findings of a Registrar of Banks investigation (which is not in dispute).
Proof
Haese asks Business Report to provide proof that new investments were drying up – while she herself provides adequate proof to this effect. She says in her complaint: “The damage continuously being caused by [Business Report’s] incorrect and misleading reporting, has far reaching negative effects on the Nova Property Group.”
That alone, to my mind, justifies this aspect of the reportage.
I have asked Cokayne to substantiate the second part of this matter, namely that Sharemax was unable to make monthly payments to investors.
His attorney (Jacques Louw) responds as follows:

“The…statement is based partly on…Cokayne’s personal understanding of the background facts, partly on various previous articles written by financial journalists who have drawn the same conclusion, but also on…Haese’s own statements under oath in the application to place Sharemax under business rescue. In this regard, on 30 November 2011, Ms Haese said the following under oath in court proceedings:

“[Sharemax] has since been placed under Directive on 15 September 2010, been unable to raise finance for its ongoing business requirements, including service of claims of all of its known creditors.” (sic) [The investors in Sharemax were debenture creditors of the company.]

“Accordingly…Haese has under oath made substantially the same statement Mr Cokayne has mentioned in his article.”

Cokayne adds:

“Even before the Reserve Bank notice, [I] started receiving complaints from investors in Sharemax who did not receive payments on their debentures.
“In early September 2010, [I] asked the FAIS Ombud’s deputy if the latter’s office had received any complaints regarding non-payment of ‘dividends’. In a letter on 8 September 2010, the deputy FAIS Ombud confirmed the complaints. [I] wrote an article about these non-payments on 10 September 2010.
“The Registrar of Banks issued its directive on 15 September 2010 and appointed statutory managers to Sharemax on 16 September 2010. As stated by Haese in her affidavit for the business rescue application, this led to the drying up of investments and an inability to pay investors (creditors). However, the 15 September 2010 directive was the culmination of investigation by the Registrar of Banks following complaints received by the Registrar and investments (funding) were already reducing at that stage.
“I attach a copy of email correspondence between the FAIS Ombud and [me] in early September 2010 as well as [my] article of 10 September 2010, where he mentioned the non-payment to investors.”

This provides enough evidence for me to decide that the reportage on this issue was reasonable and fair.
Collapsed
Haese says Sharemax has merely ceased its business operations; Cokayne calls it a collapse.
The difference appears to be little more than semantic, as it depends on the perspective from which one looks at the matter. The end result is the same.
The second sentence: “The registrar of bank laid criminal charges against Sharemax for alleged contraventions of the Banks Act in March 2012.”
Haese writes in later correspondence, “Firstly, this never happened. Secondly, how could criminal charges be laid on anything that is ‘alleged’.”
She states “for the record” that the opinion of the Registrar of Banks that there was a contravention of the Banks Act was taken on review by the Sharemax group of companies. It was then mutually agreed not to go to court, pending the restructuring of the syndication. “[B]y agreement, the Section 311 Scheme of Arrangement was proposed and sanctioned. There was thus NEVER a legal finding of any kind, that such a Bank Act contravention had ever occurred.”
Cokayne says that, on 14 June 2012, Blackbeard wrote to him stating, “The two appointed inspectors/managers (Jaco Spies & Neels Alant) met with Col Makhubele on 9 March 2012 and reported the matter to him…”
On 9 October 2012 he asked the DPCI: Communication of the SAPS the following question: “I understand that the Hawks are investigating the allegations of fraud against Sharemax Investments and whether it operated a pyramid or Ponzi scheme. Can you confirm?” The SAPS formally responded by saying, “Yes. We can confirm an investigation is currently under way.”
Cokayne concludes that the statement in question was based on official communication to him and was “thus justified and factually correct”.
On 11 November 2011 Blackbeard wrote to Cokayne, saying: “The report…concludes that the funding model…does not comply with the rule[s] and regulations – and hence that is in contravention of the Banks Act, ie illegal deposit taking from members of the public as a regular feature of the business by a company [that] is not registered as a bank.”
On 7 October 2010, Blackbeard informed Cokayne as follows: “Illegal deposit-taking is a criminal offence in terms of the Bank Act”.
My considerations
The reportage was clearly based on (overwhelmingly credible) information, as cited above, and the reportage was therefore justified.
Finding
Cokayne has provided me with all the correspondence to which he referred. I am satisfied that he based the disputed statements on reliable evidence and that his reportage was justified. The complaint is dismissed.
Appeal
Our Complaints Procedures lay down that within seven working days of receipt of this decision, either party may apply for leave to appeal to the Chairperson of the SA Press Appeals Panel, Judge Bernard Ngoepe, fully setting out the grounds of appeal. He can be contacted at Khanyim@ombudsman.org.za.
Johan Retief
Press Ombudsman
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Fais continues with property syndication probe - SHAREMAX

BUSINESS NEWS / 2016,
Roy Cokayne

141010 Zambezi mall one of Sharemax property.photo by Simphiwe Mbokazi 453
Pretoria - The ombud for financial advisory and intermediary services (Fais) has resumed issuing property syndication determinations, including against schemes promoted and marketed by Sharemax, following a two-year hiatus.

The issuing of determinations on all property syndication schemes was suspended in 2013 while an appeal by former Sharemax directors against two determinations issued by the Fais ombud’s office was heard by the appeal board of the Financial Services Board. This led to a 2 000-plus complaint backlog building up at the office of the Fais ombud.

Sharemax Investments and four of its former directors – Gert Goosen, Willem Botha, Dominique Haese and Andre Brand – last year successfully appealed against two determinations by the Fais ombud that held them jointly liable to repay two investors who had invested in a scheme promoted and marketed by Sharemax.

The outcome of the appeal meant the Fais ombud could only issue determinations against the broker or financial adviser and could not place liability at the door of the directors of the property syndication schemes.

Read also: Judgment clips ombud’s wings

In a determination released yesterday, Juriën Jordaan, a financial adviser who assisted a teacher to invest in The Villa, an investment scheme promoted and marketed by Sharemax, was ordered by Fais ombud Noluntu Bam to repay the woman the R100 000 she had invested in the scheme.

No records

This is the first property syndication determination issued by the Fais ombud since the appeal was finalised. Bam found that Jordaan had failed to act with due skill, care and diligence and in the interests of the complainant when he advised her to invest in a product without first advising her.

She said Jordaan was unable to produce records to demonstrate the basis on which he had considered the high risk Sharemax Investments suitable to the complainant’s circumstances. Bam said Jordaan had also failed to disclose the risk inherent in The Villa investment.

The determination is the first issued by the Fais ombud against a financial adviser related to a property syndication scheme since the appeal was finalised. Bam confirmed last year that her office had launched a project to eradicate the property syndication complaints backlog.

Bam told Business Report in November that the administrative aspects of the “shelved” cases had been completed but had to be evaluated to make sure, for instance, they had not prescribed. She added that a decision would be taken on the merits of each case before a determination could be written.

“We have had to co-opt law firms to help us brief counsel for that because it was not possible for us to do it on our own, due to our limited resources,” she said. About 40 000 people invested about R4.5 billion in the various schemes promoted and marketed by Sharemax.

Read also: CIPC has no power over Sharemax rescue

Sharemax collapsed in 2010 after the findings of a registrar of banks investigation that Sharemax’s funding model contravened the Bank Act became public knowledge. This led to new investments drying up and Sharemax being unable to make monthly payments to investors. The registrar of banks laid criminal charges against Sharemax for alleged contraventions of the Banks Act in March 2012.

