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Please pay your fine: Or else

While it’s a huge fine, still some questions about where it will go…

So two directors at the JSE-listed Huge Group – James Herbst, the CEO and the executive chairman Anton Potgieter have been slapped with a R5m fine: “…as a result of the breaches of their fiduciary duties as directors of Huge and their actions that had resulted in breaches by Huge of the Listings Requirements…”

I spoke extensively with the executives soon after the news broke earlier this year and they were adamant that they hadn’t done anything wrong. The technical details of the trade are complex and not being an registered JSE advisor, I wont go into the detail.

What I can say is that the JSE were tight-lipped about the trade and its own investigation and findings. I made several attempts to engage the JSE at the time, to no avail. So on Thursday last week the news broke.

A spokesperson at the Financial Services Board (FSB) suggests that the company had contravened the listings requirements of the JSE, something that the FSB doesn’t have jurisdiction over. In terms of the Security Services Act, the JSE is responsible for the listing requirements and as such, may apply a sanction.

Huge CEO James Herbst says that he will keep us updated should he and Anton (executive chairman Anton Potgieter) decide to make an announcement in their personal capacities.

Meanwhile Huge Telecoms says that it is pleased to announce that its dispute with the JSE has ended after the JSE announced it had imposed a public censure on the company, relating to the purchase of derivatives contracts in October 2008. It appears that the group is also pleased that no fine was imposed on the company. The company says that the board of directors will fully support Potgieter and Herbst should they decide to appeal against the penalties.

And then after months of silence, the JSE opened up. From the statement we received it appears that the JSE applied their collective minds to the matter, and went through all the correct processes to reach their decision.

So whether the directors decide to appeal the fine or not is really a moot point. What has yet to play itself out behind the closed doors of the corporate environment is whether the nature of the relationship between the two executive directors and the rest of the board and management has changed.

The bottom line is that the company’s two most senior executive directors have been found wanting in terms of their behaviour. And what about the relationship between the CEO and his management team? How are clients reacting to the news of the fine?

What is very clear is that investors and traders aren’t completely convinced, either way. The share price has been hammered, trading at a 12 Month Low of 28c on 28 Oct ‘09, coming off a high a little over 12 months ago of 300c on 11 Nov ’08. In the last two days of last week alone the share price has moved up 18%, although on very few trades.

Would you invest in this company? Would you use this company’s services? More and more questions than answers…

Speaking about questions and answers, and transparency, if the fine is paid, where does it go? Well, to the JSE. There is the guarantee fund. This is an off-balance sheet fund and thus not reported on in the listed entity’s results. It appears that the JSE guarantee fund is a separate structure and is managed as a trust fund.

The JSE Guarantee Fund on the other hand would protect the investor (secondary market) in the event that a broker defaulted. It appears that there are three investor protection funds on the balance sheet. According to the JSE the penalty is received in terms of their rules and can go either to the fund or to the JSE, and possibly to the surveillance department. A decision has not been taken on this, yet, says Freda Evans, JSE chief financial officer.

We are still trying to determine which asset manager manages the fund and where are the assets invested.

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New blog post: About ghouls, rapscallions and varmints

With apologies to ‘the vanishing pumpkin’ and kids’ book author Tony Johnston.

  The Friday blog on a cell phone short code platform looking for investors has attracted a fair amount of attention. It appears to be an alleged pyramid scheme built around a SMS short code platform.

  And then last night, while I was reading a book to my youngest daughter, it dawned on me that the almost all the characters in the book bear some similarity to the characters in the short code platform fairy tale.

  The story line is straight forward – it’s about a 700-year old woman and the 800-year old man (investors) and their search for a missing pumpkin (the R250k capital investment) on 31 October (Halloween).

  They meet Gert along the way in various disguises. Firstly, he is the ghoul, then a rapscallion and finally a varmint. The 800-year old man ‘does a trick’ on each of the characters in an attempt to find the missing pumpkin, but to no avail. Finally the group come across a 900-year old wizard (possibly a local regulator, either the FAIS Ombud or the FSB), who has the pumpkin, but it has already been converted into a candle-lit jack ‘o lantern.

  But where is the capital (the contents of the pumpkin), which the old couple wanted to convert into a pumpkin? Well, the wizard has carved it out and no doubt the curators have taken their share of the spoils for the work that they did, in carving out the innards.  Of course the old man and women are more than happy to share in some of the pumpkin, not realising that the entire pumpkin belonged to them in the first place.

