STANDARD Bank has been ordered to hand over shares valued at more than R500 million and faces paying dividends and interest of what could be a further R200m to the under-curatorship SA Commercial, Catering and Allied Workers’ Union (Saccawu) Provident Fund following an “illegal” share trading deal in 2002
In an arbitration award this week, Judge Louis Harms ordered Standard Bank and Standard Corporate and Merchant Bank (SCMB) Securities to return to the curator of the fund, Tony Mostert, MTN, Naspers, Avusa and ElementOne shares to the value of R527m.
With unpaid dividends and penalty interest the total amount that the award will cost Standard Bank could be as much as R724m. The bank is studying the arbitration award and has not made any decision on an appeal.
Judge Harms said in his arbitration award that both Standard Bank and SCMB Securities were “grossly negligent” and “they took a calculated risk for commercial reasons in getting involved in the trading of these securities”.
He said the shares, which belonged to the provident fund, were not legally transferred to Standard Bank by the provident fund, because it was not permitted in terms of the rules of the fund.
The negligent deal was facilitated in the first place by WIP Capital and the Saccawu retirement fund administration company, both of which were paid commissions in excess of R4m each by Standard Bank.
The shares, which were originally Johnnic shares, but became the shares of other firms following a Johnnic unbundling, were lent by Standard Bank to SCMB, which in turn sold and transferred them as part of a hedging strategy.
The arbitration involved numerous technical issues on the ownership of shares at various stages in addition to the fact that they changed from being Johnnic shares into shares of other companies.
There were two reasons for the transfer: a securities lending and safe custody agreement to enable the hedging of the shares; and a pledge and cessation to cover the indebtedness of the provident fund and to recover any shortfall from profits made on the sale of securities.
Judge Harms only made an award for the return of the actual shares. He will make a final cost order on earlier court proceedings if the parties cannot agree. He did not make a specific order on the dividend payment, but he invited the parties to approach him if no agreement could be reached on the matter.
In an interview this week, Mostert said that the behaviour of Saccawu and former trustees of the fund had been scandalous in delaying and not assisting in making the recovery for members.
Earlier this year, Mostert was successful in a court application in preventing the Financial Services Board (FSB), with the support of Saccawu from ending the 10-year-long curatorship of the fund.
In that judgment, Judge Eberhard Bertelsman said the 90 000 members of about 1 000 participating employers with R5.4 billion in retirement savings needed the continued protection of Mostert, who was still to complete various claims including that against Standard Bank.
The FSB wanted the fund to be placed under the control of a new board of 12 trustees, of whom half would be appointed by the FSB and half by Saccawu. It would not be allowed to appoint former trustees.
The Saccawu fund was placed under curatorship by the high court in September 2002 after an application by the FSB on the basis that the former trustees, most of whom were appointed by Saccawu, did not act with due care and diligence in protecting the assets of the members. It was estimated at the time that losses could be as high as R1.7bn