Issue: April/June 2010
Jackpot is hit
Tread warily in trying to extract information on curators’ fees. There’s an awful lot of money involved and there’s a huge number of people affected; people often left in dire need by shenanigans that depleted their investments.
They rely for recompense – or, at best, partial recompense after fees – on the efforts of curators to extract recoveries from what can be found. Curators are appointed by the courts on application by the Financial Services Board.
As far back as June last year, TT began asking the FSB for details of curator’s costs. No response was received. When these questions were published (TT Sept-Nov ’09), DA MP Dion George put them in parliament to Finance Minister Pravin Gordhan.
On information supplied to him by the FSB, Gordhan replied comprehensively (see table). He noted that, with the exception of “the Datakor fund curators, who were remunerated on a contingency basis as there were no assets left in the fund from which to pay them”, all other curators are being remunerated on a fee basis in accordance with the norms of their professions.
He added: “Currently, the FSB has placed a cap on the fees of curators for an agreed amount per month to ensure that this remuneration is contained within reasonable limits. It is my view that we need to further review the system of compensation for curators, to bring it in line with more acceptable standards, and to reduce the incentive for stretching out the period of curatorship as they are paid at an hourly rate.”
The table should be read with three provisos:
The offer was made to Mostert, curator of “the relevant funds” as the Forbes announcement describes them, with the FSB’s sanction. These would be the two Datakor funds and one Cortech fund that had been merged into the Lifecare fund. The merger was pivotal to payout of the surplus from these funds in accordance with the illegal stripping operation masterminded by erstwhile merchant banker Peter Ghavalas.
The FSB investigation had uncovered eight stripping transactions. Various admissions of guilt, Ghavalas amongst them, have been finalised.
Importantly, Forbes received not a cent from any laundering operation. It acted as consultant, actuary and administrator of the Lifecare fund (which has nothing to do with the present Lifecare company). Were it to be sued, Forbes stated in its 2006 annual report, it believed that it was adequately covered by professional indemnity insurance. Its legal advice was that the insurers were unlikely to succeed were they to attempt through the courts to repudiate a Forbes claim.
Forbes was sued. Summons was issued by Mostert in April 2008 for R1,1bn, allegedly for the role Forbes had played (or failed to prevent) in the stripping operations. The matter was fought tooth-and-nail until new Forbes chief executive Edward Kieswetter moved to be shot of it with the “substantial written offer”. How much money is on the table?
Now for a little speculation. To the R1,1bn, add a few tens of millions for compound interest at 15,5% annually from April 2008. Then deduct a few tens of millions for the amounts so far recovered. Take off some more for Forbes’ good behaviour, in having “undertaken to assist the curator” (which means it will assist in recovery of monies from parties still in the firing line, one possibly being Sanlam whose dispute with the curator remains unresolved). And then deduct a few more millions because settlement offers are invariably less than full amounts claimed.
So let’s call it, for the sake of illustration, R300m that has been offered and will be accepted. Let’s say that the contingency fee for Mostert and his associates is capped at 15%, as opposed to the 25% he’s usually received. Such guesstimates would put his fee on this calculation at R45m, possibly with more to come from other recoveries where Forbes will assist.
Thus, to the total fees of some R96m shown in the table for Mostert’s curatorships since September 2002, the addition of R45m would take the full amount to roughly R140m. On this example, haranguing pays at a rate of about R20m a year or roughly double the average salary of a bank’s chief executive.
Before protests of unmitigated horror, or envy, bear in mind that Mostert acts on a contingency basis; no recovery, no fee. In other words, he and his associates bear the costs and the risks without which the recoveries for fund beneficiaries might have been minimal, perhaps zero. The higher the recovery, the higher the fee. And a contingency fee, depending on time expended, could be lower than its computation on the basis of lawyers’ and accountants’ hourly scales.
The settlement is no skin off Forbes’ nose if its professional indemnity insurance coughs up. But if it doesn’t? Forbes’ reputation is polished by the plaudits that met Keiswetter’s stated intent to “do the right thing”. Should part of the settlement also include the dropping of criminal charges against Forbes, held criminally liable for the unlawful conduct of three employees during 1992-97 when the stripping took place, so much the better.
Forbes said in its SENS announcement that, if its currently-confidential offer is accepted by the curator, the financial impact of the settlement on the group (net of anticipated recoveries from insurance underwriters) “is not expected to be more than the R50m in excess of provisions previously made”.
The contingent liability isn’t specifically disclosed in the 2009 report of Alexander Forbes Equity. It was then “not possible to . . . quantify the potential liability, if any. This matter is expected to be substantially covered by professional indemnity insurance and it is unlikely that it will have a material financial effect on the group”.
In due course, all will be revealed. The initial disclosure should be by Forbes. Although under ownership of an Actis-led private equity consortium, Forbes will continue to make its financials publicly available.
In any event, on curatorship matters that affect shenanigan victims, there’ll always be a troublesome MP prepared to question the Minister. Now that he’s sensitised to fees exuberance, a Forbes settlement out in the open will help to crystallise the review Gordhan seeks.
It’s not only about “more acceptable standards”, likely to be controversial in itself. It’s implicitly also about whether the balance between what’s paid to beneficiaries and what’s paid to curators is equitable, likely to be more controversial still.