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The legal battle of the Financial Services Board (FSB) with its own deputy registrar of pension funds, Rosemary Hunter, is escalating, and financial services group Liberty is getting drawn into the fray.
The case centres around the closure of thousands of “orphan” pension and provident funds between 2007 and 2013, which Hunter alleges the FSB rushed through unlawfully by delegating the work to, among others, Liberty.
Apart from the process being questionable on legal technicalities, the nub of her allegation is that providers such as Liberty stood to benefit from the process because they could theoretically extinguish people’s claims against funds they administer or see that orphan funds’ assets end up in unclaimed benefit funds that they charge fees for.
A whistle-blower at Liberty has joined Hunter and alleges that the cancellation of funds was rushed through to meet targets with little regard for checking if the funds had assets or liabilities potentially owed to anyone.
Michelle Mitchley helped manage the cancellation project for Liberty, which in turn did most of the fund cancellation work for the FSB.
Mitchley was recently fired and claims that this was because of her support for Hunter’s case.
In an affidavit attached to Hunter’s latest court papers, filed last Friday, Mitchley said that Liberty appointed a contractor called K2B to deal with the cancellations.
It was contractually “incentivised to achieve the cancellation of as many funds as possible in as short a time as possible”, said Mitchley.
She said that she became “increasingly disturbed” about how the cancellations were being done.
The crux of the problem was that the funds’ finances were not properly checked before Liberty had the FSB deregister them, leading to funds with assets getting deregistered.
She laid an anonymous complaint through an FSB whistle-blowing hotline in 2011 and expressed her concerns to her peers and superiors, she said in the affidavit.
K2B’s staff also seemed to have close relationships with Liberty staff, she said.
Mitchley later apologised for making these allegations, but in her affidavit, she says that this was only because of pressure from her superiors – and an apparent promise of a promotion.
That retraction has been used by the FSB in its court papers replying to Hunter this year.
Mitchley’s affidavit mostly serves to retract the retraction.
Hunter’s original court application in January requested a court order to force the FSB to release two reports it had commissioned on allegations around the cancellations project – one by retired Constitutional Court Judge Kate O’Regan and another by auditing firm KPMG.
Last month, in a set of replying documents, the FSB made both reports public by attaching them to court papers, meaning that Hunter has essentially won half the battle.
The FSB also attached new reports it had commissioned from law firm Jonathan Mort Incorporated, which criticises the KMPG report.
No one knows what the potential damage, if any, to pension fund members has been due to the cancellations project.
The thousands of orphan funds were a legacy of the structural shift in the pension industry towards huge umbrella funds instead of a multitude of company-specific funds.
As small funds were closed, remaining assets got transferred to unclaimed benefits funds. The money in these has swelled from R6.2 billion in 2008 to R20 billion today.
No one’s assets disappear, but the onus of claiming owed monies shifts to the pensioner, who would often be unaware of being owed anything.
Hunter also alleges that companies such as Liberty could have gained from this process by charging fees on the unclaimed benefits and not going through much effort to find claimants on the funds it controls.
. The KPMG report last year, which Hunter set out to get a copy of, evaluated a sample of 510 of the 4 600 cancelled funds and found many flaws with the process. It found “on a balance of probabilities” that the FSB could not have known if the funds it was cancelling had actually “ceased to exist”.
. KMPG also found that the FSB could not have been certain “on a balance of probabilities” that companies such as Liberty, which handled the nitty-gritty of the job, did a proper job of protecting potential beneficiaries of the funds.
. The most important question is whether or not anyone was actually prejudiced. KMPG only found that its sample “on the face of it suggests a high likelihood of the existence of assets, liabilities and/or members at cancellation” for the majority of closed funds. It said up to R2.5 billion in assets was potentially affected in the sample alone, but admits that more detailed documentation is required to say for sure if anyone got cheated.
. The FSB got law firm Jonathan Mort to interrogate the KPMG report. It found that the R2.5 billion figure was an overstatement and that KPMG had conflated the “mere possibility” of prejudice with “reasonable probability”.
Hunter is questioning this alleged whitewash and wants the court to either defend the KPMG report or make the FSB do a new full-scale investigation.
Throughout the battle, Hunter has kept her job at the FSB. Her contract, however, runs out at the end of this month, meaning she cannot do anything with the reports she now has.
Instead, she will ask the Pretoria High Court, which will hear the matter in December, for a new order: a court-supervised investigation into the cancellations project to ascertain how many funds got deregistered while they had assets – and whether anyone suffered any kind of loss as a consequence.
