Investec scores R2bn from Brett Kebble’s shady business empire, while lawyers walk off with a further R600 million of his tainted loot.
What was it that bound Investec so intimately to Brett Kebble, and why did the banking group take risks that (still) could cause it irreparable damage? The answer is simple: enormous splodges of wonga. Up to now, Investec has profited to the tune of R2 billion-plus from the Kebble saga, mostly brought to account after the wannabe mining magnate was fatally gunned down on 27 September 2005.
And that is only part of the story. In addition, the two “Kebble companies” that Investec hijacked under the thin veneer of a “rescue package” in August 2005 – JCI and Randgold & Exploration – have since paid just under R600 million to lawyers, auditors, directors and other “professionals” appointed at Investec’s behest.
The numbers are all in the public domain, audited and published. Why pay – and pay so handsomely – all these lawyers, accountants and directors? There are many possible reasons, but the main contender is “cover-up and keep them sweet at all costs” – with the subtext, naturally, of “paid handsomely, but not by Investec.”
More than half-a-billion rand stolen by Kebble was diverted to gold mining development company Western Areas, to develop South Deep, a new (then), ultra-deep gold mine west of Johannesburg. South Deep represented Kebble’s biggest personal investment, via shareholdings he held in JCI, which in turn held a major stake in Western Areas.
Kebble would do anything to protect South Deep, Western Areas and JCI. He sold half of South Deep in 1998 but by 2001, Western Areas was (once again) way out of cash. This time, it was talked into a “hedge book” that would give it instant cash. [For that sad story see nose181.] For now, just keep in mind that Investec held a third of the hedge book.
Investec had long had a close relationship with Kebble, periodically lending him substantial sums. Already in 1997, its CEO, Stephen Koseff, sat with him on the JCI board to keep an eye on things and to ensure that Investec’s loans were repaid from whatever cash became available. Thus, immediately the cash for the Western Areas hedge book was received in 2001, Western Areas paid off its debts to Investec.
In its annual report for the year to 31 March 2003, JCI disclosed that it had received substantial loans from Investec. It was as clear that JCI, as ever, had no recurring incoming cash flows.
From inception in 1997, indeed, the “Kebble empire” had been technically insolvent. [See the BNC Investments story in this issue.]
From 1999 onwards, it was a teetering stack of cards propped up with stolen cash. Investec would have known that the Kebble empire was horribly and permanently cash deficient – but that it had assets that could be cornered (“ringfenced”) to Investec’s great advantage.
It was also public knowledge that Kebble was a miscreant. Late in 2002, he was, along with certain others, indicted for alleged fraud, conspiracy, insider trading and incitement. This was sensationally reported in the media and was for years a major talking point in financial circles.
Instead of questioning where Kebble was finding hundreds of millions of rand in cash (if they did not already know), Investec continued to embrace Kebble as their favourite client.
Early in 2004, Investec embarked with Kebble on the OSLA (overseas lending agreement). At this stage, as had been the case for years, Western Areas, JCI and Randgold were listed companies that regularly published financial statements. A desktop analysis of those, even by a non-banker, would have concluded that the only Randgold Resources shares owned by the three Kebble-controlled entities – the shares he was selling in huge dollops to raise cash – were owned by Randgold.
Even so, Investec waltzed into a deal in which 5,4m Randgold Resources shares stolen from Randgold were sold by Investec on the London market for the benefit of various entities – other than Randgold. [See nose179 for a full exposé of Investec’s offshore money-laundering.] Investec had skin in the game: a portion of the proceeds from the sale of these stolen shares was to be used to repay JCI’s debts to Investec, debts which JCI had earlier been unable to pay.
So, back to the beginning: why did Investec elect to seize control of JCI and Randgold, when it could have limited itself to (very profitably) supporting just Western Areas? The answer, in a nutshell: to cover up the facts surrounding the OSLA.
Investec’s decision to take control of JCI and Randgold has created, over all time frames, one of the ugliest financial scenes in South African business history. And it's partner in crime: it's favourite firm of auditors, KPMG, whose outrageous conflicts of interest are the subject of special attention a little later in this story.
While neither JCI nor Randgold were ever operating entities, in the usual sense, both have coughed up hundreds of millions in professional fees since Kebble’s death. Among the results: Randgold (the victim) never sued JCI (or put it into liquidation), and Investec in London settled with Randgold (which by then was controlled by Investec) for zero, in a case in which Randgold had originally sued Investec for the billions of rand lost as a result of the theft of its share holdings. That's the advantage of controlling both sides in a game: you decide who gets to win.
