Issue: March 2012 / May 2012


Now for the next

Phase II of Financial Sector Charter keenly awaited

With the first phase of the FSC done and dusted (TT June-Aug ’11), the second is due to be published for comment. It will deal with access to financial services, empowerment financing, enterprise development and some aspects of measuring black ownership.

Of particular interest to retirement funds, and institutional signatories to CRISA, is whether it will also deal with shareholder activism. This was a specific provision in the original 2004 charter.

As a refresher, it recognised shareholder activism to be a “critical component of continued confidence and long-term growth” of the financial sector. It also committed financial institutions to “encourage training and awareness programmes for all shareholders regarding the impact of indirect shareholding” and to “ companies or individuals voting on behalf of indirect owners”.

Further, trustees of pension funds were “encouraged to play an increasingly active role in promoting the objectives of the charter on their respective boards and in the entities in which they have taken significant investments”.

In case it isn’t in the new draft, here’s a comment in advance: Put it in.

Fidentia progress

The latest curators’ report on this asset-management stink shows a litany of litigation. It also shows that there’d been a R326m inflow of funds, about a third being from the sale of fixed properties.

Fees for the curators were R13,1m, for legal services R41,4m, and for forensic accounting services R6,9m. The curators are Dines Gihwala, no longer the chair or member of law firm Cliffe Dekker Hofmeyr (attorneys of record) and George Papadakis, a forensic accountant at Gobodo. The report doesn’t identify the law and accountancy firms which received these fees.

But it does indicate that Rudi Bam, fired as a JSE executive in 2002 and a Fidentia director in 2003, is getting few thanks as the purported whistleblower. The curators have a claim of over R9m against him.

CMM targets Absa

The curators of Corporate Money Managers have reported that its “sanitised claim balance” stands at R746,6m. Recognised in favour of Dynamic Wealth, which had invested a lump sum with CMM, is R168,2m that had so far allowed a dividend of R9,8m.

Since the licence of Dynamic Wealth to operate as a financial-service provider had been withdrawn (TT Dec ‘11-Feb ’12), the curators cannot make further payments to the Dynamic Wealth management. They’re trying to make “hardship payments” to individual clients.

The report to court last July was supplemented by a report to the Financial Services Board in November. It shows curators’ fees at R12,4m, consulting fees (including forensics) at R16,2m and legal fees at R27,1m. The joint curators of CMM are John Polson of Mostert Attorneys and Louis Strydom of PricewaterhouseCoopers.

In their court report, they said that they were considering a claim against Absa for its alleged “failure as a trustee to apply their minds to the nature of the assets and to the compliance or non-compliance with the Collective Investment Schemes Control Act”. If successful in their claim – they’ve been advised that “the merits are good” – they reckon that they’ll be able to pay “all the investors from the proceeds”.

In their FSB report, they said that the “anticipated action against Absa is in the process of being finalised”. The FSB says that it is “not at liberty to go into the details until a final decision has been made”.

Beneficiary funds

Fairheads, key player in an industry managing some R15bn of assets on behalf of orphans and children of single-parent families, is asking government to increase the majority age from 18 to 21 before lump sums can be paid to them directly from beneficiary funds.

At present, they receive lump-sum death benefits from retirement funds in terms of the Pension Fund Act. Accounts are set up in an umbrella beneficiary fund which pays an income to beneficiaries, usually their guardians, as well as capital amounts for such expenses as school fees. Once beneficiaries turn 18, they’re entitled to the remaining monies.

“On termination of an account it’s not uncommon for us to pay out R100 000 or more,” points out Fairheads Benefit Services director Giselle Gould. “Yet the reality of social and educational circumstances in SA means that the average 18-year old does not have sufficient financial maturity to invest or use such large sums of money responsibly.”

Nash’s stash

On and on goes the criminal trial of Simon Nash, charged with fraud and offences over stripping certain pension funds of their surpluses. No end seems in sight (TT Dec ’11-Feb ’12).

Latest development is a ruling by the Commercial Crimes Court that it does have jurisdiction to hear an application by Nash for a permanent stay of prosecution on grounds that the state, the Financial Services Board and attorney Tony Mostert had breached his legal privilege, so making it impossible for him to have a fair trial. The state had wanted Nash’s application heard in the High Court.

“The order sought is drastic and really exceptional,” remarked magistrate Paul du Plessis. “But the events that allegedly occurred are beyond anything that I have ever come across and there is no case that has been remotely similar.”

Nash’s lawyers will now issue subpoenas to FSB executive officer Dube Tshidi, Mostert and others allegedly involved in the breach. The matter will recommence in April, when the various parties will be required to produce documents subpoenaed, and adjudication of the trial-within-a-trial will resume in May.

Meanwhile, costs for both the state and defence continue to mount. The trial, for which Du Plessis was brought from retirement, has proceeded in fits and starts since 2010 and investigations long before. Jan D’Oliveira SC is no longer heading the prosecution team and the future at the National Prosecuting Authority of Glynnis Breytenbach, involved in bringing the surplus-stripping charges, appears for unrelated reasons to be uncertain.

No rush

What’s the upshot of the investigation into fruitless and wasteful expenditure by Mamodupi Mohlala, now head of the National Consumer Commission and former director-general of the Communications Department, when she was the Pension Funds Adjudicator? Will there be any recourse against her?

It’s still too soon to say. The report by Gobodo Forensic, completed last July, was presented to the FSB “for consideration of further action to be taken” (TT Sept-Nov ’11).

“The matter did serve before the Board when it met at the end of 2011,” says the FSB. “The Board requested a party referred to in the report to comment and will consider the report in due course.”

New determinations

From the office of the Pension Funds Adjudicator:

  • In the event of divorce, a pension fund cannot deduct a portion of a housing loan from a non-member spouse if the loan was not used for housing. The fund has a responsibility to ensure that a loan is used for the purpose that it was granted;
  • When deciding on the allocation of death benefits, there is no obligation on a pension strictly to adhere to a will or a nomination form. Acting adjudicator Elmarie de la Rey held: “The contents of the nomination form are there merely as a guide to the trustees in the exercise of their discretion.”