What Investec and Peter Gray knew and lied about in South Africa's second-biggest corporate fraud on record.
Yet again, we return to the subject: the strategies employed by Investec and its auditors KPMG with the help of Peter Gray to avoid being held accountable for Investec’s role in – and as a major beneficiary of – Brett Kebble’s theft of shares worth billions from Randgold, a company that Kebble directed.
Most of the stolen share sales were processed by a stock brokerage specially set up for the purpose in 2002 by Kebble and his close associate, ex-Société Générale (SocGen) CEO Peter Gray, in order to prevent these transactions from being scrutinised by outsiders (more below).
The proceeds of the sales of shares stolen from Randgold & Exploration Company (Randgold) were largely channelled through JCI, a company controlled by Kebble, but also through Investec Bank UK and various other illicit channels associated with Kebble.
To protect themselves, Investec and KPMG have jointly contrived to ensure that JCI never produced legally compliant audited annual accounts, as these would have to reflect a massive contingent liability to Randgold, and expose Investec and its appointed directors to huge damages claims, liquidation and possible criminal prosecution.
KPMG have throughout the saga also been the auditors of Investec which, as bankers, had been intimately involved in the affairs of both Kebble and JCI since 1997.
For the years 2006 through to 2012, KPMG racked up auditing and forensic fees from JCI to the tune of R93 million.
Despite an undertaking given by JCI in May 2016 that they would produce audited annual statements for JCI, no compliant audited accounts have been produced since then. None. So what’s the apparently insurmountable problem?
By mid-2006 JLMC, forensic auditors appointed by Randgold & Exploration – Kebble’s key victim – had produced eight reports in a row, detailing pretty well all that anyone, including KPMG, needed but did not wish to know about Kebble and his henchmen’s pillaging of Randgold. The Investec-controlled JCI board did not share this information with their shareholders for another two years. No reference was made to it in the annual accounts endorsed by KPMG, although KPMG was on each occasion careful to note that the accounts did not comply with recognised audit standards.
Randgold, the theft victim, controlled by an Investec-appointed board, only revealed the forensic report for the first time in July 2008.
On 24 September 2018 an inspector appointed by the Companies and Intellectual Properties Commission (CIPC) – the state agency charged with enforcing the provisions of the Companies Act – delivered a damning report dealing with the failure of the directors of JCI, a public company, to file the annual audited accounts required by law – since 2010. The inspector delivered a final ultimatum to JCI and its directors to deliver these accounts within six weeks, or face a fine of up to R1 million.
After securing various delays with promises to deliver these accounts if given some extra time, JCI’s directors finally undertook to produce compliant audited annual financial statements for the years 2013 to 2016 by 31 May 2019, and the years 2017 and 2018 by 30 June 2019.
They reneged on both, this time claiming that, despite their best efforts, it was impossible to meet the auditors’ requirements. They declared they were unable to establish and verify anything about the company’s affairs in the years when Kebble had perpetrated his spectacular frauds. And that this made it impossible for them to produce verifiable accounts, since the starting balances for each subsequent year were inevitably affected by the uncertain closing balances produced in the Kebble years.
In the High Court in Pretoria case no: 4976/19, Investec’s appointed JCI CEO, Peter Gray, declared under oath that he and the other directors knew nothing about what had happened at JCI in the Kebble era. (Curiously, KPMG refused to file a supporting affidavit.)
Gray’s plea of ignorance and innocence is most improbable, given the fact that Gray was a close Kebble confidant for many years and CEO of the stockbrokerage, set up by Kebble to handle his crooked share and forex dealings. In fact, it amounts to perjury.
He was hands-on CEO of T-Sec, the brokerage that handled the sales of the most shares stolen from Randgold and was in constant contact with Kebble. (More about that anon.)
We at Noseweek have asked ourselves: Why would Investec have wanted to appoint Peter Gray to their newly constituted JCI board, unless they saw him as having a shared interest in ensuring that their dealings with Kebble never got to court?
The main issue driving Kebble to the wholesale theft of shares that were then worth close on R2 billion from Randgold, another company that he controlled, was the predicament that Investec and two partner banks had got him into, by creating a so-called Western Areas hedge book to secure a hurriedly required cash injection. (See nose181: “How Investec scammed US-listed company” for an explanation of how the hedge book scheme worked.)
