A commodity trading company recently acquired by JSE-listed shipping giant Grindrod has paid a private detective R5.5 million to “pilot” the criminal prosecution of one of its former executives – hoping to substantiate a R114m insurance claim. It makes for a chilling tale of back-stabbing and intrigue in corporate Joburg.

The company is commodity trader Oreport, a former Anglo-American sanctions-busting operation; the private eye is Dave Oswald, head of Forensic Restitution (FR), a Joburg firm that claims “a holistic approach to all aspects of suspected fraud or malpractice investigations” and whose clients include Johannesburg Water, the Road Accident Fund (RAF) and Hollard Insurance.

In the dock is Rudi Clayton, 52,  father-of-two, sequestrated, on bail of R50 000, and presently chief executive of a stainless steel manufacturer in the Arabian Gulf. He is charged with theft of R4.8m through unauthorised trading and his case resumes in Joburg’s Specialised Commercial Crime Court on March 30.

Rudi Clayton in the Arabian Gulf

However, aspects to the affair, mostly relating to a R114m insurance claim made by Oreport,  are so disquieting that public interest demands an airing before the trial resumes.

A threat by the arrogant and bullying private eye Dave Oswald to lay criminal charges of “aiding and abetting” if one single word appears in Noseweek, may not be idle. For Oswald rules at the police’s Commercial Branch in downtown Joburg. The office of Clayton’s arresting officer, Captain Joel Ngobeni, is festooned with Forensic Restitution corporate regalia – pens, mugs and writing pads – an FR T-shirt declaring “Fraud does not pay”.

And, should the good captain or his sidekick, Inspector Arthur Nkosi, look blank when asked a point of detail in the Clayton case, they can be forgiven. After all, private eye Oswald of Forensic Restitution – in the pay of Oreport – compiled the docket against Clayton for them. 

Just why is the Commercial Branch’s special investigator so desperate to keep a lid on the matter until, “we’ve got this guy [Rudi Clayton] in jail”?

Events leading to Clayton’s 2009 arrest make a riveting corporate cliffhanger. Clayton used to work for Columbus Stainless as a senior manager handling export sales. His ex-colleagues Ian Falcon and Huw Collett had joined Oreport, which they acquired with several other shareholders in a liquidation sale. In 2005 they invited Clayton to join them to import stainless steel, mainly from Asia. The vehicle for this was an Oreport subsidiary, Umngani Trading, of which Clayton was manager and sole director. He was never a director or shareholder of Oreport.

Umngani bought stainless steel from a Chinese company, Tisco, which enjoyed a generous 11% export rebate from their government (enabling them to win contracts by selling at cost and still make 11% profit). But around May 2007, this rebate was reduced to 5%. At the time Umngani was committed to supplying 4 300 tons of stainless steel to customers in Italy. And the Chinese were desperate to get this consignment out of China before the end of April to secure the full rebate. Clayton obliged, and the steel left on the Great Gain for Durban, with the Jolly Vrede commissioned for the onward leg to Genoa.

Clayton talked the Italian customers into paying upfront: some €13m (R142.7m). Then, fatally, he took his family off to Thailand on holiday. Shortly after his departure, one of the Italian customers, Otukumpu, refused, as a matter of policy, to pay for its 250 tons upfront. In response – the reasoning is not clear – Oreport director Huw Collett, who was managing things in Clayton’s absence, cancelled the Jolly Vrede and the entire 4 300-ton Genoa shipment. On 25 July 2007 Collett issued a directive: “No firm bookings or commitments to Italy until further notice”.

By the time this was sorted out and a replacement ship found in September, the price of nickel – a critical ingredient of stainless steel that represents 60% of its value – had slumped from $54,000/ton to $27,000. And since they’d paid the top price in advance, the Italian customers had lost €4.3m (around R40m at the time).

