Aurora’s stink gets worse

2014-09-14 15:00

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As allegations of insider trading emerge, the mine’s liquidators this week served a court application on former liquidator Enver Motala to recover R3m paid to him from Aurora’s accounts

The first conclusive evidence of insider trading for the benefit of Aurora Empowerment Systems role players has come to light.

This comes as the liquidators of Aurora this week served an application on former liquidator Enver Motala to reclaim the R3?million he was paid from Aurora’s accounts.

The Financial Services Board (FSB) has reached a settlement with Yaseen Theba, a member of the Bhana family, who had used inside information on promised Aurora deals to make quick money out of trading shares in Labat Africa.

Labat was a mostly defunct JSE-listed company in 2010. Aurora had intended to buy its listing and transfer Pamodzi and other acquisitions to Labat. Several million Labat shares were traded in the days before this plan was announced on February 4 2010.

Theba is Aurora adviser Solly Bhana’s son-in-law. He confessed to the FSB that he had used his inside knowledge of the impending Aurora deal announcement to buy 286?265 Labat shares at 10c each and sell them at 19c right after the announcement, making an easy profit of R24?143 on a R26?827 investment in half a week.

In a separate case by the Pamodzi liquidators two weeks ago, Theba and the rest of the Bhana family were ordered to repay about R16?million they had received out of Aurora in that period.

The FSB’s directorate of market abuse (DMA) published a settlement agreement it reached with Theba last week. He told the DMA he had “overheard” discussions about the imminent deal.

His share trading was relatively small and his fine is only R60?000.

In 2002, several of the Bhanas, including Solly’s son Fazel and his other son-in-law Feroz Essay, paid a R12.2?million fine to the FSB, also for insider trading.

The fine related to trades in July and August 2000 in shares of Amlac Limited, a now-defunct company.

FSB spokesperson Solly Keetse said Theba was the only one investigated for the trade in Labat shares.

But there is clear evidence other people involved with the company bought Labat shares at suspicious, or at least fortuitous, times?–?and on a far bigger scale than Theba.

One conspicuous Labat investor was Wadih Chammas, the son of Aurora auditor Tony Chammas.

According to the papers, Wadih was one of the early “members of the Indian community” to support Aurora by giving it the R1?million it needed to bid for the Pamodzi mines.

The Aurora liquidators are also due to claim money back from him in the coming weeks after a company he is believed to control, Woody Diamonds, allegedly received payments from Aurora similar to those Motala is being pursued for.

Share records show Chammas bought a large number of Labat shares, starting in October 2009, the month Aurora was appointed the preferred bidder for Pamodzi mines. Labat had announced in September 2009 it was in negotiations, which were probably with Aurora.

Chammas bought 7.1?million shares when they were worth about 6c each. By the time the Aurora deal was announced, he owned almost 5% of the company.

By July 2010, his shares were worth 17 times what they were before the announcement, almost R9?million.

Although Chammas held on to most of his shares until this year, he did sell almost 750?000 of them after the Aurora-Labat deal was announced, which would have earned him roughly R370?000?–?more than the cost of his initial investment in Labat shares.

This week’s court application against Motala says he and his father also bought Labat shares in February 2010. Motala bought 966?400 shares, which he later increased to 1.34?million.

Motala’s initial shareholding tripled in value between February and July.

The fact that Motala had shares in Labat might explain why he defended Aurora above any other possible bidder to the bitter end.

Aurora’s plan was based on buying out Labat and anyone owning shares in it stood to benefit from the good news around Aurora.

This week’s application relies heavily on testimony by Sandra du Toit, the Standard Bank transaction adviser who vetted Aurora’s financing arrangements for the liquidators of Pamodzi.

It mentions that Du Toit was summoned by the FSB to testify in an insider trading investigation around Labat, most likely the one on Theba.

According to Du Toit’s testimony, she had asked Motala about his Labat shares and he had told her he had the shares “for years”.

Share certificates proving he bought them in February 2010 have been annexed to the application.

Motala “actively vetoed any attempts by transaction advisers Standard Bank to dissuade Pamodzi to enter into the ITCMA [Interim Trading and Contract Mining Agreement] with Aurora, thereby negating any proper vetting by Pamodzi of Aurora’s financial capabilities”, reads this week’s application.

It quotes Du Toit’s testimony that Motala had, in an angry letter on February 11, rejected new offers for the mines. He said the liquidators “have a duty and an obligation, both morally and legally, to finalise the deals with Aurora”.

It took a year, up to January 27 2011, for the Aurora-Labat deal to finally unravel. On June 20 2011, the directors of Aurora stepped down as Labat directors.

On August 11 2011, Labat announced that two “reportable irregularities” had taken place during the Aurora directors’ tenure at the company.

The first was when someone tried to fraudulently cash a Labat cheque to pay an Aurora debt of R9?million. The second was when someone scammed an investor into paying $2?million (now valued at R22?million) into an Aurora account the person thought was going to Labat.

According to the Mail?&?Guardian, the second claim later turned out to relate to money paid into an account opened by Aurora director Thulani Ngubane under the name Labat Africa.

The case against Motala

The case against Motala is in the name of the liquidators of Aurora, not of Pamodzi.

They are asking the court to set aside payments made to Motala from Aurora’s bank account totalling R3?million in February and March 2010, meaning Motala would have to repay the money.

Motala gave the R3?million to Aurora on February 2 2010 without telling his joint co-liquidators about it.

He told City Press recently it was “of no benefit to him” and was meant to help the desperate workers of Pamodzi.

Motala is one of four “investors” who tided over the cash-strapped Aurora and who are still being pursued by the liquidators to repay.

The legal basis for the application is that the payments were made “in collusion” with the Motalas and the Bhanas who, in effect, controlled Aurora’s finances in a way that elevated Motala above the long line of other creditors.

The affidavit by Aurora liquidator Christiaan de Wet claims that Motala “enjoyed a hidden relationship” with the Bhanas.

They claim the Bhanas “obtained secret financing from [Motala] to retain possession of the mines owned by Pamodzi”.

Aurora took control of the Pamodzi mines in October 2009 with an offer of R690?million.

The contract was cancelled in May 2011, one week after Motala was removed as the liquidator after an inquiry by the Master of the High Court.

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