Johannesburg - Shocking widespread corruption, fraud, theft and mismanagement of hundreds of millions of rand at the Municipal Councillors’ Pension Fund (MCPF) has been referred to the Hawks by its curators. It has also emerged that the Financial Sector Conduct Authority (FSCA) blocked the SA Local Authority (Sala) from investing some of its R16billion assets in four companies, after it discovered that proper risk assessments were not conducted. Sala has about 20000 members, who are municipal workers.
Among the dodgy and highly irregular transactions MCPF curators Juanito Damons and Thabang Kekana have reported to the Hawks are the purchase of 11 vacant stands in Klerksdorp, North West, from [email protected] Development for R120m, and MCPF’s strange decision to pay about R17m in VAT for the deal, despite the properties being registered in the fund’s name.
The dodgy deals have been referred to the Hawks in terms of the Prevention and Combating of Corrupt Activities Act. So dire is the situation at the fund that the SA Local Government Association (Salga) has now asked the national government that the MCPF be merged with the Public Office Bearers Pension Fund, which caters for cabinet ministers, their deputies, premiers, MECs, MPs and provincial legislators.
Documents seen by The Star show that Damons and Kekana have instituted legal action to recover the R120m purchase price and the R16.8m MCPF paid for VAT, as no acceptable settlement could be reached with Isago for the repayment of the money. MCPF documents state that the 11 Isago properties were bought for over R137m, when they were valued at R46.6m - an overpayment of R90.4m. The fund also bought a 12th property for R65m, when its assessed value was about R40m - overpaying by R25m.
The Tshwane-based attorneys who handled the Isago transaction, Maluleke Seriti Makume Matlala (MSMM) Incorporated, have been referred to the Law Society of the Northern Provinces. MSMM allegedly charged exorbitant fees, taking advantage of MCPF by demanding “unconscionable, excessive and extortionate fees and in doing so grossly overcharging the MCPF”.
The law society has assured the curators that it will first assess MSMM’s fees before the inspection of the law firm’s accounting records. Salga chief executive Xolile George has assured municipalities that “no development would take place, until our monies are repaid”. Damons and Kekana have also referred the purchase of the massively inflated property at the Willows Office Park in Midrand to the Hawks.
An independent valuation of the office park found that its “forced sale value” was nearly R42.9m, while its “fire sale value” was R55.1m. “This is in stark contrast of the purchase price of R70m paid by the MCPF,” reads the curators joint report, filed in the North Gauteng High Court earlier this year.
The curators said the MCPF bought the Midrand property for R60m, but paid an extra R10m which the curators said was unrelated to the terms and conditions of the deed of sale. But the MCPF insists that the property’s assessed value was just above R40m - but R70m was paid for it. Three of the fund’s tenants at the office park owed over R1.3m in arrear rentals.
Last year, FSCA successfully applied for the MCPF - which has nearly 6000 members - to be placed under curatorship in the North Gauteng High Court. One of the curators, Juanito Damons, said he could only respond to The Star’s questions on Friday but did not do so.
FSCA again came to the protection of Sala’s R16bn assets when it blocked potentially reckless investments. The authority’s investigation into Sala’s books also uncovered that Sala principal officer Sipho Sidu had a “conflict of interest” with one of the would-be beneficiary firms.
The letter sent by FSCA’s divisional executive of pension funds, Olano Makhubela, in March highlighted the unsatisfactory manner in which Sidu was holding back on monthly reports containing the fund expenditures, fees and disbursements.
The letter was addressed specifically to Sidu, came when the fund was in the process of appointing a new board. “The board has been directed to suspend all processes pertaining to the implementation of its decision to invest in TWIP Infrastructure Fund; Tamela Capital Partners; Summit Africa; and NEP Property Fund; until such time as we have had the opportunity to deliberate on the matter and assess all information that was presented to the board.
“And which the board took into consideration relating to the proposed investments, including the minutes of all board meetings where these matters were discussed,” read the letter.
It further said the board did not perform due diligence, risk assessment, credit, market and liquidity risk checks prior committing to a third party investment.
“The board must avoid conflicts of interest. In this regard, it noted that the principal officer of the fund serves on the private equity team of Summit Africa. It is further noted that NEP Property Fund is managed by an associate company of the fund’s investor adviser, Novare Actuaries and Consultants, who were responsible for the identification, short-listing and review process,” stated the letter.
Novare Consulting’s former executive Johann Henn referred queries to the fund advisory chief executive Derrick Roper, who did not respond to questions raised. Sidu said they took the FSCA decision seriously and that they have not made any transfers to cited firms.
“The board takes the FSCA seriously as a regulator, and understands the different roles of both parties as provided for by the Pension Funds Act. The board has started deliberations on the issues raised by the FSCA,” Sidu said.
Tamela Capital Partners made three fundraising presentations to Sala last year, but said they never received feedback, according to managing director Sydney Mhlarhi. FCSA’s Makhubela said the decision to halt investments was to allow the new board to familiarise itself with the internal processes.
“Having considered the nature of the proposed investments, the regulator formed the view that the fund needed to conduct more in-depth due diligences, consider the investment risk profile of the fund and take into account any conflicts of interest.”