17 June 2024 | 10:32 AM

R349m ‘stolen’ from pensioners in four days

Key Takeaways

Regiments Capital has agreed to an astounding R500-million settlement with the Transnet Second Defined Benefit Fund (TSDBF).

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Regiments is a financial services company that scored hundreds of millions of rands in business from Transnet with a leg-up from the Guptas and their associates.

The settlement follows the revelation of a previously unknown stratagem Regiments allegedly used to suck R349-million from the pension fund in a mere four days during late 2015 and early 2016.

TSDBF launched a R230-million claim against Regiments in the Johannesburg high court two years ago, charging that the firm had irregularly scored that amount in fees from dubious interest rate swap transactions concluded as part of Transnet’s tainted locomotive purchase spree.

The fund amended its claim a month ago, alleging that an audacious set of “bond churn” transactions were used to siphon off an additional R349-million.

The deals stem from Regiments’ appointment to manage Transnet pension money – a process the amended claim alleges was achieved with the help of Gupta influence on the TSDBF board.

In a nutshell, the “bond churn” entailed Regiments, as the manager of the fund’s assets, allegedly making the TSDBF buy government bonds from its subsidiary Regiments Securities. Then it would, on the same day, make the fund sell them back to Regiments Securities at a lower price. Regiments allegedly pocketed the difference as profit and the pension fund suffered a loss.

According to the new particulars of claim this led to easy profits for Regiments, and rapid losses for TSDBF, in the order of R348 577 524.66. TSDBF observes that the transactions “served no legitimate portfolio management purpose”.

The transactions were carried out on four days between December 2015 and April 2016.

The first one was a mere two months after Regiments was given control of R9 billion of the fund’s assets after initially managing only R1.3 billion.

This obvious conflict of interest for Regiments – serving as the fund manager and, simultaneously, the counterparty in the fund’s trades – follows a pattern set by the controversial swap transactions that Regiments carried out with fund money.

The fund alleges, with reference to the swaps, that “all of the defendants were aware of… the conflict of interests to which Regiments Fund Managers was subject” – but kept the TSDBF in the dark.

Regiments has not filed its defense against the TSDBF’s claims, but in what might be seen as a capitulation, the company’s two directors and majority shareholders, Litha Nyhonyha and Niven Pillay, signed a settlement agreement on 8 August. This was just over a week after the TSDBF amended its claim.

The R500-million that Regiments would now pay the TSDBF constitutes a smallish discount on the full value of the initial and additional claims.

Paying for secrecy?

The settlement is set to be paid with a chunk of the Capitec shares indirectly owned by Regiments. To be precise, it is selling the fund 810 230 Capitec shares while covering R500 million of the cost. The fund will in fact buy the balance of shares – at a 10% discount to the going market price.

Capitec’s approval is in fact a condition precedent for the settlement to go ahead.

What Regiments and its two remaining directors, Nyhonyha and Pillay, get in return is an end to all hostilities between the parties and settlement of all claims, including those against the two directors personally.

This explicitly includes claims related to the rate swaps, bond churn and, ominously, any other “known or unknown” claims that may arise.

Maintaining secrecy is a sub-theme in the settlement agreement.

The deal would suspend two anti-dissipation court orders that have frozen Regiments’ assets. These orders obtained by TSDBF also called on Pillay, Nyhonyha and Regiments to disclose all their assets.

They have not yet complied and this requirement will fall away under the settlement agreement.

There is also a standing “Anton Piller” order against Regiments, which has seen its records seized by the sheriff.

An Anton Piller is a court-ordered search and seizure operation, similar to what the police might carry out, but in this case obtained by the TSDBF.

A raid on Regiments was carried out in August 2018 but a court appeal has left this sensitive information locked up in a safety deposit box. The search warrant covered computer servers, desktops, laptops, tablets, portable information storage devices, flash drives, CD’s, DVD’s, stiffy and floppy disks, zip drives, data cartridges, memory sticks, mobile phones and SIM cards.

The settlement agreement will give Regiments back the key to this box and its contents.

They likely hold the secrets of how Regiments grew more than twenty-fold between 2013 and 2016 and also details of its dealings with ANC politicians, some of which have been exposed by amaBhungane.

The Wood factor

Significantly, Nyhonyha and Pillay’s former co-director Eric Wood is excluded from the settlement and might still be pursued personally by the TSDBF.

Former Regiments director Eric Wood

Wood retains an effective 32% shareholding, despite parting with Regiments in 2016 when he took the company’s advisory business into the Trillian group, controlled by Gupta business partner Salim Essa.

In an early-August affidavit in an unrelated case between the current Regiments directors and Wood, Nyhonyha claims that he and Pillay are engaging in various settlement negotiations to “right the wrongs of the past management”, clearly meaning Wood.

Wood, understandably, is not happy and has placed the settlement agreement in jeopardy.

He is seeking an urgent interdict against it, noting in his court papers: “The purported claims against me personally are not discharged by the settlement agreement.”

By contrast, he claims, Pillay and Nthonyha have proposed using company assets to extinguish all potential personal liabilities to the TSDBF.

This, he claims, is irregular in terms of the Companies Act.

Wood also suggests that Pillay and Nyhonyha want to settle in order get their hands on assets left in Regiments and also to retrieve the documentation seized during the Anton Piller raid.

He notes: “The settlement agreement specifically provides for the return of the documents seized in the Anton Piller order… The fact that such an order was granted confirms that Mr Nyhonyha and Mr Pillay will stop at nothing to destroy, conceal or alter documents if such a course of conduct suits their purposes and lends credence to the apprehension that not only will assets be dissipated but that Regiments Capital documentation will be disposed of or altered in a manner calculated to obfuscate their actions.”