Bossie Boshoff a senior T-Sec employee and broker of 30-years’ experience relates in a statement to the police how, on one of Peter Gray’s regular visits to the dealing room at T-Sec (JCI/Kebble’s brokerage) in 2002, he had told Gray how shocked he was by what he had found on studying the hedge book deal: “I told him that it was my view that the three banks that set up the ‘syndicated’ gold hedge, had acted extremely recklessly and acted only in their own interest. This was the worst advice/action I had ever seen.”
Kebble was also CEO of Western Areas. JCI was a major shareholder, as was asset manager Allan Gray. Western Areas’ only asset was a 50% interest in South Deep, the ultra-deep gold mine then already known as the financial “black hole” of the gold mining industry because of its constant demand for additional capital – and failure to meet promised production estimates, year after year.
Most of the shares subsequently stolen from Randgold by Kebble were sold to fund, through JCI, Western Areas’ huge continuing losses on that hedge book created by Investec and its banker partners.
But what was to JCI and Western Areas’ serious disadvantage was hugely advantageous to the banks. They shamelessly creamed billions off their end of the deal, for as long as Kebble could keep it afloat.
Shortly before his death on 27 September 2005, Investec had leveraged a panic-stricken Brett Kebble into signing over to the bank most of JCI’s assets and the right to appoint all the directors of all three major companies he had controlled: JCI, Randgold and Western Areas, as a precondition to their granting JCI an emergency (and very costly) loan.
In this way Investec took control of the boards of companies in which it owned no shares and, in the case of Randgold, had had no prior business relationship. This entailed numerous obviously outrageous conflicts of interest. Investec’s long-standing auditors KPMG went along with the scheme, accepting appointment as auditors of both JCI (the thief) and Randgold (the theft victim). They were already auditors of Western Areas, one of the major beneficiaries of the frauds. KPMG had of course been Investec’s auditors since the 1980s. (KPMG would later also accept appointment as forensic investigators for both JCI and the Scorpions investigating the Kebble frauds.)
Particularly distressing to Randgold’s minority shareholders was that in 2010 Investec contrived a settlement deal between JCI and Randgold (The bank controlled both sides of the deal, remember.)
The supposed settlement deal purported to settle, inter alia, the R19bn damages claim that Randgold had against JCI resulting from the theft by JCI/Kebble of Randgold shares. In terms of the deal, JCI paid Randgold just R600 million and handed over 1.5 billion JCI shares.
The bundles of JCI shares were claimed in a JCI company circular to have a net asset value (NAV) of 19.68 cents per share and thus were worth R300m. (By implication the directors and their auditors had established enough about JCI’s affairs to be able to arrive at the net asset value of the company.)
The following year, no properly audited accounts were produced for JCI, but in a statement issued to shareholders it was said those shares by then had a NAV of only 5.38 cents per share. By July 2014 the NAV was down to 0.0087 cents per share – and still no annual audited accounts had been produced.
In effect, Investec had pulled off yet another fraud on Randgold’s shareholders.
So much, for now, about Investec’s involvement. What about JCI CEO Peter Gray’s knowledge of, and involvement in Kebble’s affairs prior to the latter’s death in September 2005?
Early in 2002 Bossau Boshoff received a call from his friend Peter Gray, then on a visit to Europe. At the time Boshoff was Head of Corporate Sales, Foreign Exchange at Société Générale in Johannesburg. Gray was a senior advisor to SocGen, his contract as CEO of the bank having come to an end.
Gray wanted to know whether Boshoff would join him at a stock brokerage, where he would be required to set up an international treasury. Gray confided that he was in Europe working on a deal to set up such an operation for a major mining house.
What it was all about would emerge when Gray got back to Johannesburg. The “major mining house” was Brett Kebble’s JCI. It would provide the financing to secure control of stock-brokerage Tradek (it later became T-Sec) to handle the business generated by Kebble’s mining interests that included JCI, Randgold and Western Areas.
|Brett Kebble and his father Roger Kebble|
Boshoff was surprised to hear this, as he knew that Kebble’s finances were in a sorry state. Kebble’s private company, BNC Investments, was already in default of millions of rands owed to SocGen, and was constantly the subject of discussion at the bank’s weekly management meetings.