For some of the most tawdry litigation imaginable, Randgold (directed by Investec) has over the past decade paid lawyers, auditors, consultants, directors and other hangers-on a sum total of R346m. The only value-for-money were the formidable forensic reports (costing a fraction of the total) filed by JLMC during and before March 2006. [See What some bankers and lawyers will do for money in this issue.]
Randgold’s legal fees alone over the past decade have been close to R130m. Far from benefiting Randgold, the lawyers involved have simply played to Investec’s tune of “protect Investec regardless”. These legal luminaries include Andrew Legg of Van Hulsteyns and Gerald Farber SC.
The auditors, too, deserve a special mention. KPMG, Investec’s long-term auditors, were appointed, of course, as auditors of both JCI and Randgold, just after Kebble was dispatched. Under the expert management of Investec and KPMG, Randgold delayed for years the disclosure of JLMC’s forensic reports which, in any event, were released in carefully redacted form to heavily downplay the role of Investec.
As auditors at JCI and Randgold, KPMG has scored fees of R91m over the past decade. JCI and Randgold have, in addition, together paid nearly R100m to KPMG consultants in “forensic and consulting” fees.
KPMG is everywhere and have scored hundreds of millions of rands more from other clients involved in the Kebble saga. These included Investec, Western Areas, SocGen Johannesburg (a major beneficiary of laundered stolen shares and cash), and T-Sec (the stockbroker that laundered hundreds of millions in dirty cash).
KPMG somehow also managed to get itself appointed by the now-defunct Scorpions,(a state agency established to investigate serious crime) to investigate the Kebble frauds. This investigation simply disappeared. Likewise, KPMG was appointed by the Reserve Bank to assist in investigating the illegal selling – in London – of shares stolen from Randgold. This investigation likewise simply disappeared. Given the huge conflict of interest, were these state agencies simply careless in appointing KPMG or were they part of the corrupt conspiracy?
KPMG’s only defence has been to dismiss all accounts of its role in the Kebble saga as “fiction”, while continuing to rake in nonfiction fees in the tens, indeed, hundreds, of millions, month after month, year after year.
And then there have been the directors. Over the past decade, JCI and Randgold have paid directors more than R150m.
Upon Kebble’s demise, Investec’s David Nurek was appointed chairman of both JCI (the thief) and of Randgold (the victim). The JCI board was quickly populated with other Investec puppets. Nurek was also appointed a director of Western Areas where, inter alia, he took over the remuneration committee and established a phantom share scheme that benefited the new chairperson, ANC deployee Gill Marcus, to the tune of many millions of rand. Marcus would later head up the Reserve Bank.
Back at JCI and Randgold, Investec, backed by Allan Gray, the Cape Town-based money managers, inserted Peter Henry Gray, the erstwhile CEO of T-Sec, as CEO of both JCI and Randgold. Since Kebble departed the world, JCI and Randgold have paid Gray close to R60m. Nice job if you can get it. But then he probably knows everything there is to know that everyone else should not get to know.
Entities with regulatory powers, such as the Financial Services Board, the Registrar of Banks and the Johannesburg bourse, have chosen to turn a blind eye to all of this.
Everywhere, professional reputations have been compromised – by huge amounts of cash. Noseweek has already reported extensively on the Randgold minorities case, where a number of shareholders are suing Investec for oppressive conduct. Investec is dragging the case out; already fees on both sides top tens of millions of rand, and the main case is yet to get to court. (See noses178&193.)
The lawyers being paid, and accepting millions, for this kind of conduct, include Tony Rubens SC, Jonny Blou SC, and a junior, Shanee Stein, instructed by attorney Harold Jacobs of Werksmans.
In most, if not all, senses, Investec has been operating in an increasingly unregulated environment. To revert to the OSLA, the device by which Investec London advanced JCI the equivalent of R271m in cash, against the security of (stolen) Randgold Resources shares: by the time the OSLA matured, the JCI board was fully under the control of Investec. The stolen Randgold Resources shares, still in the possession of Investec London, were by then worth around R700m. JCI, which had the right to buy back the stolen shares and its original selling price (and in the process profit by more than R400m) did nothing (under Investec's directkion. So Investec got to keep the shares.When they were sold, that profit went, instead, to Investec.
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