The JCI coverup, round 999

Investec continues to employ the Stalingrad Strategy to avoid being held accountable for its role in the Kebble frauds.

When lawyers refer to the Stalingrad Strategy as a defence, they mean wearing down the plaintiff by tenaciously fighting anything the plaintiff presents by whatever means possible and appealing every ruling favourable to the plaintiff. Here, the defendant does not present a meritorious case. This tactic or strategy is named for the Russian city besieged by the Germans in World War II.

Noseweek has reported endlessly over the past 15 years about the strategies employed by Investec and its auditors KPMG to avoid being held accountable for Investec’s role in and as a beneficiary of Brett Kebble’s theft of shares worth billions from Randgold. Most of the theft proceeds were channelled through JCI, a company controlled by Kebble and, effectively since 2003, by Investec.

To ensure no comebacks, Investec and KPMG contrived to gain control of both JCI (the thief) and Randgold (the victim), a shameless conflict of interest. They also, it seems, set out to ensure that JCI was never to produce proper audited annual accounts, as these would have to reflect a massive contingent liability to Randgold and its shareholders. This would expose Investec and its surrogate JCI directors to huge damages claims and possible criminal prosecution.

In 2016 disgruntled shareholders lodged a formal complaint with the Companies and Intellectual Properties Commission (Cipc). The Cipc investigator reported in 2018 that JCI and its directors had committed numerous “reportable irregularities” which its auditors failed to report. Their flauting of the law had adversely affected JCI’s over-4,000 international investors “and thus the reputation of South Africa as an investment destination”.

They were given 60 days to lodge fully compliant annual accounts for each of the years 2013-2018 and to hold a properly convened AGM for shareholders to consider these accounts.

JCI agreed to the order in a settlement agreement signed on 17 December 2018, but has since declared its intention to seek a court order condoning its failure to comply with the agreement’s time limits Ultimately they want the compliance notice itself set aside on the grounds that it is impossible for JCI to comply.

Their tendered explanation: “JCI held meetings with… [KPMG] who had been JCI’s auditors since September 2005 to talk over the preparation and audit requirements… [to comply with] International Financial Reporting Standards (IFRS)… The auditors had previously audited the group financial statements of JCI in respect of the financial years 2011 to 2016 (“the specified financial statements”), as “Specific Basis of Preparation Accounts” [i.e. they were not IFRS compliant].

“JCI assembled a financial team, comprising its internal accountants and external consultants to assist in the preparation of draft IFRS compliant JCI Group and JCI individual financial statements for the financial years 2013 to 2018. They worked tirelessly over many months to produce draft JCI Group and JCI individual financial statements that they believed would be compliant with the terms of the settlement agreement. JCI twice reported to the Commission (on 28 January 2019 and 26 April 2019) that it was confident that IFRS audited financial statements for the 2013 to 2016 financial periods would be delivered by 31 May 2019.

“On 25 March 2019 a draft set of 2013 accounts was provided to the auditors for comment. All 12 sets of accounts (Group and individual JCI accounts for 2013 to 2018) were completed and were ready for audit by 3 May 2019. JCI was confident this afforded the auditors sufficient time to meet the first deadline of 31 May 2019 for the delivery of IFRS compliant audited financial statements for 2013 to 2016.

“On 25 April 2019, the audit partner advised JCI that the auditors were not able to proceed with the audit. JCI immediately requested a meeting which took place on 2 May 2019 with the JCI accounting team and the audit partner.”

KPMG responded in a letter:
“It became clear to the auditors from these discussions and reviews… that JCI was still unable to consolidate all its subsidiaries as required by IFRS due to a lack of financial records…

“And since the opening balances for the years to 31 March 2007 were disclaimed, the opening balances as at 1 January 2013… cannot be verified to the satisfaction of the auditors.

“As JCI is still unable to comply with IFRS… the preconditions for accepting an audit engagement are not met and the auditors are unable to accept an audit engagement on that basis.”

Finally: “As shareholders are aware, the current Board inherited a company fraught with legal, tax and other problems created during the reign of Brett Kebble, its CEO, who was murdered, in an assisted suicide, in 2006.

“Kebble had been involved in fraudulent and corrupt activities utilising JCI as the conduit and his personal fiefdom. The Group’s annual financial statements for the years ended 31 March 2005, 31 March 2006 and 31 March 2007 contained a disclaimer of responsibility from the directors of the JCI Group that they were unable to substantiate the completeness and correctness of the information in those financial statements (‘the disclaimed AFS’). Accordingly, they declined to give an audit opinion on those financial statements. Subsequent group annual financial statements included information whose origin dated from or before the disclaimed Annual Financial Statements (AFS), or which had been computed in or based on computations made in the disclaimed AFS.”

And so KPMG found an excuse to cop out – over R100 million in fees later.

Next month: What Investec and Peter Gray knew and did.

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