  Back to the original short code platform fairy tale. What is strange is that while I copied the FSB on the email I sent back to the original sender, I have yet to receive an acknowledgment of receipt, let alone any attempt at action. In the mean time our friend Gert aka ghoul, rapscallion or varmint, could be making hay, fleecing gullible investors of any amount of hard-earned capital. What I did get though, is the start of an investigation by the cell phone network operator, who does take these types of issues rather more seriously, and has the staff to do so.

  What irritated me more though was that someone has sold my details to an unscrupulous buyer. There was no due diligence done by the seller and if there was, what would they have found? But I do wonder whether any of my human rights, and specifically my right to privacy, have been violated, and whether I can sue. But who would I sue, the alleged pyramid scheme operator – who has probably disappeared into the deep jungle, or the seller of my data?  Who would probably deny having sold my information, in the first place?

   Happy Halloween to those couples who don’t believe in fairy tales and to the ghouls, rapscallions and varmints out there, why not apply your minds to do some good and build wealth in your community and not attempt to destroy people’s lives.

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Is it a fish, a bird, or a plan, No it¹s possibly a pyramid scheme

If it looks like a fish, smells like a fish and wriggles like a fish…Then it probably is a scam. Does anything in this email ring alarm bells? The headline is catchy – Make R1m from an investment of R250k.

  “An exciting business opportunity is available that will earn you a great income in one of the highest income generating industries namely telecommunications. The platform is currently one of the fastest growing business marketing platforms namely SMS short codes. You will have the opportunity to become an SMS short code dealer and appoint your own resellers to target businesses that advertise their services to their clients on our SMS short code platform…”

  That’s for starters. As I read on, my blood began to boil, and then I stopped and decided to unpack the offer. Doing my due diligence and with my limited understanding of the telecoms sector.

  Lets start at the top:
Statement 1: Make R1million from an investment of R250k. This is great news for all those suckers out there. That’s a great return by any standards.

  Statement 2: You will have the opportunity to become an SMS short code dealer and appoint your own resellers to target businesses that advertise their services to their clients on our SMS short code platform. Your resellers can be people that you appoint or other businesses. Did anyone say pyramid scheme?

  Statement 3: The capital layout that is required from you is R250k of which R50k will be reinvested back into your dealership for training, advertising and marketing to get you launched and guarantee your success.  Excellent – so I get a R50k discount on day 1. So I’m only R200k out of pocket for 11 months.

  Statement 4: After one year you will have made back R300k and your income will be R50k per month. After 2 years you will have made back more than R1million because of recurring income. Great news. Great returns, and what mathematical formula was used to do that calculation?

  Statement 5: Make back your capital layout in less than 11 months. Again the mathematical genius at work here, pulling those greedy people in, gently, like an experienced fisherman.

  Statement 6: Only 24 dealerships available nationwide. So this is a limited offer, for those first movers. And yet a spam email was sent out. If the business genius gets 24 takers at R250k each that gives him a cool R6m, not bad for a the cost of a spam email design and the purchase of an email database. Another thought: So who is going to monitor that only 24 dealerships are sold?

  My conclusion – this is a great offer – If you are a moron. What is more concerning is that people will look at this email and think: “What the heck, let me call Gert and hear what he has to say… I can always say no.” That is where the trouble really starts.

  There is no doubt that Gert is a great sales person, he will have a high conversion rate, probably of 50%. And he will discount his initial offer until you take the bait. Simply by delaying the balloon payment from the beginning to somewhere in the 24 month period. My advice – Don’t call Gert…

  Attempts to get hold of Gert resulted in numerous dropped calls, and excuses about being in meetings. It might have had something to do with the fact that I didn’t allow my number to be displayed on the network.

  Let the investor beware and aware. I’m just saying, that’s all…

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New blog post - And now for the good news

And now for the good news… There is a dearth of good news this week.

  It appears that terminally ill brother to the country’s new spymaster Schabir Shaik,  has asked for a presidential pardon, and probably took the second prize, which was a ‘get out of fail free’ card instead. It transpires that the convicted fraudster and corruptor of morals applied to the very person whom he was found guilty of corrupting, for the pardon in April. You have to love the irony. The question is whether the favours for political power merry-go-round has finally come to a stop, or not.

  More good news is that Bafana Bafana players finally have nowhere else to hide, with the announcement that the country’s football coach has been fired, eventually, after failing to produce results to what can be compared to 8 quarters in business terms. If he was the CEO of a listed business his board would have fired him months ago.