Allegations

The Hawks confirmed in October 2012 that they were investigating allegations that Sharemax had committed fraud and were probing whether it had operated a pyramid or Ponzi scheme.

During 2012 in a court sanctioned scheme of arrangement, the schemes were taken over by Nova Property Group and Sharemax investors were issued with debentures or shares in Nova.

In the determination released yesterday against Jordaan, Bam highlighted what she called “a few interesting points”. She said about the time of the announcement of the scheme of arrangement in 2011, the executive directors of the Sharemax Group – Dominique Haese, Rudi Badenhorst and Dirk Koekemoer – held 43.2 percent of Nova’s issued shares and were currently listed as directors of Nova. She said the registered address for Nova Property was the same as the old Sharemax head office.

Bam added that Frontier Asset Management had provided a range of administrative services to Nova and Centro Property Group and managed the property portfolio on behalf of Nova. The directors of Nova were: D Haese, D R Koekemoer, CJ van Rooyen and RN van Zyl, who were also formerly directors of the Sharemax Group, plus M J Osterloh. The directors of Centro Property Group were E Grobler and M J Osterloh, she said.

Bam said Frontier Asset Management had sent out a communiqué dated August 6, 2013 warning investors that those who brought complaints to the office of the Fais ombud would “lose their right to have their Sharemax Investments converted into Nova debentures or shares”.

BUSINESS REPORT

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Claims against advisers shoot to R15mBUSINESS NEWS / 2016
Roy Cokayne

newly appointed Financial Advisory and Intermediary Services (FAIS) Ombud, Ms Noluntu Bam.photo supplied
Johannesburg - The amount financial advisers have been ordered to repay their clients whom they wrongly advised to invest in the Relative Value Arbitrage Fund (RVAF) has now escalated to more than R14.8 million.

This follows the ombud for financial advisory and intermediary services (Fais) Noluntu Bam ordering L Loxton Nel and Associates and/or Llewellyn Claudius Loxton to Teresa Karwowski the R120 000 they had advised her to invest in RVAF.

Read: Adviser must pay R800 000 to RVAF client

Karwowski was a friend of Loxton’s wife.

The fund collapsed after its manager and trustee Herman Pretorius committed suicide in July 2013 after shooting dead his business partner Julian Williams.

Bam said no adviser would have recommended RVAF as a suitable component of any investment portfolio had they exercised the due skill, car and diligence required in terms of the Fais code of conduct.

She said the complaint was about being advised to invest in a scheme that “was not above board”.

Bam said L Loxton Nel and Associates and/or Llewellyn Claudius Loxton appeared to have blindly accepted whatever they were told about RVAF without any proper attempt to verify such information and this information was then recklessly conveyed to their client.

She said the fact was that they were out of their depth and therefore could not have had any understanding about the economic activity that generated the returns or the sustainability of the investment.

In a separate determination, Bam ordered Huis van Oranje Financiele Dienste and/or Stephanus Johannes van der Walt to pay Eduard Mostert of Gauteng the R267 000 he was advised to invest in Purple Rain Properties 15 trading as Realcor Cape.

The agreement constituted an application to purchase shares to the value of R267 000 in the Blaauwberg Beach Hotel, of which property holding company Midnight Storm Investments 368 was the registered owner.

After the completion of the hotel, the shares were to be purchased by the investment company for the benefit of the investor.

No losers

Mostert was allegedly told by Van der Walt that it was a good, safe investment with a healthy interest rate “in which there could be no losers”.

The investor concluded the agreement in December 2009 and continued to receive his monthly dividend until October 2010 when the payments suddenly stopped.

He was assured that the delayed payments were due to an administrative problem and payments would resume shortly but subsequently learned via Radio Pretoria that the investment scheme was experiencing financial trouble.

An inspection conducted in terms of the SA Reserve Bank Act concluded that Realcor Cape and/or related individuals obtained money by conducting the business of a bank without being registered as a bank and directed them to repay all money raised.

A business rescue process failed and an application for the liquidation of Midnight Storm Investments resulted in the hotel being sold in May 2013 for R50 million, dashing any hopes of investors recouping their investments.

A total of R616m was lost.

Bam said Van der Walt advised Mostert to make the investment without first assessing his financial needs and determining his risk profile, which was in contravention of the Fais code of conduct.

The Fais ombud said Van der Walt had also failed to maintain his records of advice, which was also in contravention of the code, and failed to provide financial services honestly, fairly with due skill, care and diligence and in the interests of his client and the integrity of the financial services industry.

BUSINESS REPORT
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Two more advisers must repay Sharemax clientsPERSONAL FINANCE / 21 May 2016, 07:05am

Laura du Preez

The financial advice ombud this week ordered two financial advisers who advised investors to invest in property syndications promoted by Sharemax to compensate them for the almost R700 000 they lost.

One investor, a 65-year-old KwaZulu-Natal widow, invested all her savings of R650 000 in the Sharemax Zambezi Retail Park in 2008. In June 2010, she received her last interest payment.

Noluntu Bam, the Ombud for Financial Services Providers, ordered her adviser, Johannes Mostert, to repay her the R650 000 after he failed to justify his investment advice to the ombud.

According to Bam’s ruling, Mostert initially paid the widow, Mrs L, her monthly payments himself, but he was unable to keep up the payments and reduced the amount.

Mrs L was forced to sell the home in which she had lived for 39 years to have capital to provide an income and rent a flat, the ruling says. She is worried she will be stranded when this money runs out.

When Mostert learnt that she had sold her home, he stopped his payments.

The second investor, also from KwaZulu-Natal, Mr R, invested R40 000 in Sharemax’s The Villa Retail Park in 2009, Bam’s second ruling reveals.

His adviser, Alida du Preez-Maritz of Bahati Yetu Brokers, was ordered to repay him what he lost, after she responded to Bam with “unpalatable statements and gratuitous attacks” on Mr R and said she did not have time to waste on “this rubbish” and the “stupidity” of having to exonerate herself.

According to the ruling, Mr R said Du Preez-Maritz had persuaded him to sell an Old Mutual policy to invest in The Villa in 2009 because he could earn better returns.

Mr R told the ombud he did not see anything untoward in the advice because he had invested R100 000 in another Sharemax property syndication, and was receiving regular interest.

But in September 2010, he read media reports that The Villa was bankrupt, and he has not recovered his investment.

In both cases, Bam found the advisers were responsible for the losses.

Mrs L was of the view that she should invest her money with Momentum, but she sought the advice of Mostert because she feared she was not knowledgeable about investments, the ruling says.

She told the ombud that Mostert guaranteed that her funds would be safe and that she would enjoy capital growth after five years, even if she withdrew the interest as a pension.

Bam found that both Mostert and Du Preez-Maritz could not have followed the general code of conduct under the Financial Advisory and Intermediary Services (FAIS) Act, which requires financial advisers to recommend an investment that is suitable for you given your financial needs and the risk you can afford and are willing to take.

Mrs L was a pensioner who relied on her investment for an income and therefore could not take the risk of losing it.

In his complaint to the ombud, Mr R says Du Preez-Maritz did not tell him that the Sharemax investment was a high-risk one.

Bam wrote to Du Preez-Maritz stating that property syndication investments are high-risk ones because they are unlisted companies and the way in which the properties are valued is never disclosed. The ombud asked the adviser to provide evidence that she had made Mr R aware of the risks. Du Preez-Maritz did not respond.