Umngani had another 2 963 tons of stainless steel to ship out of China. The same group of Italians agreed to take it, but this time refused to pay upfront, insisting on “Cash against Documents”. This means the customer pays for the goods at a bank, but only when the cargo has safely arrived. And when it did, the Italians, still furious about the loss they’d incurred on the earlier shipment, said they’d only take up the documents if they received a substantial discount.

Clayton wanted to keep the cargo in stock and trade out of the position if the market recovered. But by now it was the end of 2007 and Grindrod, which held 50% of Oreport, was poised to pay out R80m for the remaining 50% from its five shareholders, who included Collett and Falcon. The last thing these shareholders wanted was massive unsold stock on the books and a consequent reduced offer price from Grindrod for their shares.

At an Oreport board meeting attended by representatives from Grindrod, Collett, Falcon and Oreport chairman Brendan McIlmurray did not disclose that the potential loss had been caused by Collett’s cancelling the first shipment. They said the late shipment was due to lack of cargo vessels. The board ordered chief executive Falcon and Clayton to fly to Italy to sell the steel “at best”.

Despite Clayton’s protests, this is what happened. But to cover himself, at lunch in Italy on 11 December 2007 Clayton had Falcon wrote down the prices at which they would sell. They were below Umngani’s purchase price. Various sales were made, at a discount, and on their return to South Africa Clayton passed credit notes for the difference between the original and the new sales prices. “I had a cold shiver down my spine when Falcon told me to pass the credit notes,” recalled Clayton.

The result was a R38m loss to Oreport: a catastrophe for sharehold-ers, who had confidently expected 2007 to be a profitable year and had dished out generous performance bonuses. Future bonuses were scrapped to repay the ones received and after Clayton resigned the following January, Ian Falcon  informed him that his promised salary payments for February and March would be held back in lieu of the R280 000 profit share he had received on 2007’s expected profits.

Suspecting a problem in the company’s internal control systems, Ian Falcon called in Dave Oswald of FR. It was not long before Oswald discovered, quite apart from the R38m Italian loss, that Clayton had been trading on the side, at a profit to himself of some R4.8m. Clayton has since explained that he became disenchanted with the behaviour of the Oreport directors and planned to set up on his own (he registered a company named CSC – Clayton Steel and Commodities). He claims he never traded with Oreport’s stainless steel customers, but only in carbon steels.

Clayton’s attorneys advised him that although there may have been no criminal intent, he was in breach of his fiduciary duties as a director of Umngani, on which all his energies as a director should have been expended. So when a high court judge ordered him to repay the R4.8m in a civil action brought by Oreport, Clayton accepted the judgment. Not that he could repay the R4.8m – he had already hocked his Bryanston home to pay legal bills.

Meanwhile, Dave Oswald prepared a massive R114m insurance claim to Oreport’s insurers, Etana, part of the Hollard group. This claim included not only Rudi Clayton’s on-the-side R4.8m trading profit, but the R38m lost on the Italian fiasco. Along with the claim, Oswald attached a report attributing the R38m loss to Clayton.

This of course was nonsense. It had been Oreport director and shareholder Huw Collett who cancelled the shipment that resulted in the R38m loss after the nickel price collapsed. And it had been Oreport’s chief executive, director and shareholder Ian Falcon who had set the fire sale prices at that lunch in Italy, which precipitated the issue of the credit notes.

On 3 June 2009 Clayton was summoned to a meeting at Grindrod Bank’s boardroom in Sandton. There Collett and Falcon told him that if he signed an affidavit admitting that the R38m loss was all his responsibility, and that he had acted independently and without supervision, they would drop the criminal charge against him and would not press for the R4.8m civil judgment debt. The following day, Clayton attended the office of Oreport’s attorney, André Vos of Deneys Reitz, where he was shown a draft witness statement with his “confession”.

Outraged, Clayton refused to sign. He was arrested four days later by Commercial  Branch police. Private detective Dave Oswald accompanied police in a search and seizure raid on Clayton’s Bryanston home, personally seizing family laptops.