  Now the players will have to start delivering on their mandate and start playing football, or else. Well, we aren’t sure what will happen. Fire the whole team, perhaps, and replace them with the under 12 A team from any junior school of your choice. As an ex national sports person we always took the blame when we didn’t win. And when we didn’t win for more than two games we changed the team, after identifying the problem. And the change usually made a difference.

  And good news for long-suffering investors, widows and orphans in the Ovation Global platform debacle involving Fidentia, is that there is an end in sight. The court took another step down the road when they gave any dissenting respondents two weeks to disagree and pay for the privilege. The not-so-good news is that investors could wait up to two months before they may get any sight of their investment capital. The catch, it appears is that the curators will keep around 10 percent to cover any residual risk.

  And finally, the FSB has announced that the media will be able to attend enforcement committee meetings where alleged wrong-doers will get their ‘time in court’, to coin a Selebi-ism. The reason the media weren’t given this opportunity in the past was because the FSB offices didn’t allow for a public gallery.  This should be fun. The media can watch as someone is found guilty, pays a fine and doesn’t admit guilt. Meanwhile across the ocean USA people are spending life in prison for ponzi schemes, and convicted insider traders get lengthy jail sentences. At least locally the media then have the option to publish pictures of the alleged non-criminals – in a name and shame game. And we all know how effective that is.

  Don’t you love all the good news?  Oh yes and good news for the long-suffering investors in Mutual & Federal, majority owner Old Mutual has finally decided to be done with all the pretence and take out the minorities, delist the insurer and refocus the business. And not a moment too soon.

  And more good news just in - Another Leaderguard broker was bust and told to pay back R600k plus interest to two pensioners whom he directed to the spot forex trader. That’s enough good news for now.

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New blog post - FSB invites journalists to insider trading meeting

New blog post: South African insider traders can’t hide any more

  D-Day for a designated advisor as the Financial Services Board (FSB) invites media to observe the insider trading committee at work.

  Spare a thought for the first man to be placed in the eye of the media as the FSB invites its large media database to a first. The invites went out on Friday morning and just for a second I thought it was a hoax. You see, the FSB has been offline for a while as they moved to new premises, so I had to treat the invitation with some suspicion.

  After clarifying that the invite was indeed legitimate I checked with their media spokesperson why they were inviting media now. Was this a special case, was the alleged activity that heinous. No – it appears it was a logistical issue.

  It appears that their previous premises, while they had working Internet connections didn’t lend itself to public seating. So now the media get to see the alleged non-criminals in the flesh. There is a catch though. It appears that the so-called Enforcement Committee operates like a de facto court. And we all know that the courts are open to the public, unless of course a particular case or issue is being held in camera.

  There is another far less subtle difference between the country’s courts and the Enforcement Committee. While they – the Enforcement Committee - can fine someone, and the person will pay the fine, there is no admission of guilt, and no criminal case.

  The media invitation must be sending shivers down the spines of any future non-criminals who have been tagged by the JSE surveillance department. There are a couple of outstanding cases that have yet to see the light of day. So no more anonymity for the white-collar criminals. The downside is that media based in Pretoria, a paltry 55kms away may have to pack a lunch box, spare change of clothing and water bottles for the trip beyond the so-called boerewors curtain.

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New blog post : I'm tired of insurance salesmen - The sharks are circling

Resolution Health is apparently bleeding and the sharks are circling. ACCOLADE FINANCIAL PLANNING SERVICES CC, FSP number 15810, is one such shark, telephonically speaking, and specifically one of their representatives – Allan Thiele.

  While I have nothing against a bit of free enterprise, although the sales tactic used by Thiele left a lot to be desired, claiming that by December Resolution Health will be out of business, and it is currently acting illegally. He was attempting to set up an appointment to sell medical scheme membership or at least medical insurance. While his sales approach is questionable, I let it go.  

  When he called back a second time and spoke to a colleague, pitching the same story, I admired his tenacity. But by the third call I was more than a little irritated, and requested his information. Which, to his credit, he did provide.

  It’s been a long time since I have seen such hard-core sales tactics, and considering the scare tactics used, he must have come from the used car sales sector. If Accolade is pitching for business in this manner one has to question their ethics, and whether there will be any real advice offered.

  Given the right to reply, Accolade MD Harry Kalligiannis explained that his representative was simply being a persistent marketer.  He didn’t apologise for the hard-core sales tactics, except to say that we wouldn’t receive any more calls from his brokerage. Thanks for that.

  In the era of consumerism and the Consumer Protection legislation, one wonders whether this behaviour will be tolerated? I sincerely hope not.

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