Bam also says in her ruling there was no evidence that Du Preez-Maritz had followed the FAIS Act requirements for replacing one investment (Mr R’s Old Mutual investment) with another: the Sharemax property syndication.

Bam found in both cases that the advisers had failed to conduct a due diligence on the Sharemax investments and there was no evidence that either of them knew how the investments would fund the interest they promised to pay the investors, given that the properties were still being constructed and therefore had no rental income.

Bam says in both rulings that there was no evidence that the advisers were aware of the risks involved in Sharemax.

“These include the lack of apparent safeguards to protect investors against director misconduct; the lack of visible governance arrangements; and the complicated structure of the investment itself, which left the investors with no protection,” she says.

Bam also found Mostert contravened the FAIS Act because he was 
not licensed to give advice on shares 
and debentures.

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Adviser berated for ‘product peddling’PERSONAL FINANCE / 2016
Angelique Arde
The ombud for financial services providers this week ruled that a financial adviser whose client lost R100 000 in a Sharemax property syndication investment repay his client her capital.

Jurien Jordaan, of Jurien Jordaan Advisory Services in Wonderboom, Pretoria, was ordered to reimburse Mrs MN, due to his failure to provide appropriate advice and because he was guilty of “product peddling”, according to ombud Noluntu Bam.

In early 2009, Jordaan executed a request by Mrs MN’s father, who had invested in Sharemax, to invest R50 000 on his daughter’s behalf, in a Sharemax investment known as The Villa Retail Park Holdings. In June 2009, Jordaan contacted Mrs MN and persuaded her to make a further investment of R50 000 in The Villa. He had been approached by a client who no longer wanted his shares and was willing to sell them at less than the original price.

Mrs MN says no disclosures regarding the risk associated with such an investment were ever made to her.

In his defence, Jordaan maintained that, at the time, he was a representative of Unlisted Securities South Africa, established by Gerhardus Rossouw Goosen while he was a director of Sharemax. It has since been liquidated.

Regarding the first investment, Jordaan said he never interacted directly with Mrs MN; he dealt strictly with her father, who had invested in Sharemax and was familiar with it. He also said he didn’t advise Mrs MN to invest. “Sharemax is often bought by the investor, not sold by the adviser,” he contended. He conceded that he had sold her the second investment, but said the circumstances should have alerted her to the risk of losing her capital.

In her determination, Bam says being a representative of a financial services provider doesn’t absolve Jordaan of responsibility; both the provider and the representative are duty bound to comply with the provisions of the Financial Advisory and Intermediary Service (FAIS) Act and code of conduct.

Bam says Jordaan also can’t hide behind the veil of “no advice rendered”. In terms of the code, a provider must know their client, assess their needs and circumstances, and keep a record of advice. Jordaan did none of this. Since he failed to establish Mrs MN’s tolerance for risk, he was not able to assess whether or not the investment was suitable for her.

“Simply offloading shares or strictly executing the instructions of the complainant’s father without any application of the mind or attempt to properly undergo the financial planning process beforehand, is in a violation of the Act and code.”

According to the ombud’s ruling, Sharemax was a public property syndication company, started in 1989, purportedly engaged in renting, operating, and managing commercial properties for shops and offices.

Investors were told they would receive a return of 11.5 percent in the form of income and this was further guaranteed for the first year of the investment term.

In September 2010 a newsletter was issued outlining the difficulties the various property syndications under Sharemax were experiencing in paying out the promised income, mentioning The Villa, but asking investors to be patient because “several new proposals” were promising “excellent rental agreements, which will make the product valuable”, the ruling says.

During October 2012, a request was made to the regulator to lapse the FAIS license issued to Sharemax.

Sharemax and its syndication companies were investigated by the registrar’s office and it was concluded that the funding models were in contravention of the Banks Act.

Directives were issued to Sharemax for the repayment of funds collected from individual investors in September 2010.

In 2012, in a court-sanctioned scheme of arrangement, the schemes were taken over by Nova Property Group Holdings (Nova), and Sharemax investors were issued with debentures or shares in Nova, the ruling says.


Private eye raved at Kgomotso Phahlane over graft claims


SUNDAY TIMES NEWS BY THANDUXOLO JIKA, 2016-12-04

A series of e-mails from forensic investigator Paul O'Sullivan reveal how he put pressure on acting national police commissioner Kgomotso Phahlane to act against one of his generals - before publicly accusing him of corruption.

The e-mails began in January, three months after Phahlane took over from suspended commissioner Riah Phiyega, with O'Sullivan accusing Phiyega of ignoring his request for a probe into head of detectives Vinesh Moonoo.

They culminated with a warning from O'Sullivan that he would see Phahlane behind bars.

In an e-mail dated January 31, seen by the Sunday Times, O'Sullivan told Phahlane he expected him to investigate Moonoo.

"Phiyega had a constitutional duty to put a stop to Moonoo's activities and she singularly failed," he wrote.

"I am going to assume that, before today, you had no knowledge of Moonoo's criminality. You now know and I do expect that you will not do a Phiyega on this one."

When Phahlane did not respond, O'Sullivan e-mailed him again on February 12, saying: "I always thought you were straight, until I saw how you were helping Moonoo.

"Then I started looking into you and I find out that you have skeletons in the cupboard too. In fact, more skeletons than [late former police commissioner Jackie] Selebi had.

"You fix Moonoo and [criminal kingpin Radovan] Krejcir and I will lose interest in you. If you don't, I'll be all over you like a bad-fitting suit."

O'Sullivan then warned Phahlane: "If you try any dirty tricks, as your predecessors, I'll eat you for breakfast and still be hungry afterwards.

"Do you think you are better than Selebi? If you do, then prepare for the natural conclusion of your sordid life in the police - PRISON. It will be me that sends you there, just like I sent Selebi and just like I will send Moonoo."

In May last year, O'Sullivan laid a complaint against Moonoo and Phiyega, claiming the detective chief had links to underworld criminal bosses including Krejcir.

Phiyega's office dismissed O'Sullivan's claims, saying he wanted Moonoo off his back because he was investigating a complaint laid by SAA chairwoman Dudu Myeni that O'Sullivan distributed a fraudulent bank statement he said belonged to her.


Private investigator Paul O'Sullivan has vowed to deal with acting police commissioner Kgomotso Phahlane the same way he did with former commissioner Jackie Selebi. Image: Puxley Makgatho. © Business Day.

O'Sullivan gave Phahlane until February 22 to act against Moonoo, but received no response. Three days later, on February 25, he opened a corruption case against the acting commissioner at Sandton police station.

Phahlane did not reply to O'Sullivan's e-mails. Asked by the Sunday Times on Friday if he regarded the e-mails as threats, O'Sullivan replied: "There is no need for me to be nice to dirty cops."

He said Phahlane could not account for the R4.7-million he claimed the acting commissioner used to build his home in Sable Hills, Pretoria.

Phahlane dismissed O'Sullivan's claims, saying the house was partly bonded and part paid for in cash with money from the sale of a previous house.

The complaint about Phahlane's house is being probed by the Independent Police Investigative Directorate, which last week asked Phahlane to make a statement about allegations that potential witnesses in the case had been threatened.

Phahlane told the Sunday Times that the investigation against him was a result of him ignoring O'Sullivan's demands.

He said he was not compelled to take instructions from a private citizen, and questioned why O'Sullivan was involved in the Ipid investigation.

