Edition: May/July 2018


Horrible mess at Mvunonala

Another Fidentia wasn’t supposed to happen. But now the beneficiaries of mineworkers’ savings have been hit again.

There must be full accountability by the Financial Sector Conduct Authority (previously the Financial Services Board), and specifically by Registrar of Pension Funds Dube Tshidi, for the debacle in the Mvunonala group. It follows three successive blows to the widows and orphans of mineworkers.

In the first, such was the maladministration (if not looting) by subsidiary Bophelo Benefit Services (BBS) of the Bophelo Beneficiary Fund (BBF) that both had to be placed under curatorship. In the second, the curator lumped together the monies of BBS and BBF, apparently in contravention of the Pension Funds Act. In the third, these monies were deposited in VBS mutual bank (unlawfully if VBS was not an authorised depository) where they were frozen when the Reserve Bank put VBS into curatorship.

Should volunteered accountability provoke litigation, on behalf of mineworkers’ dependents who lose money, it will be a necessary consequence.

Alternatively, the launch of litigation would force accountability; not only by the FSB but also by attorney Juanito Damons as curator of both BBS and BBF. His dual role produced an inherent conflict that begs explanation, if not termination, because BBS and BBF have different investors and competing interests.

Damons was appointed at the behest of the FSB and, by law, operates under the control of the Registrar. The provident funds of Amplats and Impala, invested in BBF for payments to beneficiaries, might have preferred a different curator but weren’t given the choice.

Neither can they understand why, having long suspected leakages from BBF when beneficiaries weren’t being paid, a curator wasn’t appointed with greater urgency; and then later how the possibly unlawful placement of money into VBS took place. VBS is not registered under the Banks Act.

Irregularities at BBS and BBF, holding over R500m in mineworkers’ pension savings, had been investigated by the FSB a year prior to it taking decisive action. Having first appointed a statutory manager of both entities in May last year, it appointed Damons as curator a few weeks later (TT Sept-Nov ’17).

Earlier this year, Damons reported to the Registrar on the first phase of the recovery process: “The sale of shares in Mvunonala Holdings has now been made. The full amount of this purchase will be used to fund the shortfalls in both BBS and BBF.” He added that “the successful purchaser and shareholder is Vele Investments”.

Little is known about Vele. Its website is decidedly uninformative. Media reports indicated that it had paid R300m for the Mvunonala purchase and that it is the majority shareholder of VBS. In March, when the Reserve Bank placed VBS under curatorship, the Vele chairman resigned.

Whereas the Reserve Bank supervises banking, the FSB regulates such Mvunonala activities as insurance, asset management and administration of pension funds. It appears that myriad operations were comingled where they shouldn’t have been, and that the overlaps escaped the regulators’ attention for too long. Perhaps, looking only at BBS and BBF, they still do.

And this is despite the curator’s reports to the Registrar, prior to the VBS curatorship, which disclosed the co-mingling of BBS and BBF assets. Why did Tshidi not then instruct Damons to pull the money due to the BBF out of the BBS account?

Recall the Fidentia/Living Hands scandal a few years back. So outraged was the FSB that it led the charge for lengthy imprisonment of the Fidentia chief executive. More than this, to prevent similar damage being inflicted on widows and orphans, Tshidi himself was instrumental in the establishment of beneficiary funds.

The principle is that the assets of a pension fund are “trust property”. They are separate from, and must be kept separate from, a third party. BBF is a beneficiary fund. BBS, as the BBF administrator, is a third party. The interests of BBF and BBS are not one and the same, and neither is their money. Investors in BBF are members of pension funds. Investors in BBS are the shareholders or shareholder, in this case Mvunonala (now Vele).

To be the curator of one invites conflict with the other. But Damons appears not to see it that way. He reported that he’d been meeting with Vele, together with the major funds under BBF and some of the major trusts under BBS, to ensure that various funds and trusts are given assurances from Vele with whom they will be dealing once the curatorship ends.

Further, he said, no final allocation of funds recovered will be made to any fund or trust until all phases of recovery have been exhausted and final arrangements agreed between the parties.

Unclear is the “final arrangements” that Damons intends to make subject to agreement between the parties. Equally unclear are the identities of those parties.

But clearly, to the knowledge of the Registrar as per the curator’s report, Damons had decided not to allocate any of the proceeds from the sale of Mvunonala shares – intended at least partially for use in reduction of Mvunonala’s liabilities to BBF – until all phases of the recovery process had been exhausted.

By persuading funds not to terminate the appointment of BBS as their administrator, it’s implied that Damons is attempting to protect the interests of Mvunonala/Vele as the shareholder. This seemingly conflicts with his fiduciary duty as the BBF curator.

Conversely, had the BBF’s share of those sale proceeds been held separately from those of the BBS (to comply with the Financial Institutions Act) and in the custody of an authorised entity (to comply with the Pension Funds Act, assuming that VBS was unauthorised), the BBF may not have been exposed to the risk of loss resulting from the VBS liquidity problems.

But with the deposit of proceeds from the Mvunolala sale into a VBS account held by BBS, and the bank accounts in VBS now effectively frozen to prevent deposits of over R50 000 from being withdrawn, the risk of loss for BBF is real.

What, if any, are the liabilities towards administrator BBS and how did they arise? Damons doesn’t say. Neither does he say why proceeds from Vele’s Mvunonala purchase should be used to reduce liabilities to both BBS and BBF.

Nonetheless, there’s an apparent conflict in his decision to authorise the deposit into VBS under the name of BBS. This itself requires scrutiny under the Financial Institutions Act and the Pension Funds Act. BBS, through the curator, cannot cause BBF money to be invested in the BBS name rather than in the name of the BBF itself or in the name of a BBF nominee company.

It might be that, on a High Court application to set aside Damons’ decision to deposit BBF money in a VBS account on grounds of unlawfulness, an order will be granted for BBF to be paid the money. But then, presumably, the court would have to grant similar relief to municipalities also on grounds that their deposits into VBS were also unlawful (although under different legislation). To do so would defeat the freezing of accounts in VBS.

Where does this leave members of funds invested in BBF? Up the creek, quite frankly. Let it be repeated that the curator operates under the control of the Registrar. He has a lot of explaining to do.