Wednesday, February 2, 2011

Seeff Properties shocker

Seeff Properties shocker
David Carte
02 February 2011

Class action threat after a horrible mess with Zimbali fractional ownership company.

JOHANNESBURG - Investors who bought villas under fractional title at Zimbali from Seeff Properties/Golf and Leisure Joint Ownership (Pty) are horrified to find their properties mired in debt.

They bought shares under fractional title on the understanding that once they had paid for their shares they would hold debt-free properties.

Now they have discovered that Seeff/Golf & Leisure did not use their share purchase money to pay off the bonds. The accounts of 40 companies in the development are a shambles and investors still owe an estimated R31m. Standard Bank is considering foreclosure.

Samuel Seeff, a director of Seeff Properties, founded and personally owned 51% of Golf & Leisure but sold his shares and has reportedly told investors neither he nor Seeff Property can take responsibility.

Moneyweb failed to reach him on Tuesday.

Mark Jaftha, an auditor appointed after things started to go wrong, has reported to shareholders that "there are no management accounts". From bank statements he will attempt to put trial balances together for the three years, 2008, 2009 and 2010. Then he will have to analyse each of 40 companies. He warns that a major difficulty is quantifying inter-company loans.

"We could have 1 600 loan accounts to reconcile over a four year period as every villa could potentially have a loan with every other villa."

A group of about 400 investors bought 35 villas in the Zimbali development. Each villa was owned by a different company. Investors who wanted fractional title bought shares in the company. Most of the houses were priced at R5m-R6m and one could buy as big or small a percentage as one wanted. In most cases there were 12-13 shareholders per villa.

A well-known fund manager has discovered that the company owning his property still has a debt of R1.6m after all the holders paid.

He told Moneyweb: "I took comfort that we were buying shares in a company. That seemed a better option than syndicated ownership, timeshare and the rest. I also took comfort from the Seeff name, which was more prominent than that of Golf & Leisure. Indeed, the sales were made from Seeff offices and my contract is on a Seeff letterhead.

"It congratulates me on my purchase and gives a reassurance: ‘It is specifically placed on record that in case the company has already made use of a bank loan to fund the development cost, the membership loans received from the buyer will be applied to pay back that portion of the bank loan linked to the buyer's shareholding and the buyer will have no further liability in terms of the bank loan'

"Now the company owes the bank R1.6m. I think that money was stolen."

"As we paid for our shares, Seeff/Golf & Leisure should have paid off the bond. I personally paid R200 000 for 5%, which would entitle us to two weeks of use every year. The houses were bonded but Seeff/Golf & Leisure were supposed to on-pay the money to the bank, so that we would have a bond-free property. They seem to have used the money to fund development.

"What is truly irksome is that Samuel Seeff, one of the family partners of this large and wealthy organisation, has distanced himself. He owned 51% of Seeff Properties/Golf and Leisure and now tells us he has sold those shares".

Another investor, Heinrich Pretorius, a professional accountant acting in his private capacity, managed to secure a meeting with Samuel Seeff and reported informally to the other shareholders.

He wrote: "Since the news around SFO broke I have been doing a lot of digging to get to the bottom of things and have been horrified at what I have found. I decided to share all the information I have with the rest of the investors to make sure we all have the full picture.

"A fellow investor and I met with Samuel Seeff today to discuss the past, present and future. All and all the meeting was conducted in quite a positive manner and at least it is clear Seeff is not just walking away from this issue but Samuel did state that the company is not in a position to settle the bonds.

The past:

"Seeff operates on a franchise/ licence agreement basis (this includes their normal estate agents business). Henri Greyling originally operated one of these estate agent businesses when he approached Seeff with the fractional ownership concept. Henri has been doing business with Seeff for about 15 years and actually until recently shared offices with Seeff in Cape Town.

"Golf and Leisure was started by Samuel, Henri and Stuart Manning and they were all directors and shareholders in the company. Samuel had a 51% shareholding. These shares were all held in personal capacity.

"Samuel and Stuart exited the company and gave up their shareholding after about six months due to some disagreement.....The parting of ways was apparently on good terms as Henri continued under the licence agreement with Seeff.

"Deloittes was the appointed auditor of G&L but due to some significant differences of opinion...they parted ways in Feb 2008.

