Fortress first in Resilient group to agree to independent forensic probe
Fortress has become the first company in the Resilient group to buckle to demands for an independent forensic investigation to probe allegations of insider trading, market manipulation and false reporting.
Independent nonexecutive director Robin Lockhart-Ross said on Tuesday the logistics and commuter-retail property-focused company acknowledged that auditing firm PwC was conducting the investigation, the scope of which had received support from many institutional investors.
He said he was hopeful PwC would complete its investigation by the end of the first quarter of 2019 and that it would agree to make its findings public.
Fortress and three other members of the Resilient stable of property companies, Resilient, Nepi Rockcastle and Greenbay Properties, have seen their shares tumble in 2018 after investors began selling their stock in January, destroying about R120bn worth of value.
This has sent the SA listed property sector down about 25% in 2018 so far.
Fortress has a dual share structure comprising A and B shares, which have different dividend policies. Fortress’s A and B shares have fallen 6.79% and 66.94% in 2018 respectively, its biggest slide since listing in 2009, costing investors about R32bn.
Fortress owns stakes in Resilient, Nepi Rockcastle and Greenbay. None of these have agreed to an independent investigation, but they have set up whistle-blower hotlines and have met with investors to hear their concerns. A number of reports have alleged that directors and other insiders at the Resilient stable had tried to manipulate companies’ share prices so they traded at high premiums to net asset value.
Ten of the largest institutional investors in the country sent a letter to the boards of the Resilient stable in August, requesting a thorough forensic investigation by one of SA’s major auditors into the trades of the four companies’ shares, as well as related party deals and potential conflicts of interest.
Fortress responded by forming a subcommittee to ascertain what kind of investigation would be possible. Lockhart-Ross, who heads the committee, said the PwC investigation was the closest thing to the requests Fortress had received.
The period of the investigation would be the financial years ended June 2016, 2017 and 2018, but it could be extended to prior to July 2015 if needed.
"It’s certainly independent to the extent that it’s being conducted by PwC in accordance with a defined scope of work as supported by the signatory asset managers, approved by our board and published on our website — which is quite a different thing from an internal investigation conducted by the subcommittee itself, which is the impression that has been given to the market by the messaging in the media," he said.
But Garreth Elston, a portfolio manager at Reitway Global, said the market was more uncertain about the outcome of a separate investigation by the Financial Sector Conduct Authority (FSCA), which had been ongoing since March. "The uncertainty in the market as to how close, or how far away, the FSCA is from concluding their investigation has resulted in a situation of ongoing uncertainty, and as we have seen, certain actors continue to seek to benefit from this uncertainty," he said.
News of PwC’s probe comes a day after Fortress’s CEO and executive director Mark Stevens announced he would step down from his roles at the group.