In other e-mails O'Sullivan sent to Phahlane and Hawks spokesman Hangwani Mulaudzi, he took swipes at Hawks head Berning Ntlemeza and President Jacob Zuma.

"I have also now started a process to topple Zuma, as he is the master-puppeteer behind all the criminals in the police and he will eventually go to prison," said O'Sullivan.

"You know Mr Mulaudzi, I can now taste victory. I know it's still a bit further to go, but I can actually taste it, as I now see the Zupta [Zuma and the Gupta family] place start to crumble and fall.

"I will proudly stand in defiance of Zuma, you and your criminal accomplices, appointed by a criminal president."

jikat@sundaytimes.co.za

Saturday, December 3, 2016

Nova bosses take pensioners’ R1bn - SHAREMAX



Julius Cobbett 25 Nov 2016 00:00
Nova directors Dominique Haese and Connie Myburgh (pictured).


In 2013 a pensioner committed suicide by shooting himself in the heart outside the offices of failed property scheme Sharemax, starkly illustrating the human toll Sharemax’s collapse had on some 33 000 people. Their supposed rescue came in the form of Nova Property and its plan to recover much more of their money gradually than they would see if Sharemax was simply liquidated. Nova, though, was not a paragon of transparency. For three years it fiercely fought a request for supposedly public information from specialist financial website Moneyweb.

This week, after finally getting access to the information through a Supreme Court of Appeal order, Moneyweb published details showing how Nova directors manoeuvred themselves into a R1‑billion profit on paper, at the expense of the original Sharemax shareholders. Moneyweb and the Mail & Guardian approached former journalist Julius Cobbett, who doggedly pursued the Nova story for years for his analysis.

It was supposed to be a rescue. Instead it appears to have been a self-enrichment scheme that landed four individuals — including two who were partly responsible for the need for a rescue in the first place — some R1‑billion, at the expense of 33 000 individuals, many of them pensioners.

Such is the distasteful situation at Nova Property Group, a public company that now owns a large portfolio of commercial properties that were originally sold to investors by Sharemax, a failed property syndication promoter.

In return for supposedly coming to the rescue of the original Sharemax investors, four Nova directors — Connie Myburgh, Dominique Haese, Rudi Badenhorst and Dirk Koekemoer — paid themselves R66‑million in salaries and bonuses over the past four years.

But this pales in comparison with the potential value of shares they awarded themselves in Nova. A three-year court battle to access Nova’s shareholder register has finally revealed that these four directors own 87% of Nova in equal portions.

The latest financial statements show that Nova has a property portfolio valued at R3.9‑billion and a net asset value of R1.2‑billion. This means the four directors own shares worth, on paper, more than R1‑billion.

Nova chief executive Haese and her codirectors paid almost nothing for this enormous stake in Nova. The shares were in effect given to them for free.

To add insult to injury, two of the Nova directors who have benefited in this way were intimately involved with Sharemax before it imploded. Haese in particular played a pivotal role at Sharemax; she was appointed a director there in late 2006, was its financial director and, later, acting managing director until it entered business rescue. Koekemoer was Sharemax’s director of property management. He was appointed a director in November 2008.

When I petitioned Nova to view its shareholder registers back in 2013, I expected to discover self-enrichment. What I did not expect was the scale. Nor did I expect a three-year legal battle that led all the way to the Constitutional Court, before access to the registers was finally ordered.

While Moneyweb ran up legal bills to gain access to information that by law any member of the public may request for any reason, Nova’s directors paid the legal fees to defend that request out of company coffers, from money that should by rights have gone to repaying Sharemax investors.

For her part, Haese denies ever keeping the shareholder details secret — except from Moneyweb, which she accuses of having an underhand agenda.

That claim is remarkable, considering how surprised just about everybody was when the details emerged this week, including the likes of economist Dawie Roodt, who was involved in the Sharemax rescue before he fell out with Haese and Myburgh.

Haese also makes much of the fact that R167‑million has been paid to debenture holders — R86.6‑million in the form of interest and R80‑million in return of capital. But this is just a small fraction of Nova’s outstanding debt to these former Sharemax investors, which totals R2.5‑billion. If Nova continues to return capital at the same rate it has done in the past four years, it would take 125 years to repay its debt.

Foxes gain control of hen house
When Sharemax collapsed, investors were faced with the prospect of having their companies liquidated. They were prepared to vote in favour of just about any other alternative. Brokers also had a strong incentive to advise clients to vote in favour of a rescue scheme — any rescue scheme. To liquidate would be to accept that the investment they had recommended was a failure.

Myburgh and his codirectors took full advantage of this situation, knowing that a vote against such a proposal would be unlikely.

Myburgh crafted the scheme at considerable expense (in just one week he billed 102 hours at R3 000 an hour). It gave investors two options: accept shares in Nova, or debentures issued by a Nova subsidiary. Unsurprisingly, most investors chose the seemingly less risky debentures, which offered the prospect of some income and an enforceable claim against Nova.

Only about 2 000 of the 33 000 investors elected to receive shares. In the process, they surrendered Sharemax-promoted debentures worth R94.7‑million — which means they “paid” about 98c a share.

Another 2.2‑billion “B” shares were issued for free to the seven founding shareholders, which includes the four Nova directors. This was done in accordance with a single paragraph tucked away below a formula in appendix ARR8 of Myburgh’s 250-page rescue scheme document.

The paragraph states that the founding shareholders would receive all the Nova shares that were available to the 31 000 investors who decided not to exercise the option to swap their debentures for shares.

Since only 2 000 investors chose the share option and received 4.3% of Nova’s shares, the founding shareholders pocketed the balance of 95.7% without paying a cent.

Investors screwed, twice
Sharemax was started in 1999 by Willie Botha, a businessperson with a shady past involvement in the failed Oude Molen property syndication scheme. Sharemax sold its first property to investors for R9.7‑million. Over the next decade it would sell properties of ever-increasing value. It collapsed while raising funds for The Villa, an enormous, incomplete shopping centre east of Pretoria that had an estimated syndication value of R3.5‑billion. In total, investors poured R4.6‑billion into Sharemax-promoted syndications.

The concept of selling portions of properties to investors is a simple one. It ought to be a relatively low-risk investment. It is a concept that underpins some of the largest JSE-listed property companies such as Growthpoint, Redefine and Hyprop.

But right from the beginning there were warning signs that Sharemax’s business model was neither low risk nor investor friendly.

The scheme caught the eye of South Africa’s most celebrated financial journalist, Deon Basson. Basson, six-time Sanlam Financial Journalist of the Year, published many articles that were critical of Sharemax. For his efforts, he was sued in his personal capacity by Sharemax for alleged defamation. The case never reached court; Basson died of a heart attack on September 13 2008. He was 53.

It may be a stretch to blame Basson’s untimely death on the actions of Sharemax’s directors. But they certainly made his life miserable in its final years.

Basson had two main concerns about Sharemax’s investment model. First, the costs were unusually high. For every R100 invested in any Sharemax-promoted scheme, a minimum of R15 went to costs and commissions. The lion’s share of these exorbitant costs went to financial advisers — salespeople who were either too unqualified or greedy (or both) to dismiss the investment as inappropriate for their clients.

Basson’s second concern was more serious. Unlike conventional property investments, the Sharemax-promoted syndications didn’t simply pay net rental income to investors. It seduced them with an income that was higher than the rental the underlying property was able to produce. Just how Sharemax offered this tantalising return remains a secret.

