In the wake of the findings by the independent review into the share trading activity of the Resilient group by former Auditor-General Shauket Fakie, which cleared the company of all wrong doing, we spoke to 36ONE Asset Management founder, Cy Jacobs, to get his reaction.
WARREN THOMPSON: In response to the Independent review conducted by the previous auditor-general Shauket Fakie into the Resilient Group, and specifically some of the trading in the shares that had been the subject of reports by 360NE, Arqaam Capital, Navigare I’m joined now by the founder of 36ONE, Cy Jacobs, in the studio to get his response to the independent review. Good to have you in the studio, Cy.
CY JACOBS: Thank you very much, Warren. Pleased to be here.
WARREN THOMPSON: Just to iron things out here, 36ONE has a position in the Resilient stable and some people will be saying, well, the only reason you came out with this report and you are carrying on like is because you have a vested interest. Just tell us – do you still have a short position in the Resilient stable at the moment?
CY JACOBS: We do have a short position. I think there’s obviously quite a distinct difference between the reason we are short. We have been quoted before as saying we are short because we are negative. We are not negative because we are short. There’s a real distinct difference, in our view.
WARREN THOMPSON: A couple of people have made the allegation this is a short-and-distort campaign you are running. What’s your response to this and, if you are not [running] a short-and-distort campaign, how does your position differ from that?
CY JACOBS:: I think, had we been one of those short-and-distort campaigners, it would have been pretty obvious that at the time of our report being leaked, we probably would have covered our position, much like what short-and-distort campaigns are about. If you look at our process, we have done proper fundamental work into the company, all aspects of all four companies, and we’ve had a short position for some time – even over parts of the previous years. And into this year we have a short position and we are still holding that short position. So yes, that short position has helped it slightly over the course of the period.
But we believe in our research and, as you can see from our report, and many other reports that are out in the market, there are many consistent themes that run throughout the marketplace.
WARREN THOMPSON: Primarily the independent review was commissioned in response partly – or mainly, I think – to your report. We also saw reports from other brokerages and houses that did not have positions in Resilient. But what did you make of the scope of the review that Resilient established to look into this?
CY JACOBS:: We found the scope to be far too narrow, first of all. It initially only was around a six-month period from July to December. Mr Fakie did however indicate that he had extended the period to the beginning of 2017. We still found that period to be inadequate as we believed many of the allegations we and other asset managers have made have spanned over many, many years.
Second to that, it is very difficult for Mr Fakie to have done a proper thorough investigation as he didn’t really have the tools to do that. We do know that the JSE and the FCSA, the old FSB, do have all those records at their fingertips. But it is impossible for the likes of Mr Fakie to get access to those records to ultimately do a proper investigation on the trading that has happened in these companies.
WARREN THOMPSON: So really the only way this should really be cleared up is by the likes of the JSE and the FCSA, in your opinion?
CY JACOBS:: Absolutely. They have all the tools and information and investigative abilities, and we do know they have been investigating these transactions for quite a while. They haven’t yet obviously come to any conclusions, but they have informed the market at the end of March that they were busy with in fact four separate investigations that are underway into the group.
WARREN THOMPSON: The review went on for about a period of six weeks. Obviously he was talking to executives at Resilient, he was talking to I think of some of the trustees of the Siyakha Education Trust, as well as ancillary parties and people. When did Mr Fakie get in touch with you?
CY JACOBS: To our surprise, given the fact at the outset it looked like the investigation was brought about because of ours and some other reports in the market, we would have expected Mr Fakie to contact us to discuss the contents of our report very early on in his investigation. Only right at the end of the six weeks – in fact, last Friday afternoon – Mr Fakie called me. I was away at the time. He then said to me that he had noticed my comments in the Financial Mail about our surprise that we were not interviewed. He offered to slip in an interview with me on the Monday afternoon. I was away and thought maybe at the time I could make a plan to come back for the interview. I subsequently sent a mail to him at 3pm that afternoon, which Mr Fakie said he never received at the time.
That mail informed him that we’d be very happy to meet when my counsel was back and my team to discuss the report on the following Thursday morning. I was then informed by him that he never received that email. I did send it subsequently to him – sent it twice more to him. He said he never received those either, but he did still agree to meet me on the Monday afternoon. I said that wouldn’t work for us, and he informed me that unfortunately time was up and he couldn’t wait beyond Monday afternoon, which I found quite surprising because it had been running for six week already; what would the difference be for an extra few days. We believed we had very relevant information.
Subsequent to that, on Monday we sent Mr Fakie a letter that we’d still be happy to meet on Thursday under certain conditions – a lot of those being around in fact widening the scope of the investigation and dealing with some of the other allegations that we had found in some of the research work we had done. But unfortunately when we noticed the Sens on Tuesday, which basically was just a summary of the findings, also detailing the fact that they were still happy to meet with us on Thursday. But we found that rather an empty invitation. Once the findings were out, and the Sens announcement made, we didn’t really feel there was any point in fact to meet with Mr Fakie post that announcement.
We also find it quite interesting that actually no report has actually been issued, but rather just a summary of the findings that are out. So we would look forward to being able to see what work was actually done, what investigative work was done around this report, and to see if there was really any real independent verification from third parties like broking accounts, etc, bank accounts, trying to follow the cash, to ensure if there were any trades that were maybe suspicious in nature.
WARREN THOMPSON: Just to get this right – he got in touch with you only on Friday afternoon for the first time?
CY JACOBS: That is correct.
