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Among the stories in The Arabian Nights is one about a poor tailor with a son named Aladdin, an idle boy without a trade who gets a lucky break: he finds a magic lamp that unleashes a genie who turns him into a rich sultan who marries a princess.

Some consulting firms struggling to make ends meet in tough times must have concluded that all they needed was an Aladdin and his magic lamp to start raking in hundreds of millions in fees.

Ask Regiments, Trillian and McKinsey, who extracted over R2bn from state-owned enterprises (SoEs) Transnet and Eskom thanks to the intervention of the politically connected Salim Essa, codenamed “Aladdin” by one of his business associates.

Regiments Capital is a financial advisory and management consulting firm, founded in 2004 by Litha Nyhonyha, Eric Wood and Niven Pillay. By 2012 the company had some impressive gigs under its belt but lacked a heavy-hitting international partner to take it to the next level. What was needed was Aladdin’s magic.

According to several sources familiar with the facts, Pillay’s golfing partner Kuben Moodley brought Essa, a close business associate of the Gupta family and President Jacob Zuma’s son Duduzane Zuma, to Regiments’ offices in late 2012. Court filings show Moodley was a fixer whose company Albatime was paid a fee or revenue cut by Regiments to bring in business.

Essa and Moodley, who was previously an adviser to mineral resources minister Mosebenzi Zwane, presented a proposal that would prove very lucrative to Regiments: “We have brought you McKinsey,” they apparently said.

After conducting a due diligence, McKinsey appointed Regiments as its supplier development partner in January 2013 for work it was conducting for several SoEs, including Transnet, with Essa and Moodley apparently receiving a cut of the proceeds. McKinsey would not confirm Essa and Moodley had brokered its relationship with Regiments, stating only that the global consultancy hadn’t paid them any fee. But this obscures the fact that their cut would have come from Regiments’ fee.

According to two sources familiar with the deal, Essa was paid more than 30% of all revenue Regiments earned from its work with McKinsey at SoEs. Regiments did not respond to questions about payments to Essa. Wood confirmed in a statement last week that “Mr Moodley introduced Mr Essa to Mr Pillay in 2012” and “subsequent to this meeting Regiments contracted with McKinsey”. Moodley and Essa did not respond to questions about their role in setting up the deal.

There’d soon be enough cash around for everyone. So much so, that the hyenas were starting to circle the camp. But first the competition had to be knocked out of the race.

In 2012 McKinsey’s supplier development partner was Letsema, SA’s first black-owned and managed consulting firm. It was founded by Isaac Shongwe in 1996. Letsema had first partnered with a previous incarnation of New York headquartered management consultancy Oliver Wyman before joining forces with McKinsey in 2005.

Over the years the rail and port sector became one of Letsema’s specialities.

By 2012 Letsema’s work with McKinsey generated about 80% of its total income, almost half of this with Transnet. In 2013 Letsema partners Derek Thomas and Aldo Sguazzin were called to a meeting with Garry Pita, chief procurement officer at Transnet at the time.

He told them Letsema could no longer work on the R50bn 1,064 locomotives programme, citing a possible conflict of interest. Shongwe, Letsema’s chairman, was an executive director of Barloworld, which acted as a distributor for Caterpillar in SA. And Caterpillar Inc owned Electro-Motive Diesel, a company that was bidding for a portion of the contract.

“I was happy to give the benefit of the doubt on this one,” said Thomas.

But Sguazzin said “it turned out to be the start of kicking Letsema out of Transnet. Suddenly Regiments was injected into the McKinsey relationship. From then on we were sidelined.” Soon Letsema’s Transnet income fell to 10% of total revenue before drying up altogether.

“It almost destroyed us,” said Shongwe. “Transnet should have been proud to use a local company with our track record.”

At Regiments, things were going swimmingly, for a while at least.

“Salim knew the executives at Denel, Transnet and Eskom,” said one former employee. His message to them was simple. “He told them if they don’t open the door, they’re out. Suddenly Regiments was flying.”

Wildly differing accounts exist of Regiments’ earnings from Transnet through its partnership with McKinsey since 2013 until Wood left with its advisory division in 2016. The amaBhungane centre for investigative journalism puts the figure at R484m, the Sunday Times at R800m. Regiments said these numbers were way off the mark but declined to provide the correct figures, citing client confidentiality.

By mid-2014 the Gupta family was beginning to eye Regiments, apparently using Essa and Wood as their Trojan horse.