Wood is also already trying to liquidate Regiments which would presumably at least get him some money out of the company’s demise before all its assets are used in settlements.

If it proceeds, the settlement will be close to the largest single repayment of the proceeds of state capture after consultancy Mckinsey’s offer to repay R902 million to Eskom and a court order in June that would force Trillian Capital (Essa and Wood’s offshoot of Regiments) to repay a further R600 million, also to Eskom.

Allegations of state capture on steroids

The new particulars of the TSDBF’s claim against Regiments purport to lift the lid on how the Guptas and their associates used Regiments to “launder” cash extracted from state-owned companies.

It claims: “The essential features of the money laundering scheme were known to Wood, Pillay and Nyhonyha.”

It says the scheme involved Gupta lieutenants Salim Essa and Ashok Narayan and other persons associated with the Gupta family improperly using their influence over state entities to procure contracts for Regiments.

In turn, Regiments would conclude contracts with Gupta front companies to pay a commission or share of the revenue if the business opportunity materialised. (Read amaBhungane’s earlier exposé on the same topic.)

In the specific case of the TSDBF, its new claim alleges that in 2013, Essa, Wood and Pillay attempted to procure the appointment of Regiments to provide investment management services to the fund.

It notes: “Regiments … did not disclose the existence of the money laundering scheme in terms of which more than 50% of the revenue derived by Regiments … would be diverted to a Gupta front company.”

The alleged plan to capture the pension fund took a year to implement between August 2014 and August 2015.

In August 2014 the board of the TSDBF resolved to appoint Regiments and another company to each manage a portfolio of approximately R1.3-billion of the fund’s assets.

But by December 2014, negotiations with Regiments had broken down “because Regiments Fund Managers proposed a higher fee structure than that which had been contained in their tender and then refused to co-operate with the Fund’s due diligence process or to participate in negotiations with the Fund when this higher fee structure was rejected”.

On 2 December 2014, the TSDBF board investment committee was authorised to engage with Old Mutual as a possible alternative to Regiments.

Then on 11 December 2014, Stanley Shane and Richard Seleke were appointed as directors of Transnet – and subsequently to the investment committee of the TSDBF, with Shane serving as chair.

Shane and Seleke would emerge as part of a cohort of new directors at state enterprises perceived as having ties to the Gupta network.

About turn

The particulars of the claim detail how Shane and Seleke’s arrival led to a 180-degree turn in the fund’s approach to Regiments.

According to the pension fund, Shane lobbied for the appointment of Marc Chipkin, his business partner in a small asset management firm, Integrated Capital Management, as his and Seleke’s advisor.

Shane then allegedly stalled the decisions on appointing asset managers for most of 2015 until, in August that year, Regiments was back in the game with Shane allegedly overriding concerns about the company’s performance and fee structure.

In the run up to that appointment, Regiments signed a deal with an apparent Essa front, Forsure Consulting, which Regiments agreed to pay 50-60% of its income from the contract.

The fund only discovered this when amaBhungane published leaked documents and emails, including the agreement, involving Regiments’ dealings with Essa. Forsure’s fees – half of Regiments’ monthly fees from TSDBF and 60% of any outperformance fees – were so extraordinary that Wood emailed Pillay to confirm if they were “as you agreed”.

Regiments’ initial appointment to manage R1.3-billion of the TSDBF’s assets was increased to R9-billion by October 2015, allegedly on Shane’s suggestion.

After its enlarged allocation, Regiments wasted little time in pursuing both the interest rate swap and the newly revealed bond churn transactions that may now cost Regiments R500-million in payback.

It is not the first time Shane has been linked to the Gupta network.

Integrated Capital Management, of which he was one of three directors, helped another Essa-linked company called Business Expansion Structured Products land a bloated payment from Transnet for China North Rail to move the production of locomotives from Gauteng to Durban.

AmaBhungane sent extracts from the TSDBF court papers to Shane and Chipkin for their comment. Their attorney responded that they “deny any wrongful doing of whatsoever nature” but that they would not engage because, based on previous dealings with us, they did not believe they would get a fair hearing. (Read their full response here.)

The role played by Seleke is not detailed in the particulars of claim other than to note he joined Shane on the fund’s board at the same time and was “instrumental” to the firm’s appointment of Regiments.

Seleke denied this, saying: “I have not favoured anybody whatsoever.”

He also questioned how, as a single board member, he could have influenced a majority to vote for Regiments. He said he did not recall being advised by Chipkin, and ended the call by suggesting that the media had a mandate to target him at all costs.

He followed this up with a lawyers letter describing the allegations against him as “unfounded and untrue” and threatening to sue for defamation.

Gupta-powered growth

Regiments was once a tiny boutique financial firm with three owners/directors, Nyhonyha,  Pillay and Wood.

In 2013, with help from the Gupta network, it started scoring Transnet work big time.

Back then Regiments had annual revenue of just over R26 million. By 2016 this was R605 million according to financial statements in amaBhungane’s possession. Regiments’ cumulative revenues from the state-owned logistics giant totaled just over R1-billion by 2016.

But in that year, Regiments split with Wood leaving it to found Trillian Capital, majority owned by Essa. He took the Transnet work with him.

Nyhonyha and Pillay now plead ignorance about most of the Gupta links to their contracts – the very links that secured millions in revenues for their company and sizeable dividends for themselves – and blame Wood.

If the TSDBF settlement deal goes ahead and they regain control of Regiments’ confidential records they may be able, as Wood suggests, to bury any evidence to the contrary.

Detailed questions were sent to Wood, Nyhonyha and Pillay last week. Despite repeatedly attempts, we have not received any response.

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Dewald van Rensburg and Sam Sole

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