An independent investigation commissioned by Resilient has cleared the property group’s key directors and related parties of any misconduct relating to insider trading and share price manipulation.
The findings of the investigation – led by former Auditor-General Shauket Fakie and released minutes before the market close on Tuesday – exonerates Resilient from scathing allegations contained in reports by asset manager 36ONE, stockbroker Navigare and independent sell-side research house Arqaam Capital.
Resilient has been accused of using a complex web of cross-shareholdings in sister companies Fortress, Nepi Rockcastle and Greenbay Properties together with the purchase of a substantial volume of shares by directors and related parties to unlawfully influence share prices, create the illusion of liquidity and artificially increase the net asset values (NAV) of the four companies’ shares.
In addition, the authors of the reports had further accused Resilient of extending loans to its black economic empowerment vehicles like the Siyakha Education Trusts in order to charge artificially high interest rates that boosted earnings to Resilient.
However, Fakie’s six week-long investigation has found no evidence of any wrongdoing relating to the allegations contained in the three industry reports.
The investigation’s main findings are: “there is no evidence of executive misconduct and/or breaches of applicable governance rules and policies by Resilient, its executives and the Siyakha Trusts; there is no evidence of any market manipulation; and there is no evidence of any insider trading.”
Fakie did shed some light on the questionable share trading in the Resilient stable by four companies owned and directed by one Hendrik Oberholzer.
According to the findings of Resilient’s own probe, “Mr Fakie was informed by Mr H Oberholzer that an entity associated with Mr R Hafner is the financier of the four “Oberholzer K-companies” referred to in the reports. The ultimate beneficiary of the Hafner-associated entity is his family trust.”
Fakie had undertaken to meet with 36ONE Asset Management. This meeting did not happen.
36ONE did provide a short statement in reply to the release of the report:
“The report conclusions are surprising and inconsistent with our report and the reports of other asset managers. One must bear in mind that the scope of his mandate was limited and he did not have access to the trade data that the JSE and FSCA [Financial Sector Conduct Authority]. In addition, no investigation was done on property transactions by related parties.
No explanation is given why these companies trade at such premiums to NAV and are an aberration in comparison to their peers locally and internationally.
We have not changed our views. We were not interviewed. We offered to engage but we were told that there was no time to meet with us as he [Fakie] was under pressure to deliver his report. We are confident that the truth will come out.”
Given the severe allegations levelled against Resilient and its directors since January 2018 – which have wiped more than R100 billion off the value of Resilient and its three sister companies – some market watchers expected the independent review to be a whitewash as the scope of the investigation was limited in the first place.
An analyst, who didn’t want to be named, said the integrity of the investigation would be questioned as its scope was initially set by Resilient and Fakie, and its capacity to review individual share trades wouldn’t be thorough enough.
In fact, Resilient admitted to the latter, saying Fakie and independent advocate Tony Ferreira did not have access to the full set of records of Resilient’s JSE share transactions in order “to identify potential insider trading or share price manipulation, and not having the power to compel all parties who may possess relevant information to provide testimony or produce documents”.
“However, the board has done all it can to facilitate an appropriately thorough review within these limitations,” Resilient said.
The investigation relied largely on documentation provided by Resilient, interviews with its executives and associates, the Siyakha Education Trusts, and interviews with the sister property group’s executives.
Despite Resilient and its directors being cleared of any wrongdoing, two investigations are underway by the FSCA (formerly known as the Financial Services Board) and the JSE, which will both probe the trading of the company’s shares since the start of 2018.
The FSCA and JSE investigations are borne out of several parties expressing concerns about the share price volatility of the Resilient companies and whether there were suspicious trades.
All eyes are on whether the findings of the FSCA and JSE investigation will corroborate that of Fakie’s, as both market regulators will rely on – although not exclusively – the same documentation used by Fakie in their own investigations.
If Resilient is found guilty of market abuse, market manipulation or insider trading, it might face a capped (up to R1 million for insider trading based on the profits of the company investigated) or uncapped administrative fine or a criminal investigation by the National Prosecuting Authority (NPA).
If the matter is referred to the NPA, Resilient directors could each face a penalty of R15 million or imprisonment of up to ten years.
Resilient shares finished 2.3% higher to R69.44 on Tuesday.