E-mails from the “Gupta leaks” obtained by the Financial Mail show draft sale agreements were being circulated among Essa, Tony Gupta and other Gupta employees from June 2014. They show the Guptas wanted to buy a 50% stake in Regiments for R200m. The proposed buyer was a shelf company called Keriscope that was later renamed Scipio Technologies, a Gupta-owned firm that manufactures armoured vehicles, including one that was spotted at the Guptas’ Saxonwold home earlier this year.

One e-mail with a spreadsheet of net asset value attached refers to “Eric” being unable to send the June account yet, suggesting Wood was party to the talks, even though Nyhonyha and Pillay said in court documents these were conducted without their knowledge.

Wood, who owns 32% of Regiments, disputes this. In a company statement last week he said it would be impossible to secretly sell a controlling stake of the company to the Guptas as the deal would have required Nyhonyha and Pillay’s buy-in.

He said the Guptas had approached Regiments through Essa to buy a stake in the company. The Regiments directors had invited Essa to join them at their weekly meeting at Tortellino D’Oro restaurant in Oaklands, Johannesburg.

“Following on from this interaction Dr Wood was authorised by Messrs Niven Pillay (and) Litha Nyhonyha to provide such information as would be necessary for a formal offer to be tabled,” the statement said.

The plan fell through after a meeting held at Saxonwold in April 2015 attended by Pillay, Wood and Tony Gupta.

Pillay and Wood provide vastly differing accounts of the meeting. Pillay told the Sunday Times last year that the Guptas wanted to buy a controlling stake in Regiments and offered to make him a “dollar billionaire” if he stayed on as CEO with Wood and ousted Nyhonyha. Pillay said that Regiments had lost its Transnet work when he refused.

But in court filings Wood alleges that when the Guptas offered to buy a controlling stake in Regiments, Pillay was in favour of the deal and disappointed at losing his “large pay day” when Nyhonyha rejected it.

Last week Regiments told the Financial Mail that “nothing could be further from the truth” because any deal with the Guptas needed unanimous agreement of all three shareholders and Pillay thought it improper that the secret meeting at Saxonwold was held in Nyhonyha’s absence.

Wood also rejected allegations that he was the Guptas’ “inside man” at Regiments. He has “no relationship with the Gupta family and is most certainly not a proxy for the Gupta family (or anyone else)”, his statement said. Asked why he’d been invited to the Gupta wedding at Sun City, which he apparently accepted with alacrity, he “surmised” it was because Regiments “had been appointed to advise ANN7, the Gupta news channel, on its bid to acquire Independent Media and he was the lead adviser at Regiments in respect of this transaction”.

In court filings and his statement last week, Wood insists he only came to know Essa, widely regarded as a front for the Guptas’ business interests, through Pillay and Moodley. He repeated allegations made in news reports that Nyhonyha and Pillay were implicated in “questionable conduct in setting up of investments that stood to benefit certain politically connected individuals”.

Reuters also recently reported Regiments had allegedly used its political connections to ensure McKinsey kept being awarded lucrative contracts from SoEs despite concerns the global consultancy had about Regiments’ capabilities.

Regiments said last week the allegations were “patently false” as the company had “no political connections” and McKinsey dominated “the strategy and management consultancy work in the public sector without help or assistance from Regiments”.

McKinsey had subcontracted Regiments in 20 of its contracts with SoEs over four years. “Each and every contract followed a procurement process that Regiments had absolutely no involvement in and was not privy to,” the company said in a written response to questions.

“It should be noted that the relationship was preceded by a thorough due diligence that McKinsey (internationally) carried out on Regiments. We passed the due diligence with flying colours. There were no concerns about our capacity or political connections.”

This conveniently ignores the fact that Regiments deal maker Essa allegedly kept the SoE taps flowing for McKinsey. When Essa moved to Trillian the big contracts went with him. As soon as McKinsey ditched Essa their cash cow dried up.

Either way, within three months after several fallouts with his partners, Wood and Regiments decided to part company. Their messy divorce is laid bare in court proceedings each party has brought against the other. In his affidavit Wood reveals that Essa mandated Regiments to conduct corporate finance work for his purchase of VR Laser in a deal that included the Guptas and Duduzane Zuma. It later emerged that the real aim was for the Guptas to secure exclusive rights to pursue arms deals for Denel in India worth R100bn.

Pillay and Nyhonyha said they were unaware Regiments had worked on the deal. “The current executives are still piecing together the chronology of the questionable activities perpetrated by Wood without their knowledge,” Regiments told the Financial Mail.

Wood said Essa had also suggested Regiments should carry out advisory work for the Guptas in their bid to buy Independent Media “given Regiments’ involvement in the acquisition of VR Laser”. To this end “meetings were held between representatives of the Gupta family and Regiments” but the deal ultimately fell through.

