Issue: December 2007/February 2008

This letter has been received from Mr Tony Mostert. It is published without any comment or attempt at rebuttal by Today's Trustee, whose rights are reserved.

Letter from A.L. Mostert & Company Inc Attorneys (PDF - 97kb)

Editorials

CURATORS’ FEES

Nice work if you can get it

Of the huge amounts that Ghavalas and his cohorts might have taken from pension funds illegally, a chunk of at least R26,5 million would already have been earned by the curators legally. Possibly, there’s more on the way. It’s one scandal atop another.

Mostert... contingency windfall

The word curator comes directly from the Latin where it means “guardian” or “overseer”. It also has to do with cura which means “care” or “concern”. In the much-vaunted “Ghavalas option” criminal trial, involving mega-millions of rand allegedly ripped from various defined-benefit pension funds including Datakor (TT Dec ’06-Jan ’07), for whom do the curators really care?

Obviously, for fund members and pensioners. Less obviously, for themselves as well. What they’re obliged to do (the former), and what they’ve managed to do (the latter), bang up against one another. The more they get, at a ridiculous extreme of excess, the less there is for pensioners to receive. By any reasonable measure, the fees curator Tony Mostert and his associate stand to gain are disgraceful.

Talk of mega-millions! Mostert and Tony Wandrag, formerly a partner in Mostert’s law firm, are entitled to pocket R26,5 million from the R106 million paid by Sanlam into two Datakor funds. Were these curators to succeed in their R304,3 million claim against Sanlam, their contingency fee would slightly exceed R76 million.

The third curator, Segopotje Mphahlele, won’t share in the largesse. Apparently, she’s entitled to remuneration merely at an agreed to hourly rate because she isn’t “actively involved” in the curatorship and viewed her appointment as a “learning opportunity”. Well, learn she certainly will.

It’s curious that Dube Tshidi, deputy chief executive of the Financial Services Board (FSB), approved the arrangement for Mostert and Wandrag to receive a contingency fee based on 25 percent of monies recovered. The recovery target being bandied is around R1 billion.

According to papers filed by Sanlam, in opposing the R304,3 million claim before the Witwatersrand High Court, the curators’ application to the FSB was made when the FSB had already agreed to advance them R1 million to help cover disbursements pending recoveries and R350 000 had already been recovered: “Mr Tshidi contended that the contingency arrangement was ‘ideal’ given the extent and complexity of the work and risks inherent in litigation.”

Here, without admission of liability, Sanlam unconditionally paid the curators R106 million in December 2006 on the assumption that it would quickly reach the Datakor pensioners in need. So there wasn’t much cause for risky litigation, let alone complex work that could justify a R26,5 million fee. The curators were little more than conduits for R79,5 million – the R106 million reduced by their 25 percent cut – to reach the needy pensioners.

The R106 million represented R44,1 million plus interest at 15,5 percent from November 1997. The R44,1 million was a dividend that Sankorp, then a Sanlam investment subsidiary, had received from the Datakor parent company.

Neither Sankorp nor Sanlam could have known at the time how the purported dividend had actually derived from a transaction between the Datakor and Lifecare funds. This transaction was part of an allegedly illegal scheme, to launder money through the Lifecare fund, for which Peter Ghavalas and others have been charged (see box). The FSB’s investigation, says Sanlam, led it to conclude that it should “in fairness” refund the amount by which it had innocently benefited. Out of “concern for the pensioners”, it wanted them to receive something more akin to the full R106 million.

The curators aren’t satisfied. They reckon they have cause to claim from Sanlam a total of R304,3 million, ostensibly equalling the Datakor funds’ total assets plus investment returns over the period had the R44,1 million remained in the funds. Unsurprisingly, Sanlam vigorously disputes their contentions; some, it says, are simply untrue and emotive. With fees like these, any further amounts the curators can recover in settlements or through judgments are dollops of additional cream.

Sometimes, when it’s less troublesome to agree to a settlement than to fight in court, harassment can pay off. In general terms, considering experience in the United States, a structure of contingency fees can lend itself to frivolous or even extortionist litigation.

Specifically in this instance, where a number of other pension funds were involved in the “Ghavalas option”, the curators’ claim against Sanlam for the Datakor funds might not be their last. Sanlam suggests that the FSB attempt to renegotiate the contingency fee arrangement with the curators and that, if it cannot be successfully renegotiated, the FSB applies to court for the curators’ removal and replacement.

With the interests of pensioners primarily in mind, the FSB should take the suggestion seriously.

BACKGROUNDER

During the 1990s, the Mitchell Cotts, Datakor, Sable, Picbel and Lucas industrial groups were wound down. The companies were left with few employees but large surpluses in their pension funds. These companies’ remaining executives were sometimes also their controlling shareholders, as well as trustees and members of their companies’ defined-benefit pension funds.

The central allegation is that, by employing the “Ghavalas option”, the few executives still in the funds were able to strip out the surpluses for their own personal benefit. To the extent that these surpluses can be recovered, and were improperly used, they’d be available for distribution (under surplus-apportionment legislation passed in 2001) to thousands of employees who’d been members of the funds since January 1980.

A number of individuals have been variously charged with money laundering, theft, fraud and conspiracy. Those out on bail include:

  • Peter Ghavalas, initially of Finansbank, which was subsequently absorbed into Nedbank;
  • Aubrey Wynne-Jones, head of his own retirement-fund administration company;
  • Peter Martin, formerly an Alexander Forbes actuary;
  • Neil van Hees, formerly an Alexander Forbes executive;
  • Gerald Nightingale, formerly head of Alexander Forbes subsidiary Investment Solutions;
  • Graham Sommerville, formerly chief executive of Lifecare and chairman of its pension fund’s board;
  • Anton Roets, formerly an executive of Sankorp (in the Sanlam group) and chairman of Datakor;
  • Michael McEvoy and Derrick Pettitt, respectively the former chief executive and financial director of Datakor;
  • Simon Nash, then chief executive of Sable Holdings;
  • Jan Pickard jr, then chief executive of the Picbel group;
  • Anthony Dixon-Seagar, then chief executive of Lucas Holdings;
  • Adrian Bailey, a remaining member of the Mitchell Cotts pension fund;
  • Brian Berry, a relative by marriage of Bailey and formerly of Arthur Andersen (later taken over by KPMG), which audited the Lifecare pension fund.

In August, Roland and Shirley Bailey (parents of Adrian) entered a plea bargain in respect of the Mitchell Cotts fund they controlled. They must pay the curators R21 million, for apportionment to the fund’s pensioners, and sacrifice their R20 million in pension benefits. It’s understood that, in terms of the settlement, Roland Bailey will appear as a state witness in the criminal trial to be heard during 2008.