Former Tongaat execs’ R3.5bn fraud and racketeering case moves to high court

Tongaat Hulett has welcomed the progression in the R3bn fraud and racketeering case against former executives, saying it wants those who are responsible for the position it finds itself in held accountable, as the matter was transferred to the high court on Monday.

This comes as the Commercial Crime Court in Durban ruled, on Monday, that the matter be heard in the Durban high court, where charges of contravention of the Financial Markets Act, Companies Act and Prevention of Organised Crime Act will be heard from mid-September, according to the National Prosecuting Authority (NPA).

“We have full confidence in the legal processes and welcome the transfer of the matter to the High Court,” the company told Business Day, adding it had always maintained that the law would have to run its course. 

“The company wants to see the matter progress and that those who are responsible for the position we find ourselves in now be held accountable.” 

Out on bail of R30,000 each, Peter Staude, former CEO of the 130-year-old sugar firm, alongside former finance director Murray Munro, former head of Tongaat’s property arm Mike Deighton, former executives Rory Wilkinson, Kamasagrie Singh, Samantha Shukla, and Deloitte auditor Gavin Kruger appeared in the Durban specialised commercial crimes court on Monday.

“They were served with an indictment,” NPA regional spokesperson Natasha Ramkisson-Kara said. An indictment is a detailed account of the charges and the events of the crime. “The matter was adjourned to September 15 for their first appearance in the high court.”

Ramkisson-Kara said various factors had influenced the matter going to the high court, such as the amount of money, the racketeering and money laundering charges as well as the complexity of the offences.

The seven accused face a collective 26 counts of violations including conducting an enterprise through a pattern of racketeering activity, fraud and producing false, misleading and deceptive statements.

However, count two, which relates to the contravention of the prevention of organised crime act, only applies to Staude, Munro, Deighton and Wilkinson. The NPA has charged Kruger with an additional two counts of contravention of the Auditing Profession Act.

The case is in relation to the executives’ role in the second largest accounting scandal to hit corporate SA, after Steinhoff, which thumped its share price with a more than 97% plunge over the past five years.

A forensic investigation by PwC revealed how Tongaat’s 2018 profits were overstated by 239% and its assets by 34% when executives overvalued sugar cane and backdated land sales.

By inflating the company’s profits, they allegedly scored millions of rand in productivity bonuses based on the fraudulent sales, with Staude alone raking in R94m by cooking the books, according to the probe.

The scandal resulted in the JSE slapping the KwaZulu-Natal-based sugar maker with a R7.5m fine for publishing false financial results to shareholders between 2011 and 2018, and the company was forced to restate its financial results for the year ended March 2018, which showed a R10bn decline in total assets.

Tongaat, which has been temporarily suspended by the JSE, having said it would not be able to produce provisional results by the July 30 deadline, was fined R20m by the Financial Sector Conduct Authority (FSCA).

The indictment papers seen by Business Day outlined that because the relationships between accused numbers one to four in relation to Tongaat was one of trust, they had legal obligations and ethical standards of conduct imposed on them.

Accused numbers five and six, who were managers in the firm, were also held to the same critique.

The documents criticised Kruger, who is accused number seven, for having pretended, as external auditor, that he had performed his duties in terms of the Companies Act (71 of 2008), the Auditing Profession Act (26 of 2005) and the international framework for assurance engagements.

“All the accused indirectly benefited financially from these activities,” the indictment said, chastising the accused executives for manipulating the results “through acts of fraud, which formed a pattern of racketeering activity.”  

The cash-strapped company, which is drowning under a ballooning R6.8bn debt pile, has been struggling to come up with the funds and its proposed rights offer has hit multiple snags in the first quarter.

Shareholders have called for the company to consider converting debt to equity, going after auditor Deloitte for its role in the scandal and selling off some assets. However, the company has maintained that it would not get the desired value out of a fire asset sale, though it remains committed to recapitalisation.

Meanwhile, all eyes are on the team led by Piers Marsden to deliver a turnaround strategy for the ailing manufacturer, with investors waiting for the company to produce provisional results and get trading of its shares on the bourse activated again.

Tongaat Hulett interim chair David Noko last week emphasised the board’s belief that the suspension protects the interests of current and potential shareholders as the company engages with multiple parties on solutions to take the restructuring forward. It has no material effect on the company’s financial stability or its business operations, he said.

Meanwhile, the group is withholding Staude’s and Deighton’s pensions until the finalisation of the litigation initiated against them.

Update: July 25 2022
This article has been updated with additional information throughout.

gumedemi@businesslive.co.za