Nyhonyha and Pillay denied any knowledge of this deal too.

In his affidavit Wood details how Essa’s business associate Moodley would be paid a “finder’s fee” for deals he brought to the Regiments table. One of these was for a “market feasibility study” for Liebherr Africa, whose Swiss-based parent company supplied cranes to Transnet.

Last year amaBhungane reported that R1.8m of Liebherr’s downpayment of R2.4m to a subsidiary of Regiments called Burlington was transferred two weeks later to a “Gupta front company”, Homix, and that 99% of this was immediately moved to another obscure entity called Bapu Trading.

The report said the same route was used to move much larger sums offshore. In November 2014 payments totalling R84.3m reportedly began to flow from Regiments to Homix. Much of it was immediately transferred to Bapu Trading, then funnelled to offshore shelf companies linked to Essa, who by then had also registered a company in Hong Kong called Regiments Asia.

Once again, Nyhonyha and Pillay said before being alerted by the media they had no idea that Regiments had been funnelling money to Homix and had no knowledge of Bapu Trading or even the existence of Regiments Asia.

Responding to the allegations he’d been instrumental in diverting R84.3m paid by Transnet to offshore entities associated with Essa and the Guptas, Wood said: “Over the past few months various sensational news reports have been published making widespread allegations, none of which has been proven true in a court of law. Similarly, the allegations in regard to the diversion of funds offshore by Dr Wood are categorically false.”

Moodley denies being a Gupta associate and describes Essa as someone “known to me from social circles”. But the evidence, including Wood’s affidavit that refers to confirmatory affidavits by Essa and Moodley, suggests their relationship goes far deeper.

Both former public protector Thuli Madonsela’s report on state capture and a report by Deloitte on instruction from the Reserve Bank have found Moodley’s company Albatime helped Gupta mining business Tegeta pay for Optimum Coal. The Deloitte report said Albatime had signed a letter authorising the Bank of Baroda to use a fixed deposit of R10m as collateral for a loan to Tegeta that went towards buying the mine. However, Moodley continues to insist the deposit had nothing to do with the Optimum transaction.

By mid-2015, following Wood and Pillay’s April meeting at Saxonwold, the relationship between Wood and his partners at Regiments was on the rocks. After several acrimonious meetings they decided to part company.

A source with direct knowledge of the events said that when the Gupta bid to buy Regiments failed, Wood and Essa switched to Plan B. That’s where Trillian came in.

“Eric and Salim needed a company with an FSB [Financial Services Board] licence after the Regiments deal fell through,” said a former employee. “Trillian was the perfect vehicle.”

The name Trillian apparently comes from a character in Douglas Adams’ cult sci-fi novel The Hitchhiker’s Guide to the Galaxy, Tricia “Trillian” McMillan. In the book the unemployed astrophysicist is described as “beautiful, charming, devastatingly intelligent”.

In 2015, when Trillian was up for sale, the boutique financial advisory firm — owned by four investment professionals, brothers Rowan and Ben Swartz, Daniel Roy and Jan Fourie — was struggling to make ends meet. Trillian’s financial statements obtained by the Financial Mail show it made a modest profit that year of R440,487 and generated R2.7m in revenues. This was marginally better than the previous year, when Trillian earned R2.5m and posted a small loss.

“The business was ticking along but it never shot the lights out,” was how one fund manager familiar with the company’s dealings at the time described it. “It was floundering, really.”

Then Aladdin’s lamp worked its magic again. In September 2015 the Swartz brothers sold their 50% stake for what’s understood to be a modest sum to what they were told was a black empowerment consortium. Rowan Swartz confirmed the brothers had sold their shares to a buyer whose identity wasn’t disclosed, but declined to say what they were paid. He said Trillian “had never done any work at Transnet, Eskom or any state-owned entity. That’s all I’m prepared to say.”

It later transpired Essa was the crucial ingredient missing from Trillian before September 2015. Three months later, in December 2015, Trillian received a deposit of R93m from Transnet, for whom Trillian had began to work immediately after the sale.

The Sunday Times reported that by then McKinsey and Trillian were discussing how they should divide up a staggering R9.4bn they expected to earn from Eskom over four years. In the end they received R1.6bn for six months’ work from a single contract before it was cancelled. Trillian received R595m of this as McKinsey’s BEE partner even though it did not have a contract with either Eskom or McKinsey.

An investigation by advocate Geoff Budlender later referred to McKinsey’s partnership with the politically connected Trillian as a “sham” arrangement designed to keep the Eskom taps flowing.