But the most obvious answer is that money from investors in newer, ever-larger syndications was used to subsidise investors in older ones. Such a structure would be a classic Ponzi scheme — an opinion held by Financial Advisory and Intermediary Services (Fais) ombud Noluntu Bam, who has ordered several Sharemax brokers to refund their clients.

In any event, the entire Sharemax structure collapsed, beginning with the drying up of cash at its Villa development in September 2010.

The investors’ pain was felt as soon as Sharemax-promoted syndications stopped paying unsustainable high income that had been promised to investors. At least one of the 31 000 investors paid the ultimate price. In 2013, Villa investor Bohuslav Kautsky (67) committed suicide outside Sharemax’s offices in Waterkloof Heights, Pretoria. Kautsky’s daughter told Moneyweb that he wanted the directors to know the devastation they had caused.

What happens now?
Many investors have asked what happens now. It is encouraging that Nova’s auditors, BDO, have announced an “extensive investigation” into Nova’s affairs. Despite this, I expect the Sharemax saga to end in the same way as countless other dubious schemes have: with investors losing everything and zero serious consequences for the perpetrators.

Consider the words of Bam, who wrote in a 2013 determination against a Sharemax broker: “Let us look at the damning facts; in recent times South Africans have lost billions to failed investment schemes. In the Leaderguard scandal, involving forex investments, a staggering amount of about R380‑million was lost. In the Blue Zone property syndication, investors lost R450‑million … [and] an amount of about R300‑million was lost in the Blue Pointer scheme, and so the list continues. Incidentally, none of the perpetrators have been prosecuted, notwithstanding that this office reported some of these cases to the national director of public prosecutions.”

Nova declines to respond
Nova Property Group declined to answer specific questions or comment on this article more broadly. Instead it sent the letter below, which is reproduced in full. In the radio interview she refers to below, Dominique Haese said the Nova directors had acted legally, and that their potential profit from the company’s structure is “fully justified”.

“Dear Mr Cobbett

Your draft article contains numerous untruths, inaccuracies and negative innuendoes and goes no further than rehashing Moneyweb’s incorrect reporting, already responded to by the Nova Group on RSG Radio on November 21 at 6pm (refer to transcript available on Moneyweb’s website) and in the question-and-answer documents exchanged between Moneyweb and the Nova Group, which answers provided (prior to Moneyweb’s publication) the correct information to Moneyweb, only to be reported on incorrectly and out of context by Moneyweb (refer to all three sets of Q&A documentation attached to the Moneyweb articles on Moneyweb’s website).

Responding, effectively to Moneyweb, through you, is simply not the correct forum. Consequently we have no further comment to your email or draft article.

Please ensure, should you elect to publish anything, that you include in such publication our above response, verbatim.

Kind regards
Dominique Haese
CEO: Nova Property Group”

Thursday, December 1, 2016

Nova suspends interest payments to debenture holders - Sharemax !


Blames inability to raise external finance to fund upgrades and maintenance.


Ryk van Niekerk  /  2 December 2016 00:01

From left to right: Dirk Koekemoer, Rudi Badenhorst, Connie Myburgh and Dominique Haese.
The Nova Property Group has suspended interest payments to debenture holders due to the group’s inability to obtain bank funding to fund its property management operations at the various property developments. The interest payments were suspended from November 1.
Following recent Moneyweb reports, Moneyweb has been inundated with calls from debenture holders regarding the suspension of debenture payments. From the interaction with debenture holders, it seems as if all interest payments to qualifying debentures were suspended, which includes debentures related to the Rivonia and Silverwaters properties.
Moneyweb offered an opportunity to Nova CEO Dominique Haese to provide some clarity regarding the suspension of the interest payments. She did not offer any details regarding the suspension but said that “all relevant debenture holders have been fully informed in our normal communication process”.
She added that debenture holders can contact the Nova call center at 012 425 5000 or visit the website of Frontier Asset Management at www.frontieram.co.za. 
Haese previously suspended all communication with Moneyweb, as she is unhappy with our recent reports on various aspects of Nova’s operations, most notably the 87% of Nova shares the directors received for free and how the directors tried to keep this secret. (See the statement at the bottom of this article.)
In a letter dated November 3 that Nova sent to debenture holders, Haese says the decision to suspend interest payments was taken as the group could not secure external funding to upgrade and maintain underlying properties.
Haese wrote in the letter: “This deceleration in the flow of external funding and the rate at which upgrades, maintenance and the placement of tenants has to be done can currently not be synchronised and the Board had to once again take the difficult, but strategic, decision to cease current monthly return payments which are being paid to holders of certain classes of debentures, until the funding situation from external sources improves.”
This means that the Nova board will seemingly retain profits and cash earned from these properties to fund maintenance and upgrades at other properties.
External finance
Nova has on numerous occasions blamed negative media coverage, which includes reports from Moneyweb, as a major reason why banks are reluctant to extend loans to the group. Apparently, the banks are influenced by media articles and fear there is substantial “reputational risk” associated with doing business with the Nova group.
During a meeting between Moneyweb and the Nova board, when the board revealed its shareholder registers, Nova chairman Connie Myburgh even referred to a photo that was used alongside a Moneyweb article, which he claimed prompted a bank to withdraw from funding negotiations.
Ironically, this article and photo were about the Constitutional Court’s decision that denied the directors of Nova leave to appeal against an earlier Supreme Court of Appeal judgement. This ruling, which brought an end to a legal battle that lasted for more than three years, found that Nova could not refuse Moneyweb access to its shareholder registers.
Cash flow pressure
The suspension of interest payments is not really a surprise, as an analysis of Nova’s 2016 financial results (which ended in February 2016) shows that Nova has some cash-flow pressures.
The company’s operational activities saw a cash outflow of R27 million in the 2016 financial year. The board did manage to acquire external funding of nearly R54 million, which left the group with cash resources of R42 million at the end of February this year.
The Nova board also disclosed in the 2016 statements that the group managed to secure a loan of R31.5 million from Nedbank. Interestingly, the directors, in their personal capacity, provided limited surety on this loan.
If the board cannot secure more bank funding, the board may be forced to sell some of the properties to raise cash, as the group did between 2013 to 2015. These disposals raised cash of around R285 million.
Annual general meeting 
Nova held its annual general meeting on Wednesday in Pretoria. It was attended by around 20 of the 2 000 minority shareholders. Moneyweb requested permission from Nova chairman Connie Myburgh to attend the AGM, but he did not respond. A similar request from Carte Blanche was denied.
During the meeting, Myburgh approved all the resolutions, including a resolution on executive remuneration, with 100% of the vote. The four board members – which include Myburgh and Haese – own 91% of the voting rights in Nova via a nominee company and approved their own salaries. The remaining 9% of the voting rights reside with existing and former senior managers within the Nova group.
Read also: Staggering salaries of Sharemax rescue vehicle directors.