"After a few months Pulker was appointed to perform the accounting and auditing function....To date no evidence has been produced that they actually performed the work they were employed to perform and were paid for as no financials have been produced for any of the villas. Pulker and Henri parted ways in May 2010 and Pulker took the various company records with them.

"We should strongly consider reporting them to Independent Regulatory Board of Auditors (IRBA)....

The present

"Seeff originally wanted to assist G&L to trade out of its position but based on advice of their attorneys, decided rather to sever ties and inform the investors. According to the attorneys, Seeff could have been liable under section 424 of the Companies Act if they got involved with G&L and were seen to be providing on-going support.

"Per Samuel, Henri had significantly breached the licence agreement and they were therefore forced to take away his licence, including his original estate agent business.

"Seeff then appointed Mark Jaftha as an independent "consultant" to produce and reconcile the financial records from the bank statements. Per Samuel, Mark is acting on behalf of the investors. Seeff is merely paying his salary.

"Currently there are 18 companies with bonds and 14 with none. The 14 in all probably will end up with an inter-company loan from one or more of the villas with bonds. In essence some of the villas paid for the completion and over-runs of other villas and therefore the existence of bonds.

"Part of Mark's investigation is to determine which company paid other companies what and who received cash from other villas. This is a tedious task, especially since it will have to be done from bank statements as there are really no other company financial records.

"Mark approached KPMG's forensics unit to assist in some of the reconstruction of the data and to vet the process followed by Seeff. Martin and I suggested that KPMG has to be involved and report on the outcome of the findings. Samuel committed to employing KPMG to assist and to give credibility to the process. Samuel has also committed to foot the bill for all the investigations required.

Financial position is as follows:

- Bonds R58m.

- Shares that can be sold R 8m (Shares in existing villas that has not been sold yet)

- Outstanding debtors R10m

- Undeveloped properties R 9m (to develop them will cost between R20-30m)

- Net loss +/-R31m

"Per Samuel, Seeff is not in the position to settle this debt.

"Seeff is however willing to act as agent to sell the undeveloped property at no commission.

"Seeff has received R250k from Henri for monies due to Seeff which Samuel has put in a trust account as he felt uncomfortable taking money before any of the investors.

"On this basis I suggest we continue working with Seeff until we have the full picture and all the accounts have been reconciled.

"Mortgages/ Bonds

"Samuel is meeting with the banks. He has already managed to meet with Standard Bank and they have verbally agreed not to call the bonds at this stage. They are however unwilling to freeze the bonds at this stage but have been capitalising the interest.

"Those of you who have taken out loans with G&L to pay for their shares should check who it is being paid to. It should probably also go into the trust account set-up by Seeff and not to Henri.

"At this stage there is no clear evidence that fraud has been committed. Per Seeff potentially. G&L at a minimum is guilty of gross mismanagement of our company funds.

"Samuel could not confirm Andy Parker's role in all of this mess nor on the status of the AVM. Those of you are not aware but Andy Parker used to be with G&L has now moved to Alpha Villa Management (AVM) as operations director.

"At this stage it is also not clear who actually gave the instruction to move the cash but we have requested Samuel to make this part of the scope of the investigation.

The future/ way forward

"At this stage I suggest that we allow Seeff and KPMG to complete the investigation (Probably May 2011) and only then decide on the course of action".

Pretorius advises that monies still being paid by investors should go into a trust account which should then be used to settle outstanding debt.

"We have also suggested to Seeff that an investors meeting should be set up once the findings have been finalised."

According to the irate fund manager: "Seeff is just as guilty as Wendy Machanik. I am a small investor in a villa, so I know all the facts. We all paid for a villa and Seeff left a R1.6m bond on the house which they did not settle. This is fraud or theft. Samuel Seeff is hiding behind ‘it was not us, it was a franchisee', but he held 51% of this in his personal capacity. Shocking!"

The fund manager is eager to start a class action. "This is one company against 400 individuals. I would not be prepared to spend R200 000 on legal fees for myself but I think if we get together, we could afford the best legal team going."

Samuel Seeff phoned me on Wednesday to "express disappointment" that I had not held the story until talking to him. He said depending on his PR advice he would see me face to face next week.

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