Cape Town - An investigation by the department of trade & industry into mystery pan-African conglomerate Garek could see criminal charges laid against certain directors.
The investigators have recommended to the department's minister that their report into Garek be released, so that shareholders can mull possible criminal prosecution of certain directors.
This would include the possible recovery of funds by the National Prosecuting Authority.
Fin24.com and our print sister publication Finweek have been strong critics of Garek - and its predecessors RSI and Matric - over the last six years.
Both Fin24.com and Finweek have repeatedly called for Garek to produce audited financial statements to justify the heady valuations directors were suggesting as the conglomerate's purported worth.
Garek - which at one stage boasted former Botswana president Quett Masire as a director - comprised an array of little-known subsidiaries which ranged from resources and energy to construction and financial services.
The company, which appeared to peddle its shares actively to the public, persistently hinted at listing on the JSE and other bourses, but never even managed to muster a prospectus.
The DTI investigation, which has lasted the best part of two years, made a number of startling conclusions that probably explain why Garek was reticent to release financial data to investors.
These findings - regarding the DTI's mandate requirement to ascertain whether it was Garek's intent to defraud, prejudice or oppress company members (shareholders) - included the following points:
- A large portion of investors' funds was not applied to acquire assets as represented to shareholders, but used for operational expenses and commissions paid to directors or key individuals;
- Payments were made to entities (considered investments) where no substantiated value could be established, including entities about to go into liquidation;
- Shares issued to individual investors were issued at a premium when shares were issued to associated companies at lower prices;
- Shares issued to associated companies were not always paid for but settled via inter-company accounts. Individual shareholders, on the other hand, had to pay for their shares;
- Proceeds in respect of shares issued by a particular company were received into companies other than those issuing the shares;
- Supposed profits realised by a particular company by selling assets were transferred to a different company than the one selling the assets;
- Commission was paid on shares bought by individual investors, which reduced the value of their investments; and
- Despite commitments to list on the JSE (which formed the basis on which investors were invited to invest), the companies have still not listed.
The DTI investigators also identified Garek executives Kevin Watson and Andrew Cecil as key management, arguing that all issues cited in the findings "would have occurred on the basis of their direction or instruction".
Another startling conclusion in the DTI's investigation was that Garek misrepresented its asset base. The DTI noted that "it would appear that the board of directors may have overhauled the assets and failed to obtain independent valuations, which may amount to misconduct".
The DTI also learnt that Simply Sports was the only "income realising asset" within Garek.
Other issues highlighted by the DTI's investigators suggest Garek fell well short of the standards of good corporate governance.
Garek failed to keep proper minutes of meetings, did not issue financial statements, issued shares without a prospectus and realised profits on sales of assets where the value of the assets could not be reliably established.
The DTI report showed that investors put about R74m into Garek and its predecessors RSI and Matric.
The full investigation findings are available on the CIPRO website.