Response from Dominique Haese, CEO of Nova:
Dear Mr van Niekerk,
It is regrettable that our efforts in engaging Moneyweb openly, constructively and in a bona vide fashion has not been reciprocated. In response Moneyweb has chosen to publish articles without prior reference to us, and in breach of your undertaking to allow us to see and comment on the articles first, which articles twist the facts, articulate a number of inaccuracies and untruths and seek to slander and defame the Nova Group and its directorate. We are considering our position and our rights in this regard are reserved.
It has become clear to us that any information that is provided by us to Moneyweb, will be twisted and used out of context for the purpose of further negative reporting of and concerning the Nova Group and its directorate and given that no further productive purpose would be served in engaging with Moneyweb, the Nova Group has decided to break off all forms of communication with Moneyweb. We will accordingly no longer respond to questions Moneyweb pose to us, requests for commentary on proposed articles or for that matter to any articles that Moneyweb might publish, subject of course to a reservation of the right to deal with any matter Moneyweb might publish, in a court of law.
Please ensure, should you elect to publish anything further regarding the Nova Group and any of its functionaries, that you include in such publication our above position, verbatim.
Yours faithfully,
Dominique Haese
CEO Nova Property Group


-------------------------------------------------------------------------------------

Questions haunt Sharemax arrangement
May 12 2011 11:24 Vic de Klerk

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THE two main shareholders of Sharemax Investments – Willie Botha and André Brand – will receive R40m in exchange for their so-called claims against the Sharemax-promoted property syndications in terms of the proposed scheme of arrangement for Zambezi Holdings.

Of that, R15m is payable in cash and R25m in five yearly payments of R5m each. In exchange, Botha and Brand accept apparent responsibility for outstanding VAT payments that could amount to as much as R50m.

However, the cause and auditing of the amounts owed in VAT aren’t explained anywhere in the documents submitted to the high court.

Businesspeople will know VAT returns must usually be submitted every two months. Postponement and paying off over five years sounds very unusual. Businesspeople will also know that being even a few days overdue attracts considerable penalties. Hopefully, the board of the property syndications will be able to explain the payment to Brand and Botha and the outstanding VAT more fully to investors at shareholders’ meetings over the next few months.

For the financial advisers who sold Sharemax investments to their clients and who were concerned about the capital losses – especially in the case of liquidation – there’s also very good news in the proposed scheme of arrangement. In the case of Zambezi, investors will receive a new “debenture” with a face value exactly equal to their original investment.

Therefore: no capital loss. The capital and the debenture will be repaid from the 70% of the net rental income earned by the Zambezi Mall over the next 10 years, which could be extended to 12 years. That could be any amount – because the days of miracles aren’t yet over.

Investors – as well as the ombudsman, who is already looking at the financial advisers – will therefore only know in 12 years’ time whether the investors have suffered a capital loss or not. This is a wonderful escape for the financial advisers, and explains why they’re so supportive of the scheme on their blogs.

From year 12 to year 17 the investors will receive 30% of the net rental income, up to a maximum of 30% of their original investment. That’s probably interest, or perhaps capital gain.

So it’s possible that investors may still be receiving an interest cheque 17 years after the introduction of the scheme. Once again, that’s very good news for the financial advisers.

Briefly, it means no investor will be able to prove he suffered a capital or interest loss before 17 years have elapsed and can therefore not institute a claim against his financial adviser. The ombudsman will also find it difficult to prove damages before the end of 17 years.

I’m sorry to say that for investors in the Zambezi scheme there’s only bad news. In his submission to the court, Rudolf Badenhorst, one of the new directors of the Sharemax-promoted investment, pointed out the best net price that could probably be obtained for Zambezi Mall in the case of a liquidation would be only about R100m, which is about 13c in the rand for each of the investors who pumped in a total of R765m into the building.

But that’s actually more than Finweek expected.

However, nobody is trying to put a value on the new debentures to be issued, simply because it’s impossible to do so. To calculate the net current value of an investment or debenture that can be compared with the 13c in the rand above, we must do an accurate calculation of the monthly or annual payments the debenture holders will receive: which is 70% of the net rental income earned by the building.

The building is managed by its owners, Capicol, and the investors will apparently have no say in how the building is run or what its net income will be.

If you look at the current poor state of repair and the building’s significant vacancy factor – plus the new interest burden of the probably R10m or more the building will have to carry in future – the informed investor would no doubt guess its net income will be very small, if anything at all. Remember: 70% of nothing is still nothing.

After 12 years an investor’s rights lapse. And if 70% of nothing is still nothing, the debenture won’t be worth anything. The face value of R1 for every rand invested says nothing.

The value of the debentures on an informal market – they won’t be listed on the JSE – is what counts here. I’d like to repeat my prediction of two weeks ago: the market value of the Article 311 debentures will probably not be more than 5c in the rand.

Not 5c/year, as some readers seem to think, but a one-off 5c for your R1 investment if you were to sell. And if an investor were to sell it for 5c – assuming he could find anyone wanting to buy it – he’d presumably no longer have any claim for damages against his financial adviser.

It could simply be argued the 70% of the net rental in nine years will be enough to repay your total investment and you would find it difficult to prove the opposite.

Investors in Zambezi will have to make up their minds at the meetings whether they want to accept the 13c in the rand that could possibly be obtained in the case of liquidation or whether they want to take a chance on a debenture with a completely unknown market value.

* This article was first published in Finweek.

* To read more Finweek articles, click here.


Tuesday, November 29, 2016

Staggering salaries of directors' of Sharemax rescue vehicle


Staggering salaries of directors' of Sharemax rescue vehicle




Ryk van Niekerk

29 November 2016

The salaries of the four directors of Nova Property Group have been extremely controversial and a comparison to industry salaries clearly shows that they may be grossly overpaid. This has a significant impact on the company's cash flow and ability to pay debenture holders.

Moneyweb recently revealed that the four board members collectively own 87.1% of the company and 91% of the voting rights and can therefore set and pay their own salaries.

Nova also informed debenture holders last week that interest payments to debenture holders from November 1 have been suspended. This suspension should be seen in the context of the salaries of the four Nova directors.

During a recent radio interview, Nova CEO Dominique Haese denied the board was overpaid and said the directors’ salaries are far less than comparable market salaries. In a subsequent communication to debenture holders she also proclaimed that salaries have a “negligible impact on the company’s operational performance”.

She added that “if one looks at industry norms and market-related salaries, our salaries, if you do the calculation properly, is 70% of what an industry norm salary would be, taking all the risk, taking the responsibility of this group.”

Facts show the contrary.

Comparison with industry norms

There are two ways to look at executive remuneration. The first is to compare the salaries of individual directors with industry averages. The second is to compare the combined salaries of all the executive directors with the combined salaries of executive directors of peer companies.

In both cases, the Nova board compares exceptionally well to these industry norms, despite having a minuscule portfolio of assets to manage in comparison to the JSE-listed property companies. This is also despite Nova being a public company specially set up to rescue the R5 billion investments of 33 000 elderly Sharemax investors.

Comparison of individual salaries

Let's first compare the salaries of the individual directors with the averages of JSE-listed property companies.

An analysis of the directors’ remuneration in the 2015 and 2016 financial years appears below:


Remuneration of Nova directors


2016

2015


Total

Cash salaries

Total

Cash salaries


Dominique Haese

R5 276 724

R4 151 724

R4 491 527

R3 666 527


Rudi Badenhorst

R4 518 801

R3 393 801

R3 882 044

R3 057 044


Dirk Koekemoer

R4 596 630

R3 471 630

R3 879 171

R3 054 171


Connie Myburgh

R5 190 946

R4 065 946

R4 493 085

R3 668 085


R19 583 101

R15 083 101

R16 745 827

R13 445 827


Source: Nova annual financial statements




In the table below, the average salaries of various C-suite directors of JSE listed property companies are listed. These salaries were captured by Profile Media during 2015 as a joint initiative with Moneyweb to calculate the average salaries of all JSE-listed companies. The salaries shown are average cash salaries of the executive directors of property companies that were disclosed in annual reports published in 2015. The averages exclude the salaries of executives of UK listed companies. (The 2015 salaries of the Nova board are used for the comparison as they correspond with the Profile Media data).


