Anyone who was hoping that the guilty parties behind the corporate fraud at Steinhoff would be locked up quickly should think twice.
That’s if a similar matter currently being heard in the High Court in Johannesburg is anything to go by.
Gary Porritt and Sue Bennett, the accused in the matter, were arrested in 2002 and 2003, respectively, but their criminal trial only kicked off in September 2016.
Since then, it has been progressing at a snail’s pace.
Tigon, like Steinhoff, was one of the top companies on the JSE when more than R115 million belonging to investors was lost.
According to the evidence of a forensic expert this past week, however, it was a house of cards from early on.
As was apparently the case with Steinhoff, Tigon’s top dogs allegedly transacted between a complicated network of subsidiary and external companies, and, in one case, allegedly increased the value of trademarks by more than R1 billion.
Porritt, originally from Pietermaritzburg in KwaZulu-Natal, and Bennett, who lives in Knysna in the Western Cape, are facing accusations of fraud, corruption and infringements of the Income Tax Act and the Companies Act.
The prosecution is being funded by the SA Revenue Service (Sars), which argues that the state may have lost out on taxes to the tune of more than R1 billion.
Porritt was the CEO of Tigon and Bennett was a director. The two were also romantically involved, according to evidence in court.
Harvey Wainer, a professor at the University of the Witwatersrand’s School of Accounting, testified that Tigon’s profits for the year ending January 1997 were inflated by 117%, and, for the six-month period ending in July 1997, by 93%.
Wainer’s evidence was based on a report he had drafted as early as 2005, after he had studied documents supplied to him by the state which covered the period from 1996 to 2002.
He testified about three similar agreements which Pan Pacific, a fully owned subsidiary of Tigon, concluded in October 1996 to manage assets worth R29.8 million on behalf of clients.
Pan Pacific was meant to invest the funds in a variety of instruments, including Tigon shares, and earned a “performance fee”.
Pan Pacific allegedly invested the full amount in Tigon shares at R8.50 a share and concluded a further agreement with another Tigon subsidiary, Asia Pacific, according to which Asia Pacific was entitled to 95% of the performance fee, purportedly for investment advice to Pan Pacific.
For the year ending in January 1997, Tigon’s financial statements included R24.9 million, which flowed from Asia Pacific along this route, R17.9 million thereof was shown as profit and R7 million as unspecified provision.
The R7 million was released six months later and was indicated as part of Tigon’s profit.
Wainer pointed out that the Companies Act, as well as the accounting standards that were applicable at the relevant time, did not allow contributions from shareholders – which these funds were – to be reported as income and, as such, appear on the profit line.
In addition, the performance fee could only be included in the profit at the end of the period of one year, in October 1997.
The inclusion thereof in the January and July profit figures was therefore irregular and had the effect of inflating the company’s profits, he said.
Tigon should have reported these funds as equity, Wainer testified.
Another problem was the circular movement of funds, Wainer told the court. The Tigon group’s profits were driven by Tigon’s share price via Pan Pacific and Asia Pacific, and Tigon’s share price would surely be driven by its profits.
Wainer further testified that Asia Pacific, in two transactions in 1997 and 1998, acquired the full shareholding of a company called Europoint from another Tigon subsidiary for R58 million.
To give the transaction effect, Europoint’s trademarks were transferred to Asia Pacific at no extra cost.
Asia Pacific then sold the trademarks to another Tigon subsidiary, Shawcell, via a further Tigon subsidiary, Tandem, for R1.2 billion.
The amount was payable in R260 million Shawcell shares and another R1 billion in cash when Shawcell was listed on the JSE in April 1999.
According to Wainer, the trademarks in the Shawcell prospectus were placed on the balance sheet and valued at R1.2 billion, when in reality it was not worth nearly as much.
In the prospectus, it also stated that Porritt had built the biggest farming activities in private ownership in South Africa.
During the trial, the state argued that Porritt had direct or indirect access to assets of more than R100 million.
But Porritt and Bennett argue that they are poor and have to conduct their own defence because they cannot afford legal representation.
Various courts have made pronouncements that the two have intentionally delayed proceedings with applications and appeals, with relatively little chance of success, according to the Zuma principle, said one judge.
Bennett is out on bail, but Porritt has been detained at Johannesburg Correctional Centre, nicknamed “Sun City”, for the past two years.
His bail was withdrawn after he allegedly did not arrive at court because he was sick.
Judge Brian Spilg, who is hearing the case, found that Porritt stayed away to delay the matter further.