JOHANESBURG - Is there a stalemate situation in the VBS Bank fraud case relating to Insure Group Managers due to the diverse stakeholders?

VBS Bank was founded in 1982 and originally operated as the Venda Building Society.

In October 2000, it was granted a permanent bank licence and it is one of three mutual banks in South Africa. Vele Investments became a majority shareholder of VBS, allegedly through fraudulent means, in March 2017.

According to the newly appointed curator of VBS, Anoosh Rooplal, the former chairperson of VBS’s board of directors and also the director and group executive chairperson of Vele, Tshifiwa Matodzi, was the “controlling mind” and “main architect” behind the fraud scheme.

The three people driving the activities were Matodzi, Robert Madzonga and Andile Ramavhunga. Truter was the financial director at VBS.

Media24 reported the following on July 9:

"Matodzi instructed Truter and Mukhodobwane to facilitate the acquisition of Insure Group Managers for R250m with fictitious money. The imbalance in VBS’s balance sheet would then be fixed by having Insure deposit its real money back into VBS. The deal was done and the fake R250m ended up in an Insure account at VBS. From there it was paid out to other related parties, becoming real money. Vele, in effect, 'paid nothing for the investment' in Insure, claims Rooplal. Other Vele subsidiaries were bought in the same way.”

The Insure purchase immediately drew my attention.

Insure is said to control 75percent of the gross short-term premium collections in South Africa. These premiums are collected from various short-term insurance brokers and are then paid over to the Insurance companies. The size of the industry is estimated to be in excess of R120billion annually.

Handling amounts of this magnitude can only be done with robust systems, the highest level of integrity, efficiency, reliability, honesty and a host of similar best practices.

I asked the chief executive of Insure, Charl Cilliers, a number of questions relating to the transaction. Insure said the firm needed the VBS Curator to give them the go ahead to release answers. After delays of several days no answers were received.

Here are some questions posed:

* Was the sale in respect of the entire shareholding and loan accounts of the Insure Group? If not, what percentage shares were retained?

* What other material terms were negotiated?

* What was the effective date of the sale? On what date was effective control handed to the new owners of Insure Group?

* What pre-conditions were applicable?

* What role or roles was VBS Bank fulfilling in the transaction?

* Did the existing directors and senior management of Insure continue in the same roles and designations or were they replaced by new directors and or management. Is your web page up to date regarding your corporate information?

At this point it appears as if effective control over the day to day activities is still in the hands of the previous managers and shareholders. However, I am not sure as no answers were received. The transaction seems to have been concluded more than a year ago.

Some other questions remain unanswered:

* Was it a requirement of the sale agreement that premiums collected by Insure Group would be deposited with VBS Bank?

* If premiums collected by Insure Group were deposited at VBS what did these deposits amount to per month?

* If premiums were paid into VBS, were all the premiums collected and paid into VBS Bank duly paid over to the destined insurers?

During the same month in which the transaction to buy Insure took place, a deposit of R80m was made by Insure in VBS.

According to Rooplal, this deposit was for an unrelated matter. Money market operators with whom I spoke were of the opinion that a deposit of this size seemed extraordinary large for any investor to deposit with a mutual bank the size of VBS.

I have asked an attorney, Hennie de Klerk, from the firm De Klerk Mundelstam, to give a legal opinion on the following:

1) VBS granted a fraudulent loan of R250m to Vele Investments. Does this mean that the curator has the right to claim the R250m from Vele?

Answer: Yes

2) The R250m was tendered to Insure and a large portion, if not all of the money, was drawn by them. Does that, therefore give the curator the right to claim the R250m back from Insure as the money is seen as “the proceeds of crime”?

Answer: The claim for the money is against Vele Investments

3) Can the curator potentially claim the money and the shares and would it be the prerogative of the curator to claim the money and invite bids from the open market for the shares in Insure?

Answer: The curator steps into the boots of the board of VBS. He now brings an application to liquidate Vele. He does not become the liquidator of Vele as the creditors of Vele will approach the Master for the appointment of a provisional liquidator and after the second meeting of creditors to appoint a liquidator. The provisional liquidator takes charge of the assets and controls them on behalf of the company in liquidation. This would include the Insure shares.

At the first meeting of creditors the final liquidator will be appointed and he may approach the Master for directions to dispose of assets. The normal way of disposing of movable assets of a company (ie shares) would be to hold a public auction or a public tender. The liquidator may then negotiate with the highest bidder either at the auction or the highest tenderer to negotiate the price up or down.

It may be speculation at this stage, but I can foresee a situation whereby the previous shareholders of Insure may be the best bidders for the Insure shares at a substantial discount to what they received, being R250m.

I have also learnt that new legislation was promulgated last year and a prudential authority was established in terms of Section 32 of the financial sector (Fisra). The prudential authority started operating in April 2018.

National Treasury announced the appointment of Kuben Naidoo as the chief executive of the prudential authority. The prudential authority comes to fulfil one of two pillars of the new architecture for the regulation of the financial sector as set out in the Twin Peaks principle. It seems that an investigation in terms of Section 134 of this act has been instituted into the VBS saga. 

The implementation of the Twin Peaks model in SA has two fundamental objectives:

* To strengthen South Africa's approach to consumer protection and market conduct in financial services.

* To create a more resilient and stable financial system.

Considering the vast numbers of client premiums and the related vast assets covered in terms of insurance policies, handled by Insure, the sale of Insure Group Managers to new owners will come on to the radar of the prudential authority.

Should I receive the answers to questions put to Insure Group Managers, we will publish them and any further developments in this case.

There are various stakeholders in this situation and they will have a tough time to sort out who ends up with what is left, after serious erosion of value has taken place.

Corrie Kruger is an independent analyst.

The views expressed here are not necessarily those of Independent Media.

- BUSINESS REPORT ONLINE