McKinsey denies this. “We take supplier development seriously, and have done so for many years,” McKinsey spokesman Steve John said in September. “We would only enter into a supplier development partnership that would achieve impact and value for our clients, and build local capabilities in parallel.”

However, the allegation that Trillian used political muscle to milk billions from Transnet and Eskom is supported by Bianca Goodson, the former CEO of a division of Trillian, who released a whistleblower statement last week. The company’s “business model was that work is secured through Essa’s relationships and (Trillian) benefits from these relationships through ‘supplier-development’ agreements”, she said. The company didn’t conduct the work itself but once it was secured “passed (it) over to internationally recognised companies and acted as the supplier development partner of choice, with roughly a 50% share in revenue.”

In the next eight months Trillian billed Transnet and Eskom close to R500m and by March 2017 earnings since December 2015 topped R800m — not bad for a company that was earning less that R3m/year two years earlier.

Trillian’s spectacularly improved cashflow came in handy for the Guptas. Both the public protector and the Deloitte probe for the Reserve Bank found Trillian had also helped the Guptas’ Tegeta pay for Optimum.

The original approach in 2015 to the owners of what was then called Trillian Asset Management came from Stanley Shane, a member of the Transnet board who headed the strategically important acquisitions and disposals committee and ran a small financial advisory and capital raising firm called Integrated Capital Management (ICM), together with Clive Angel and Marc Chipkin. Like Wood, Angel and Chipkin both previously worked for Investec.

At the end of 2014 the Swartz brothers told their partners they wanted out. Trillian Asset Management was 100% white-owned so Daniel Roy and Jan Fourie started casting about for a black partner.

That’s where Shane came in. Roy knew Shane from their time together at Appleton Securities. At the time Shane was also a co-director with Essa of another corporate finance advisory firm in Centurion called Antares Capital. So Shane introduced Roy to Essa as a potential partner and shareholder.

In an interview last week Roy said at the time Essa’s name didn’t raise any red flags. “When I met Salim and did a due diligence there was very little about him in the public domain. I had no idea he had anything to do with the Gupta family. All I knew was the one thing we were seriously lacking was a BEE partner.”

When they met, Essa sketched his vision of creating a top-notch financial services firm that would attract SA’s best talent and clients. “Here was a BEE guy who’s got cash and connections and doesn’t want to be involved in operational matters. It was the holy grail,” he recalls. “In hindsight it was too good to be true.”

In September 2015 a shell company was registered that bought the Swartz brothers’ 50% stake in Trillian Asset Management, which was renamed Trillian Capital Partners. Roy and Fourie’s stake was diluted to 3%. Eric Wood, who brought the advisory division of Regiments with him, took 25% and Essa 60%. Another 12% was held by Aeriom Nominees on behalf of a mysterious group of shareholders Wood described as “employees”.

Then five subsidiaries were created, including one that took the original name Trillian Asset Management, headed by Roy.

Court papers, e-mails, and other documents obtained by the Financial Mail, show the directors of ICM were involved in setting up the Trillian group and initially played an operational role, including in negotiations with McKinsey. In one e-mail copied to Shane, Chipkin uses his Trillian e-mail address to discuss a letter to be written to Vikas Sagar, the McKinsey partner who was later suspended for his role in the scandal over suspect payments from Eskom to Trillian totalling R600m. Another e-mail is copied to Shane’s Trillian Capital Partners’ e-mail address,

Several sources said Shane and ICM were the intended owners of at least some of the shares held by Aeriom. This was supported by Goodson’s statement as well as Roy.

“There was a discussion with Stan (Shane) and Salim about (Shane) being remunerated for setting up the company,” Roy said last week. He confirmed that “one of the options on the table” was granting Shane shares in Trillian. In a clear conflict of interest, Shane at the time chaired the acquisitions committee at Transnet, a parastatal that had controversially ceded Regiments’ contracts to Trillian. In his report Budlender also raised questions about whether Transnet had paid Trillian for work already done by Regiments.

However, Transnet doesn’t see anything amiss. The state rail company had “satisfied itself that there was no conflict of interest involving Mr Shane and entities that were doing business with Transnet,” spokesman Molatwane Likhethe said last week. Transnet also maintains “there was no illegal cession of contracts (from Regiments) to Trillian”, insisting all due processes were followed, including obtaining “a legal opinion which supported its decision to pay Trillian for the services rendered”. Where a dispute existed over who had done the work, Trillian had been obliged to issue credit notes “and the monies were received by Transnet”.

Despite this glowing endorsement Transnet decided to “terminate” its relationship with Trillian in November 2016 “in an effort to safeguard its reputation”.