What are we to make of this? Clearly, Clayton had been a naughty boy trading on the side at Umngani and making that secret R4.8m profit for himself. But that does not make him responsible for the R38m Italian shipment loss. The clear inference is that Oreport’s directors hoped that if he accepted responsibility and admitted he had been acting independently, they might get that R38m back – and more – in their insurance claim. As well as secure the whole circa R80m price from Grindrod for their shares, if it could be shown that it was a rogue element and not the Oreport directors, who had messed up the Italian deal.

This theory gains merit when we speak to private eye Dave Oswald of Forensic Restitution. For Oswald denies that there ever was any insurance claim by Oreport for R114m! “No, the claim was for R5m, which is all they were insured for in terms of the policy,” he says. “Plus on top of that there was R250,000 worth of fee claims for preparation [for him, as part of his R5.5m fee].” He adds: “100% of the claim was accepted by the insurance company. They settled for all of that.”

Equally amazingly, Oswald says that the R38m Italian loss had never featured in the claim. “That is the amount of money in one deal that was lost by Oreport. And that was what facilitated the initial investigation. That’s all it did.”

A source close to Etana, Oreport’s insurer, flatly rejects Oswald’s version of events. Oreport’s initial claim, supported by Oswald’s own 100-plus page report, was for R114m, a loss the company had suffered “as the result of Rudi Clayton”. And it definitely included the R38m Italian loss.

“The original scenario for R114m was based on an entirely different set of circumstances, hypothetical bullshit quite honestly, which we proved beyond any doubt was absolute blatant bloody lies,” says the source. “The R38m was part of that R114m; the balance was absolute crap. This claim was rejected because it was entirely fictitious.”

So, again contradicting Oswald’s version, Oreport put in a second claim. This one was trimmed to some R43m, and it included Clayton’s R4.8m secret trading profit and the R38m Italian loss. “This was also rejected out of hand,” says our source. “Then they put in a claim for R5.25m and Etana made a commercial decision to settle. I think it worked out to about R4m eventually.”

Dave Oswald is clearly anxious that none of this comes out at Clayton’s forthcoming trial. And at least one lawyer believes that, should it emerge that Clayton received an offer that criminal charges against him would be dropped if he falsely confessed to the R38m Italian loss, then Oreport could well face prosecution for insurance fraud.

At the end of the day Oreport’s directors and shareholders lost out when Etna rejected their initial now-denied R114m insurance claim. And to rub it in, they also lost out on the sale of their remaining 50% shares to Grindrod.

Grindrod’s chief executive Alan Olivier, its head of trading Tony Stewart, and its group financial officer Andrew Waller all declined to speak to Noseweek, and – surprisingly for a listed company – the amount of shareholders’ money dished out for those remaining Oreport shares has never been revealed.

Oreport’s former chief executive Ian Falcon, now director of Steelcom’s South African subsidiary, Comsteel Trading, says he’s loath to reveal the price Grindrod was originally prepared to pay for the shares, but agrees that “about R80m sounds about right”. He admits the valuation was “obviously affected by what took place” and “we certainly had to revise our asking price down”. Falcon finally agrees that this reduction was “in the R38m sort of ballpark”. There was an initial part-payment and a balance earn-out over three years, the final payment being made in 2011. 

Noseweek awaits with eager anticipation the resumption of Rudi Clayton’s trial at the end of March.

In the meantime, Noseweek asks: is it in the interest of justice for the police’s Commercial Branch to be allowed to bring a case that is based almost entirely on a docket prepared by a private detective? What is more, a private detective like Dave Oswald of Forensic Restitution, who is retained and has already received more than R5m from a company which, before its now-denied initial insurance claim was rejected, planned to enrich themselves using a false confession, and whose thwarted directors seem now more motivated by hate and a lust for revenge than anything else.

As Dave Oswald declares of Rudi Clayton: “I really do want to see this bastard nailed and behind bars for ever and a day.”

Or, of course, things could go horribly wrong for Dave Oswald.

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