WARREN THOMPSON: And then we had the announcement on Sens on Tuesday afternoon that the investigation had been completed. Why didn’t you want to meet with him on Monday? You said you were–
CYJACOBS: I was away. I was actually only flying back on Monday afternoon. The fact is that two individuals who compiled that internal research document and who had done most of the work into this group were also not available to meet on the Monday, and I thought there would be no point in myself just going to a meeting without being properly prepared. So myself, my counsel, plus the two individuals would have been available on Thursday morning to meet with Mr Fakie. The findings of the report were published soon after that on Tuesday.
WARREN THOMPSON: While I was interviewing him live on the radio yesterday, he said that he had received an email saying that you no longer wanted to meet. What was the basis for that?
CY JACOBS: Well on the back of the fact the report was now out, or the findings of the report were in fact out. Also, as I mentioned previously, we had sent a letter on Monday to say that we would meet with Mr Fakie, but now the investigation was already finalised. So the point of the meeting in our mind was rather pointless. And in fact we had put certain conditions in our letter to our meeting and there had been no response in respect of those conditions. So for both those reasons we really felt there was no point in pursuing a meeting anymore.
WARREN THOMPSON: Just coming back to the statement that was published, the summary of the findings of the report, what were your thoughts on that?
CY JACOBS: Well, I think the fact is we know what was in our report, and we don’t really find any information in that Sens announcement that leads us to believe that the details of our report were dealt with satisfactorily. Our report really had various aspects to it. Number one, it dealt with the extreme valuations of the securities relative to the tangible net asset values of the underlying properties. There was no mention of that, really, in the findings of Mr Fakie’s report, so I didn’t feel there was really any detailed work done around how those share prices came about and why this group trades at a very high rating relative to global REITs and local REITs.
Secondly, in our report we dealt with the accounting issues around a lot of interest income that was being accounted for in the income statement as a result of the loans made to the Siyakha Trust as well as to staff members. That doesn’t seem to be dealt with at all, but Mr Fakie did say he never dealt with the accounting issues, but at the same time does give some recommendations we believe to the board that may be around the Siyakha Trust, etc, at the end of the commentary in the Sens announcements.
Also we raised the issues of Mr Oberholzer and the trading around that. We still do not know what various investigative work was done around those various four K companies, why there were four K companies in the first place, why there was a funding arrangement with Mr Hafner. Mr Oberholzer had previously said he was the sole shareholder of these entities. We find that all really too inconsistent, and are not happy unless we can see the detailed work that was done by which company that would be available one day in the full report.
WARREN THOMPSON: The K2012 companies certainly continue to puzzle me, because it was to our request that we asked who the shareholders of that business were. Is that unusual? Cy, you’ve been in the market 20-plus years; have you seen arrangements where it appears that people are attempting to conceal their identities through vehicles and arrangements such as that?
CY JACOBS: I haven’t actually seen much like this, no. It is interesting, though, for the listeners, if they do go back to even previous articles – one was made by Noseweek in 2011 – it would seem that this type of trading activity within the Resilient Group had taken place before. In fact, there was a company identified called Amber Peak where Roque Hafner was the sole shareholder, and it was reported that moneys were lent to Amber Peak and Amber Peak traded aggressively in Resilient, Pangbourne Property Fund and Capital Property Fund, if I’m correct. That type of sequence of events seems to be very similar to what has happened now with Mr Oberholzer’s accounts.
And another issue we raised in our report, which is really not dealt with, is the timing of those transactions. Mr Oberholzer’s transactions in these K companies seems to take place very close before a capital raising is done on behalf of the group, and those trades take place in the company before those capital raises. Is that just lucky timing or is there something else behind that? We would have liked more investigations done around particularly the timing of those transactions before the capital raises.
WARREN THOMPSON: What’s your understanding of Mr Hafner and his relationship to any of the Resilient executives?
Who is this guy?
CY JACOBS: We’ve never met Mr Hafner. I was in my previous life an auditor with Kessel Feinstein. We did some work on Supreme Investments; we know that Mr Hafner was I think a financial director at the time of Supreme. Supreme in itself was found to be a very problematic business which was raising I think bonds from unsuspecting investors. There were court cases. I think Mr Hafner was in fact convicted, may even have gone to jail at the time. We don’t know much about that. That really was many, many years ago but at some stage there was a relationship between Des de Beer and Roque Hafner. That has been reported on as well. We are not sure if that relationship is still around or not. But it does seem very peculiar to us that the same type of trading patterns are still happening in recent times as have been reported on in the past.
WARREN THOMPSON: Mr Fakie did say that Mr Hafner had ceased a business relationship with Des de Beer, but obviously I’m not sure where else that relationship has gone. Do you know if he has any relationships with any other executives, with any of the executive team in the Resilient stable?
CY JACOBS: We are unaware. As I said, we’ve never met Mr Hafner and we are not sure of his whereabouts and we have only read articles that have been previously put out by other media companies.
WARREN THOMPSON: Just to round this off, Cy, where does this need to go from here? We’ve got protagonists on the one hand and there is now an independent review that has been conducted. You’ve aired your concerns about it. How does a company like Resilient have this cleared up? Who needs to do that and how do we sort the situation out?
CY JACOBS: I think what we need to wait for the investigation that is underway by the JSE and the FCSA. I’m not sure how long that will take but really, as I’ve said before, they have had all the tools at their fingertips and we look forward to that reviewing, I suppose, their findings, and seeing what their conclusions are. I suppose post that we’ll know where we stand.