A Pretoria law firm is being investigated after accusations that it plundered more than R200m in pension money belonging to municipal councillors.
Details of the alleged heist are laid bare in an affidavit in which the Municipal Councillors’ Pension Fund complains to the Law Society of the Northern Provinces about the conduct of Maluleke Seriti Makume Matlala (MSMM) Incorporated.
The affidavit is a summary of two investigations into the pension fund’s affairs. Financial Services Board (FSB) inspector Shirine Fraser conducted the first in May 2016.
The second was in February last year, after the FSB appointed a caretaker board to manage the fund’s affairs.
The FSB placed the fund under curatorship in December.
In May 2015, the law firm signed a yearlong contract to act for the pension fund. It is now accused of “taking advantage of the fund, grossly overreaching, [and] charging unconscionable, excessive and extortionate fees”.
The Law Society of the Northern Provinces has launched a preliminary investigation.
The caretaker board’s investigation and complaint to the law society states:
- Almost two years after MSMM paid R137m of the fund’s money to a company called Isago @N12 Development for 11 vacant stands in Klerksdorp, North West, the land is yet to be registered in the pension fund’s name;
- In March 2016, the fund’s board was misled into paying R70m for an office park costing R60m. The law firm paid R60m for the property and allegedly channelled the remaining R10m to other companies, without the fund’s knowledge;
- Of the remaining R10m, Ramabulana Management Services received R7.5m for “due diligence” and “risk assessment”, TLSZ Business Enterprise was paid R157 000 for “professional services”, while MSMM paid itself R2m for “legal transaction advice”;
- In 2016, the fund’s board paid Isago R64.7m for another vacant stand. The law firm allegedly bought the land for R44m and channelled the rest to other companies without the fund’s consent;
- The law firm charged the fund “excessive and exorbitant fees” when it invoiced it R34m for due diligence financial reviews on five asset managers.
In his affidavit, the caretaker board’s former chair Jan Mahlangu says: “The fund is of the view that it has been charged excessive fees by MSMM which bear no reasonable reference to the services rendered by MSMM in relation to the due diligence and the property transactions.”
In the complaint, Mahlangu asks the law society to discipline the firm and its chief operations officer (COO) Mxolisi Zwane, inspect the firm’s accounting records and affairs, review fees charged, and investigate Zwane’s business affairs and his interaction with the companies which did business with the firm.
ISAGO: THE FIRST TRANSACTION
Mahlangu alleges in his complaint to the law society that the 11 vacant stands the fund bought from Isago in 2015 had “not been transferred to the name of the fund”. The fund’s principal officer, Elias Msiza, told City Press this week that this still has not happened.
In its complaint, the fund states that of the R137m paid for the 11 stands, about R25m was paid to Isago and R106m to another law firm, Strauss Daly. Strauss Daly’s Steyn Botha said they acted on behalf of the bondholder, One Vision Investments 351, which “provided finance to the development company, Isago”.
“The loan was repaid and the bond cancelled,” he said. This suggests that the properties are now owned by another entity entirely.
THE OFFICE PARK
Mahlangu says in his affidavit that in December 2015, the pension fund’s board agreed to buy an office block for R60m. Earlier that month, the fund released a R7m deposit for the property to the law firm, “which is 10% of R70m, which was not the agreed purchase price”.
He says the firm was well aware that the purchase price was R60m. Ten days later, the fund paid R70m to the lawyers, who paid R60m to the seller’s attorneys.
The affidavit quotes Fraser’s FSB report stating that the former board was led to believe “that the fund bought the office park for R70m and the balance was distributed to the law firm, Zwane and his business associates”.
ISAGO: THE SECOND TRANSACTION
In January 2016, the fund agreed to buy another piece of land from Isago. It transferred R64.7m to the law firm, which paid R44m to Isago.
Of the remainder, R14.6m was paid to Ntumba Chartered Accountants, R2m to THL Investments and a further R2.1m to Samanzi Financial Services, the affidavit states.
The complaint adds that between February and June 2016, THL investments made five transfers totalling R1.25m with the description “Zwane” or “Samaz”.
One of the payment references reads “Mercedes-Benz C-Class M Zwane”.
Zwane, the law firm’s COO, was at the time also a director of Samanzi Financial Services.
Ntumba Chartered Accountants’ owner Thulasizwe Ntumba was a co-director at THL Investments and TLSZ Business Enterprise when THL made the “Zwane” payments.
THE DUE DILIGENCE
In May 2016, the fund asked the law firm to conduct a due diligence of local fund managers Sampada Private Equity, Mvunonala Asset Managers, Benguela Global Fund Managers, and offshore asset managers Novare Global Balanced Institutional Fund and Mayibentsha Investments. According to the fund’s affidavit, the law firm issued three reports about the local fund managers.
Mahlangu says it is unclear why a due diligence was conducted on Sampada because another company had already done it.
The complaint states the law firm’s “so-called” due diligence of Mvunonala and Benguela consisted of no more than two to three pages of “moderately valuable” information, for which they charged R9.9m.
The fund paid its lawyers a further R24.8m for due diligence on Novare and Mayibentsha. Novare sought a legal opinion on it, which stated it was “materially flawed” and should be “withdrawn in its entirety”.
The law society’s senior disciplinary secretary Marisca Jacobs said the fees assessment process began on Thursday. Depending on the outcome “a disciplinary inquiry may be held and an inspection of the accounting records may have to be conducted”.
Zwane said his firm carried out all the fund’s instructions, in accordance with the resolutions of its board of trustees.
While the firm was waiting to hear from the law society, Zwane said the pension fund’s complaint was “without merit”.
Isago’s executive director Martin Khunou said the fund approached them with an interest to purchase pieces of land in their development. “The transaction was executed legally through agreed and duly signed contracts.” He said he expected the law society to give his company an opportunity to respond.
Masala Ramabulana, former owner of the now-defunct Ramabulana Management Services, said his firm was not accountable to the law society and faced no complaint against it. He said they provided services to MSMM in the past and were under obligation not to disclose any confidential information. This was according to the SA Institute of Chartered Accountants’ code of conduct and the engagement letter they signed with all clients, he said.
Ntumba said his accounting firm provided various services to Isago, but never issued invoices to either the law firm or the pension fund.
He said they were unaware of any other payments from the fund relating to other services rendered at Isago.
“Ntumba understands that Isago pays all its creditors and suppliers from its pool of funds; and that it may make use of any attorney to transfer such funds.”
Of THL Investments, he said that company did not render any services to either the law firm or the pension fund. “Any questions which relate to this entity are irrelevant to the above-mentioned complaint.”
Of TLSZ he said the company “rendered services” to the law firm, and kept all its business matters and information confidential, in line with agreements it signed with all its clients.