Gray told him not to worry as Kebble had an art collection worth R100 million and, more significantly for our story, he also had “plans and arrangements in place to repay SocGen soon”.
First off, recalled Boshoff, Gray said Kebble needed his own independently controlled brokerage company where he could conduct his trades without the scrutiny of third parties. Its international treasury department would act as agent for JCI and would trade in the name of JCI/Western Areas.
Later in his statement, Boshoff reveals: “One day in the first half of 2003, Peter (Gray) came to me in the dealing room and informed me that he was employed on a contract basis by JCI for a couple of years. He told me that they are working on plans and that he will spend a lot of his time going down to Cape Town to meet with Brett Kebble. Peter instructed me not to reveal this information to anyone.”
Still further on he declares: “Peter (Gray) arranged with JCI for the release of all the shares that had to be sold. The relevant Randgold Resources shares were handed to T-Sec and one of its employees took them overseas… to be used as collateral before each transaction was done.”
Some time in 2006, Boshoff recalled, another T-Sec executive, Leonard Steenkamp informed him that he had been interviewed by forensic investigators.
“He (Leonard) said Peter had a shredding machine in his office and that no, or very few, documents were available at T-Sec with his signature on them.
“I informed him that Peter went to meetings at JCI on a daily basis and that he always told us ‘I am always busy looking for money for Brett Kebble’.”
Finally Boshoff states that when his marriage broke up in 2004, he had told Peter about a third party involved. “He told me I must give him this third party’s address. He said he had got to know very dangerous people through Brett. All they needed was the address. They would follow him and he wouldn’t even be aware of it. They would then ‘sort him out’.
“I told Peter he must forget about that.”
When, in 2006, SocGen demanded payment by JCI of an R80m outstanding debt, Peter Gray revealed himself as a true Kebble disciple. Like Kebble, he was now CEO of both Randgold and JCI. Without informing his fellow directors or shareholders, he stole (“misappropriated”) a final R80m from Randgold to settle JCI’s debt and save JCI from the risk of liquidation and the exposure so dreaded by Investec.
This was only discovered by Randgold’s independent directors in June 2008, when they received confidential advice from their attorneys Webber Wentzel of the damages claims they could validly issue summons for against the brokers T-Sec – and against their own CEO, Gray!
Adding fat to the fire, they learned soon afterwards that this confidential opinion had been leaked to T-Sec, presumably by Gray, warning them in advance of what was to come.
Outraged Randgold board members called a directors meeting on 25 June to vote on a resolution calling on Gray to resign from the board. Three of the five directors who attended voted for Gray to resign. One of those who opposed the resolution was the chairman, Dave Nurek (who happens to be Investec’s Global Head: Legal Risk). Nurek felt so strongly about the matter that he said he would be resigning – which he did on 9 July. Gray was forced to resign as CEO two days later. (He remains CEO of JCI.)
Gray’s misdeed only became public knowledge a month later when summons was issued in August by Randgold against T-Sec for R640m for share sales proceeds paid to third parties, and against Gray for the stolen R80m.
Randgold’s claim against T-Sec was settled for just R14m, and in a later supplementary settlement deal, the claim against Gray was waived as a condition of the overall settlement. He is, it appears, royal game.
That, dear reader, is the man Investec chose to be the CEO of both JCI and Randgold. You judge what he is likely to have known,and why he found such favour with Investec.
The directors Investec appointed
After the Kebble era ended, during the third quarter of 2005, JCI (the thief) and Randgold (the victim) had four common directors:
• Investec’s David Nurek, chairman of both;
• Peter Gray, former CEO of T-Sec, Kebble’s money-laundering stockbroker, the common CEO;
• Chris Lamprecht, Kebble’s finance man, the common financial director; and
• Chris Nissen, a non-executive director of both entities.
Randgold had one more director, Brenda Madumise. With the exception of Nurek, all Randgold’s initial post-Kebble directors were tainted by having in the past participated in frauds on Randgold. JCI had two further directors, both also directors of Investec: Peter Thomas and Donn Jowell.
Crucially, a few months later, on 17 November 2005, Investec’s Nurek joined the board of Western Areas.
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