The slow pace of financial scam resolution
The “Ghavalas Option” pension fund surplus stripping debacle has been under the media spotlight for many years. Some two decades ago certain individuals committed fraud to relieve local pensioners of their pension fund surpluses. By the time the scam was uncovered it was said to affect eight pensions funds and assets totalling in the region of R800 million. Committed in the 1990s and discovered in the 2000s, these crimes have yet to be totally undone as the clock winds out on 2011. The process of returning funds to victims of financial fraud is as slow as the process of bringing the fraud masterminds to book. As case in point think of the Fidentia fraud, where the alleged kingpin has not been sentenced more than five years after the various transgressions.
It looks like the long wait for pension fund members of the “Ghavalas Option” funds is finally nearing an end. The latest update from the Financial Services Board (FSB), a communication titled general information circular by the registrar of pension funds to stakeholders,” points to 2012 as the year some could receive their payouts. The circular deals with a list of pension funds currently in liquidation or under the control of curators, as provided by the FSB. These include:
MITCHELL COTTS PENSION FUND, in liquidation
LUCAS SA PENSION FUND, in liquidation
PRESTOLITE PENSION FUND, in liquidation
PICBEL GROEPVOORSORGFONDS, in liquidation
SABLE INDUSTRIES PENSION FUND, under curatorship
DATAKOR GROUP PENSION FUND, under curatorship
DATAKOR GROUP RETIREMENT FUND, under curatorship
CORTECH PENSION FUND, under curatorship
POWER PACK PENSION FUND, in liquidation
Each of the abovementioned funds (excluding Power Pack) were subjected to the unlawful stripping – subsequently dubbed the “Ghavalas option” – of their surplus assets during the 1990s. The executive officer of the FSB applied to have each of these funds placed under the control of curators between 2005 and 2007.
Six years into the process – transparency?
The circular provides stakeholders with a reasonably detailed update on the status of the respective pension funds including the recoveries made by the curator or liquidator to date and the progress in respect of finalising a surplus apportionment scheme in each case.
Why the sudden transparency? According to the FSB: “The circular’s specific objective is to provide comfort to stakeholders following unfounded speculation and slanderous public statements insinuating that the assets of the funds, in an amount of some R750 million recovered thus far, have not been properly accounted for.” It seems the media has been stirring the pot and raising concerns about the slow progress made by the appointed fund administrators in distributing the surpluses too. Pension fund members have been waiting a very long time to recover what’s left of their investments.
It seems the regulator is still creeping towards final resolution in each case. The FSB says that “the surplus scheme for the Mitchell Cotts Pension Fund has been approved and that the registrar’s office is in the process of assessing the other surplus schemes as submitted.” It appears that the assessment of these funds will be complete during the first half of 2012, though it is not yet clear when stakeholders will be advised of such approval – nor when the distribution payments are likely to take place.
Getting back what is yours...
The regulators have to jump through a number of legal hoops to deal with these pension funds. One of the first challenges was that the funds had run into regulatory issues due to the surplus stripping fraud… In terms of section 16 of the Pension Funds Act every registered pension fund must submit a valuation report to the Registrar’s office every three years… This did not happen and the stripped schemes became dormant as a result. So the first step was for the curators and liquidators to apply for an exemption of this requirement, which exemption was duly granted by the registrar.
The curators and liquidators have since been chasing after recoverable fund assets. Any assets recovered during this process constitute surplus assets, which must be dealt with in terms of surplus provisions contained in the Act. Each fund was given a surplus apportionment date (SAD) by which time it had to submit a fund valuation to the registrar. The bulk of the funds in question submitted these valuation reports during October and November of 2010, with the Power Pack fund submitting its final signed report a year later. The Registrar has decided to make the valuation reports available to stakeholders and copies of the reports will be published together with the Circular at http://www.fsb.co.za. Only the Michael Cotts Pension Fund valuation report has been assessed and considered by the FSB Chief Actuary as of 16 November 2011.
How much cash are we talking about? A summary provided by the registrar shows a surplus (fund assets less fund liabilities) of some R231.278 million across the nine pension funds. The largest surpluses were in the Michael Cotts Pension Fund (R34.778 million), Power Pack Pension Fund (R37.973 million), Datakor Group Pension Fund (R54.110 million) and Picbel Groepvoorsorgfonds (R34.159 million). This total was calculated at the Surplus Apportionment Date (SAD) and could swell thanks to additional recoveries by the curators and liquidators after that date.
Clawing back the rest of the cash
What happens now? “Based on the respective valuation reports, surplus apportionment schemes have been submitted to the registrar’s office for seven of the funds,” notes the FSB. These schemes await approval of the FSB… But what of the media concerns about cash recovered by the curators and liquidators? We reckon their concerns centred on the difference between the surpluses declared at SAD versus the net recoveries made by the curators and liquidator as at the end of October 2011, totalling R902.139 million… This amount decreases to R738.147 million when the value of insurance policies is excluded. The FSB notes that once the schemes are approved the full net amount – or R738.147 million – will be distributed to fund members.
The funds are currently invested with respected financial institutions. “Stakeholders may, therefore, rest assured that contrary to speculative media reports, the monies recovered are safe and available, have been accounted for and will be distributed in accordance with the surplus scheme of each fund once approved,” notes the regulator
Editor’s thoughts: There is plenty of legislation and regulation to ensure financial advisers “do right” by their clients. And by 2014 the product providers will be held more accountable too, thanks to the implementation of Treating Customers Fairly (TCF). We wonder when, if at all, legislation will be introduced to ensure clients are protected from curators and liquidators. Although these matters can be complicated it seems bizarre that fund members have to wait five or six years to receive funds that are rightfully theirs. Is their a case for closer scrutiny of the liquidator / curator playing field, from appointment to transparency around their fees? Please add your comment below, or send it to [email protected]
Comments
Just wondering if this is a scam within a scam??!! Report Abuse