Roy said last week that Essa had performed the same function at Trillian as he had at Regiments — making key introductions. “I was introduced to the guys at McKinsey by Salim,” he said. Now Roy, Fourie and their asset management team have decided to leave Trillian. “The situation has become untenable. In the interests of our clients we have decided to part ways.”

In the end, the plan to cede shares to Shane and ICM never came to fruition. Earlier this year the shares were transferred from Aeriom Nominees to Trillian nominees, again for the benefit of “staff”, according to Wood. By now they are probably worthless. Nevertheless, Shane’s documented involvement in Trillian while occupying an influential position at Transnet when suspect payments were made is a red flag. Another is that Shane’s partners at ICM allegedly received R700,000/month for “services” rendered to Trillian, says a well-placed source.

Asked last week if they were ever party to or aware of discussions to grant them or ICM shares in Trillian, Angel and Shane dodged the question. In cut-and-paste responses to written questions, they said ICM “has never owned and does not own any shares in TCP”. Despite evidence to the contrary in e-mails and court filings, both insisted “Integrated Capital performed no services for Trillian”. They conceded, however, that Trillian had “contracted a company operated by Angel and Chipkin to provide ... primarily start-up services for Trillian”.

Another key player in the game was former Blue Label director Mark Pamensky. Documents obtained by the Financial Mail suggest he, too, was conflicted.

In January 2016 a letter from Pamensky, then a director of Gupta company Oakbay, was sent to Trillian. His letter assessed whether being a director of Eskom and a consultant “and potential shareholder” of Fuel Property Group represented a conflict of interest.

At the time Pamensky chaired Eskom’s investment and finance committee, which was investigating the sale of noncore real estate assets to a dedicated fund to optimise the power utility’s balance sheet. In March 2016 Pamensky declared his potential shareholding of Fuel Property to Eskom. In his declaration the company is described as a potential shareholder of Trillian through Aeriom Nominees. He also declares that his company Markpam Consulting, as well as Fuel and Trillian, planned to offer balance sheet optimisation “to state-owned entities through (unlocking) potential value in SoEs’ real estate portfolios”.

According to Budlender’s report, citing a whistleblower, a month later Wood sent Transnet a property analysis proposal from Fuel Property, with an invoice for R41m. The invoice is stamped “paid” in May 2016. In her statement Goodson also points out there were plans to make Pamenksy CEO of Trillian’s proposed property division. Several sources said Pamensky regularly worked at the Trillian offices on the company’s property proposals.

Eskom did not respond when asked if it had accepted Pamensky’s explanations in his declaration of interest and Pamensky did not respond to e-mailed questions and text messages over several weeks after initially agreeing to an interview.

Eventually the party came to an abrupt halt in July this year after Eskom’s lenders threatened to pull the plug if the utility didn’t clean up its act. Within weeks Eskom launched several investigations into the R1.6bn paid to Trillian and McKinsey. These concluded the contracts were unlawful and should be subjected to court review to allow Eskom to recover the money.

An interim report by law firm Bowmans as well as internal memos obtained by the Financial Mail recommended suspending seven officials for their role in the payments, issuing letters of demand to Trillian and McKinsey, as well as opening a corruption case with the Hawks.

First in the firing line was Eskom’s CFO Anoj Singh, who was suspended last week. Eskom served three more officials with suspension notices this week. Singh, at the centre of a host of corruption allegations including those involving Trillian and McKinsey, promised to release a “tell all” document in July but hasn’t yet done so.

It turns out that Eskom had in fact received a legal opinion in December 2015 — a month before it signed up McKinsey — warning that the contract was unlawful. 

The legal opinion, obtained by the Financial Mail, says the McKinsey contract is in breach of a national treasury instruction that stipulates consultants should be paid a prescribed hourly rate. Instead McKinsey and Trillian worked “at risk”, which means they were paid a percentage of savings achieved at Eskom as a direct result of their work, allowing fees to balloon. Sources at Eskom said McKinsey was hard-pressed to explain how it arrived at its savings calculations, accepted by the utility under Singh’s tenure.

For now, McKinsey and Trillian are toughing it out. Both have denied wrongdoing and insist they are proud of the tangible results they’ve delivered at Eskom even though the utility posted irregular expenditure of R3bn this year and says it needs a 20% tariff increase to meet revenue targets.

McKinsey has so far only suspended one senior partner, Sagar, and says it is investigating the allegations against him. Both firms say there is no basis for a criminal corruption case against them. True or not, they’ll need magic powers if they hope to repair their battered reputations.

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