Comparison of individual salaries with JSE listed averages


Average Salary

Cash salary

Nova directors

2015 Cash Salary


CEO, CE and Executive chairmen

R4 042 391

Haese (CEO)

R3 666 527


Myburgh (Chairman

R3 668 085


Financial director

R2 010 364

Badenhorst

R3 057 044


Chief operating officer

R3 386 613

Koekemoer

R3 054 171


Average

R3 146 456

R3 361 457




This analysis shows there is a clear conflict between Haese’s statement that directors receive 70% of the “industry norm” and the actual amounts. Some of the individual directors actually earn more than their JSE counterparts. This is despite the fact that the four directors manage properties valued at only R3.8 billion, of which R1.7 billion is locked into the half-built Villa. This is minuscule compared to the assets JSE-listed property companies manage. This also begs the question as to why there are four executive directors, who offer at least 32 hours of executive management a day, to manage this small portfolio. It may be a coincidence that the four each own around 21.8% of the company and collectively hold 91% of the voting rights.

Comparison of salaries of all executive directors with industry peers.

The second relevant comparison is between the combined salaries of Nova’s executive directors and those of JSE-listed property companies. For this analysis, Nova's 2016 salaries and bonus payments are used as Profile Media’s information corresponds with Nova’s financial year. All UK-listed companies were excluded from the analysis, as well as a few local companies whose total board remuneration was less than R500 000. However, the average includes cases where individual board members did not receive any remuneration.

The Profile Media data shows that the four Nova directors’ combined salaries and bonuses of R15.1 million are extremely high. It is more than double the average of R6.1 million of the analysed companies and trumps the salaries of the executive management of blue chip companies such as Redefine, Resilient, Sirius and Arrowhead.




Company Name

Cash Salaries of Executive Directors


Stenprop Ltd.

R26 611 545


Tradehold Ltd.

R17 441 159


Nova Property Group

R15 083 101


Redefine Properties Ltd.

R14 019 000


Growthpoint Properties Ltd.

R13 102 034


Resilient REIT Ltd.

R11 119 000


Sirius Real Estate Ltd.

R11 015 179


Arrowhead Properties Ltd.

R10 473 605


Fortress Income Fund Ltd.

R9 512 000


Rockcastle Global Real Estate Company Ltd.

R9 469 262


Vukile Property Fund Ltd.

R8 700 392


Source: Profile Media (Excludes UK-listed property companies. Only 10 of 43 analysed companies are listed here.)




Impact of salaries on operational performance and ability to repay debentures

Haese also stated in the communication to debenture holders that the directors’ salaries have a “negligible impact on the company’s operational performance”.

Unfortunately, this is also not supported by facts.

A simple analysis shows that the directors’ cash salaries represented 9% and 11% of the total operating expenses in the 2015 and 2016 financial years respectively. The situation is even worse if it is compared to the company’s cash flow. Over the same periods the cash salaries represent 16% and 17% of all the cash the company received from customers, ie the tenants in the various properties.

This means that in the most recent financial year, the directors pocketed R17 of every R100 cash that was paid to the group, which has a significant impact on the company’s cash flow. In fact, the company has not delivered a cash positive operating result since inception. In the 2016 financial year the company saw an operational outflow of R26 million and since the scheme’s inception the total outflow amounts to R177 million.




2015

2016


Directors' cash salaries

R13 445 827

R15 083 101


Operating expenses

R147 548 533

R137 315 546


Salaries/expenses

9%

11%


Cash received from customers

R83 663 776

R86 568 329


% salaries/total cash receipts

16%

17%




Inevitably, this cash flow position affects Nova’s ability to pay debenture holders. It is, however, clear that directors pay themselves first, and then debenture holders. During 2015 and 2016 the directors’ cash salaries amounted to R28.5 million, while interest payments to 31 000 debenture holders amounted to R24.6 million. The Nova board also announced last week that it would stop interest payments to debenture holders.

Response from Dominique Haese, CEO of Nova:

Dear Mr van Niekerk,

It is regrettable that our efforts in engaging Moneyweb openly, constructively and in a bona vide fashion has not been reciprocated. In response Moneyweb has chosen to publish articles without prior reference to us, and in breach of your undertaking to allow us to see and comment on the articles first, which articles twist the facts, articulate a number of inaccuracies and untruths and seek to slander and defame the Nova Group and its directorate. We are considering our position and our rights in this regard are reserved.

It has become clear to us that any information that is provided by us to Moneyweb, will be twisted and used out of context for the purpose of further negative reporting of and concerning the Nova Group and its directorate and given that no further productive purpose would be served in engaging with Moneyweb, the Nova Group has decided to break off all forms of communication with Moneyweb. We will accordingly no longer respond to questions Moneyweb pose to us, requests for commentary on proposed articles or for that matter to any articles that Moneyweb might publish, subject of course to a reservation of the right to deal with any matter Moneyweb might publish, in a court of law.

Please ensure, should you elect to publish anything further regarding the Nova Group and any of its functionaries, that you include in such publication our above position, verbatim.

Yours faithfully,

Dominique Haese

CEO Nova Property Group

It is important to note that the Nova board did not respond to several sets of questions Moneyweb sent to the board prior to the publication of the first article about the directors’ shareholding.




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Saturday, November 26, 2016

Nova bosses take pensioners’ R1bn.....Sharemax !

Nova bosses take pensioners’ R1bn
Julius Cobbett 25 Nov 2016 00:00

Nova directors Dominique Haese and Connie Myburgh (pictured).
In 2013 a pensioner committed suicide by shooting himself in the heart outside the offices of failed property scheme Sharemax, starkly illustrating the human toll Sharemax’s collapse had on some 33 000 people. Their supposed rescue came in the form of Nova Property and its plan to recover much more of their money gradually than they would see if Sharemax was simply liquidated. Nova, though, was not a paragon of transparency. For three years it fiercely fought a request for supposedly public information from specialist financial website Moneyweb. 
This week, after finally getting access to the information through a Supreme Court of Appeal order, Moneyweb published details showing how Nova directors manoeuvred themselves into a R1‑billion profit on paper, at the expense of the original Sharemax shareholders. Moneyweb and the Mail & Guardian approached former journalist Julius Cobbett, who doggedly pursued the Nova story for years for his analysis.


It was supposed to be a rescue. Instead it appears to have been a self-enrichment scheme that landed four individuals — including two who were partly responsible for the need for a rescue in the first place — some R1‑billion, at the expense of 33 000 individuals, many of them pensioners.
Such is the distasteful situation at Nova Property Group, a public company that now owns a large portfolio of commercial properties that were originally sold to investors by Sharemax, a failed property syndication promoter.
In return for supposedly coming to the rescue of the original Sharemax investors, four Nova directors — Connie Myburgh, Dominique Haese, Rudi Badenhorst and Dirk Koekemoer — paid themselves R66‑million in salaries and bonuses over the past four years.
But this pales in comparison with the potential value of shares they awarded themselves in Nova. A three-year court battle to access Nova’s shareholder register has finally revealed that these four directors own 87% of Nova in equal portions.
The latest financial statements show that Nova has a property portfolio valued at R3.9‑billion and a net asset value of R1.2‑billion. This means the four directors own shares worth, on paper, more than R1‑billion. 
Nova chief executive Haese and her codirectors paid almost nothing for this enormous stake in Nova. The shares were in effect given to them for free.

