Resilient’s own probe in the spotlight

All eyes are on whether the findings of the property group’s investigation into allegations of share price manipulation will corroborate that of market regulators.
The FSCA's Solly Keetse (left) and JSE's Shaun Davies (right). Picture: Moneyweb
After the publication of this article, NepiRockcastle sent following response:
NEPI Rockcastle Plc is a company listed on the JSE and Euronext Amsterdam. The company, whose shareholders include Resilient REIT (13%) and Fortress REIT (24%) is not controlled by any shareholder and has an independent board and management team. NEPI Rockcastle does not have any BEE structures in place, no ‘cross-holdings’ with any shareholders nor have any allegations been raised about its own accounting policies or management buying shares to artificially boost earnings, dividends or NAV. NEPI Rockcastle’s audited financial results for the year ended 31 December 2017 were released in March 2018. The Company’s auditors are PWC Europe and valuers are Cushmans & Wakefield and Colliers International.


It’s high noon for the Resilient Reit group of companies as it might reveal the much-anticipated findings of its board-mandated investigation into allegations of share price manipulation by key directors on Friday.

Resilient companies – including Resilient itself and its three sister companies Fortress Reit, Nepi Rockcastle and Greenbay Properties – have been in the spotlight due to allegations that their directors purchased substantial volumes of shares to inflate the price as the property companies have prominently featured on the best-performers list for many years.

Read: Why are Resilient directors snapping up shares?

Scathing reports by asset manager 36ONE, stockbroker Navigare and independent sell-side research house Arqaam Capital accused the Resilient companies of using their complex web of cross-shareholdings, black economic empowerment (BEE) partners, and questionable accounting policies to artificially boost earnings and dividend payments.

With more than R40 billion wiped off the value of the four companies, Resilient instituted an independent review to test all allegations.

The review will also look at whether Resilient’s cross-shareholding should be unwound and the merits of reconsidering its relationship with BEE partners, the Siyakha Education Trust.

A lot is at stake regarding the independent review – led by former auditor-general Shauket Fakie – as it could either clear Resilient of all wrongdoing or be the start of property group’s troubles if found guilty of shady behaviour.

So far, property baron and Resilient CEO Des de Beer believes that there is no wrongdoing and that the property group is under attack from hedge fund managers, which made a quick buck from shorting the four companies’ shares.

There are mixed feelings towards Resilient’s own investigation; with some market watchers expecting that it will be thorough while others believe it might be a whitewash.

Whatever the outcome of the independent review, Resilient is still facing two investigations from the Financial Sector Conduct Authority (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. It comes at a particularly difficult time as both regulators are under fire for having no teeth in imposing sanctions for wrongdoers and missing red flags on insider trading.

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.

Once the JSE completes its review to identify suspicious trades it would refer its findings to the FSCA, which would consider whether to investigate further. If adverse findings are made against Resilient, the company could take FSCA’s report on review with the regulator’s executive committee.

A lot of expectations

All eyes are on whether the findings of Resilient’s own probe and that of the Financial Sector Conduct Authority (FSCA) and the JSE will reach the same conclusions. Arguably the findings should be similar as the FSCA and JSE investigations will rely on – although not exclusively – the information provided by Resilient and its key directors.

Other information to be studied during the FSCA’s investigation include reports by 36ONE, Navigare, Arqaam Capital and even Resilient’s own findings to test them against the evidence provided by witnesses, said the FSCA’s Solly Keetse.

“We do our own independent investigation from what other parties may be conducting. But if Resilient conducts an investigation and they happen to avail that report to us, then we can use it as part of our evidence to arrive at a particular conclusion,” said Keetse on Thursday at a press briefing hosted by the National Press Club in Pretoria.

“We are not influenced by a piece of evidence as we have to weigh if it’s relevant. You may find the report produced by Resilient may not be relevant and we are not going to be swayed by that particular report.”

Keetse said that if Resilient’s findings contain factual conclusions, then the FSCA’s investigation might reach the same conclusion.

Although the Resilient board initiated the investigation – thus naturally determining the scope of investigation – the property company might not have access to all information resulting in its investigation not being wide enough, said Shaun Davies, director of market regulation at the JSE.

“We [the JSE] have access to all the trading in the market and identifying who the investors are and look at the share trade patterns. No listed company would have access to this level of information.

“It [Resilient] can look at the trading it’s aware of but wouldn’t be able to look at the information in the context of all the market activity. We have the benefit of identifying all the investors,” said Davies.

Given the disparities in the information access, Davies said the findings of Resilient and that of the JSE and FSCA might reach different conclusions. Ascertaining this won’t happen overnight as the FSCA’s investigation might take a long time to wrap up, he said.



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This update on the worrisome matter of Resilient and it’s three sister companies are a welcomed update, as the four companies self are very stingy in providing information on this troublesome matter.
One thing is certain, with the next set of financials the auditors will fine comb these companies to a level not done previously.
As long as the JSE and the FSCA as industry watchdogs do not exercise the full extend of the law and there are no serious consequences for over-stated profits, trading-manipulation and financial-abuse by directors and senior management of listed entities, I’m afraid we haven’t seen the end of corporate mischief in S.A. as yet.

End of comments.



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