To add insult to injury, two of the Nova directors who have benefited in this way were intimately involved with Sharemax before it imploded. Haese in particular played a pivotal role at Sharemax; she was appointed a director there in late 2006, was its financial director and, later, acting managing director until it entered business rescue. Koekemoer was Sharemax’s director of property management. He was appointed a director in November 2008.
When I petitioned Nova to view its shareholder registers back in 2013, I expected to discover self-enrichment. What I did not expect was the scale. Nor did I expect a three-year legal battle that led all the way to the Constitutional Court, before access to the registers was finally ordered.
While Moneyweb ran up legal bills to gain access to information that by law any member of the public may request for any reason, Nova’s directors paid the legal fees to defend that request out of company coffers, from money that should by rights have gone to repaying Sharemax investors.
For her part, Haese denies ever keeping the shareholder details secret — except from Moneyweb, which she accuses of having an underhand agenda.
That claim is remarkable, considering how surprised just about everybody was when the details emerged this week, including the likes of economist Dawie Roodt, who was involved in the Sharemax rescue before he fell out with Haese and Myburgh.
Haese also makes much of the fact that R167‑million has been paid to debenture holders — R86.6‑million in the form of interest and R80‑million in return of capital. But this is just a small fraction of Nova’s outstanding debt to these former Sharemax investors, which totals R2.5‑billion. If Nova continues to return capital at the same rate it has done in the past four years, it would take 125 years to repay its debt.
Foxes gain control of hen house
When Sharemax collapsed, investors were faced with the prospect of having their companies liquidated. They were prepared to vote in favour of just about any other alternative. Brokers also had a strong incentive to advise clients to vote in favour of a rescue scheme — any rescue scheme. To liquidate would be to accept that the investment they had recommended was a failure.
Myburgh and his codirectors took full advantage of this situation, knowing that a vote against such a proposal would be unlikely.
Myburgh crafted the scheme at considerable expense (in just one week he billed 102 hours at R3 000 an hour). It gave investors two options: accept shares in Nova, or debentures issued by a Nova subsidiary. Unsurprisingly, most investors chose the seemingly less risky debentures, which offered the prospect of some income and an enforceable claim against Nova.
Only about 2 000 of the 33 000 investors elected to receive shares. In the process, they surrendered Sharemax-promoted debentures worth R94.7‑million — which means they “paid” about 98c a share.
Another 2.2‑billion “B” shares were issued for free to the seven founding shareholders, which includes the four Nova directors. This was done in accordance with a single paragraph tucked away below a formula in appendix ARR8 of Myburgh’s 250-page rescue scheme document.
The paragraph states that the founding shareholders would receive all the Nova shares that were available to the 31 000 investors who decided not to exercise the option to swap their debentures for shares.
Since only 2 000 investors chose the share option and received 4.3% of Nova’s shares, the founding shareholders pocketed the balance of 95.7% without paying a cent.
Investors screwed, twice
Sharemax was started in 1999 by Willie Botha, a businessperson with a shady past involvement in the failed Oude Molen property syndication scheme. Sharemax sold its first property to investors for R9.7‑million. Over the next decade it would sell properties of ever-increasing value. It collapsed while raising funds for The Villa, an enormous, incomplete shopping centre east of Pretoria that had an estimated syndication value of R3.5‑billion. In total, investors poured R4.6‑billion into Sharemax-promoted syndications.
The concept of selling portions of properties to investors is a simple one. It ought to be a relatively low-risk investment. It is a concept that underpins some of the largest JSE-listed property companies such as Growthpoint, Redefine and Hyprop.
But right from the beginning there were warning signs that Sharemax’s business model was neither low risk nor investor friendly.
The scheme caught the eye of South Africa’s most celebrated financial journalist, Deon Basson. Basson, six-time Sanlam Financial Journalist of the Year, published many articles that were critical of Sharemax. For his efforts, he was sued in his personal capacity by Sharemax for alleged defamation. The case never reached court; Basson died of a heart attack on September 13 2008. He was 53.
It may be a stretch to blame Basson’s untimely death on the actions of Sharemax’s directors. But they certainly made his life miserable in its final years.
Basson had two main concerns about Sharemax’s investment model. First, the costs were unusually high. For every R100 invested in any Sharemax-promoted scheme, a minimum of R15 went to costs and commissions. The lion’s share of these exorbitant costs went to financial advisers — salespeople who were either too unqualified or greedy (or both) to dismiss the investment as inappropriate for their clients.
Basson’s second concern was more serious. Unlike conventional property investments, the Sharemax-promoted syndications didn’t simply pay net rental income to investors. It seduced them with an income that was higher than the rental the underlying property was able to produce. Just how Sharemax offered this tantalising return remains a secret.
But the most obvious answer is that money from investors in newer, ever-larger syndications was used to subsidise investors in older ones. Such a structure would be a classic Ponzi scheme — an opinion held by Financial Advisory and Intermediary Services (Fais) ombud Noluntu Bam, who has ordered several Sharemax brokers to refund their clients.
In any event, the entire Sharemax structure collapsed, beginning with the drying up of cash at its Villa development in September 2010.
The investors’ pain was felt as soon as Sharemax-promoted syndications stopped paying unsustainable high income that had been promised to investors. At least one of the 31 000 investors paid the ultimate price. In 2013, Villa investor Bohuslav Kautsky (67) committed suicide outside Sharemax’s offices in Waterkloof Heights, Pretoria. Kautsky’s daughter told Moneyweb that he wanted the directors to know the devastation they had caused.
What happens now?
Many investors have asked what happens now. It is encouraging that Nova’s auditors, BDO, have announced an “extensive investigation” into Nova’s affairs. Despite this, I expect the Sharemax saga to end in the same way as countless other dubious schemes have: with investors losing everything and zero serious consequences for the perpetrators.
Consider the words of Bam, who wrote in a 2013 determination against a Sharemax broker: “Let us look at the damning facts; in recent times South Africans have lost billions to failed investment schemes. In the Leaderguard scandal, involving forex investments, a staggering amount of about R380‑million was lost. In the Blue Zone property syndication, investors lost R450‑million … [and] an amount of about R300‑million was lost in the Blue Pointer scheme, and so the list continues. Incidentally, none of the perpetrators have been prosecuted, notwithstanding that this office reported some of these cases to the national director of public prosecutions.”
Nova declines to respond
Nova Property Group declined to answer specific questions or comment on this article more broadly. Instead it sent the letter below, which is reproduced in full. In the radio interview she refers to below, Dominique Haese said the Nova directors had acted legally, and that their potential profit from the company’s structure is “fully justified”.
“Dear Mr Cobbett
Your draft article contains numerous untruths, inaccuracies and negative innuendoes and goes no further than rehashing Moneyweb’s incorrect reporting, already responded to by the Nova Group on RSG Radio on November 21 at 6pm (refer to transcript available on Moneyweb’s website) and in the question-and-answer documents exchanged between Moneyweb and the Nova Group, which answers provided (prior to Moneyweb’s publication) the correct information to Moneyweb, only to be reported on incorrectly and out of context by Moneyweb (refer to all three sets of Q&A documentation attached to the Moneyweb articles on Moneyweb’s website).
Responding, effectively to Moneyweb, through you, is simply not the correct forum. Consequently we have no further comment to your email or draft article.
Please ensure, should you elect to publish anything, that you include in such publication our above response, verbatim.
Kind regards
Dominique Haese
CEO: Nova Property Group”

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