The tenacious, pugnacious corporate vigilante

The column chosen to illustrate the work of the late Deon Basson will strike those who know his work as remarkably clear, free of numbers and in parts philosophical. Basson, pugnacious and tenacious, did not, according to at least one editor, take kindly to being edited, or as he probably saw it, oversimplified. The writing of the six-time winner of the country’s prestigious Sanlam Financial Journalist of the Year Award could be dense and demanding.

This piece of writing by Basson, however, demonstrates what Pulitzer Prize-winning reporter David Cay Johnston says is essential for investigative journalism: ‘start with underlying principles and theory’ to understand the mechanics (Gutfreund, 2014). Investigative journalism is as much about ideas as ferreting out facts and figures.

The theme of the August 2002 award-winning column was the failure of the supposed regulatory watchdogs to protect investors against the wolves of the financial world. It focused on what seemed to be a quasi unit trust scheme, PSC Guaranteed Growth (PSCGG), an unlisted, and therefore non-transparent, company headed by self-proclaimed share trading expert Jack Milne. As the article notes, Milne flatly refused to disclose the scheme’s investment portfolio, and Basson stresses the need for transparency as an essential element of the market system and capitalism itself.

Basson posed a deceptively simple question: Who is supposed to be regulating this scheme and why are they not doing their job? Hovering in the background was the spectacular US accounting scandal and collapse of energy company Enron, which had raised a big question mark over Western corporate culture. Basson had earlier written a column (excerpted here) urging the trade and industry minister to intervene to investigate Tigon, the listed company supposedly underwriting PSCGG and run by Gary Porritt (Wessels, 2003), assisted by his close associate Sue Bennet. Basson noted that it might prove to be South Africa’s own mini-Enron (Slabbert, 2016).

Milne’s company was raising huge sums from thousands of investors. As it turned out, Basson’s hint that investors might once again lose money because of the non-disclosure and fragmented supervision came to pass. Around eight months after Basson wrote the article, Milne confessed to defrauding investors, blaming Porritt (Wessels, 2003) and, after a plea bargain, served 11 months of a five-year jail sentence. He confessed again in 2016 that with Porritt and Bennet he had deliberately defrauded investors by making misrepresentations in a company prospectus (Slabbert, 2016).

Investor money, meant to be put into a diversified portfolio by PSCGG, was diverted solely into shares of Tigon and its subsidiary Shawcell – something which Porritt has disputed in court was even fraudulent (Slabbert, 2018a). PSCGG was liquidated and its investors lost around R160 million.

More than 15 years after being arrested, Porritt and Bennet were still in court in 2018, the PSCGG matter being one among 3000 charges of fraud, racketeering and contraventions of the Income Tax Act, Securities Exchanges Control Act and the Companies Act they faced. Porritt was accused of adopting Stalingrad tactics to delay facing justice by a Supreme Court of Appeals judge (Slabbert, 2018b).

The state also claimed that despite pleading indigence and eschewing legal representation, Porritt had access to R100 million (Slabbert, 2017). Journalism is not renowned for enriching its practitioners, and Basson was unlikely to have had a small fraction of that sum. He struggled with legal costs when he was forced later to defend himself against a defamation suit without the aid of the company, Media24, with whom he had been associated for many years (Cameron, 2008). As resilient as Basson was – he faced severe personal attacks in his investigations, including having his bi-polar medical history revealed – he was not invulnerable. In 2008 at the age of 53, he died of a heart attack attributed to stress at having to fight off lawfare by the property syndication company, Sharemax, on which he focused several chapters of his draft book ‘Public Interest Warriors’. Sharemax tried to interdict publication of chapters of the book that dealt with the company, and finally managed to censor it entirely by buying it from his widow (Heystek, 2013).

However, thanks to international publication by Wikileaks, the chapters that Sharemax did not want published are available online. The chapters that do not deal with Sharemax, and discuss PSCGG for instance, are not publicly available. This is a pity because the book is not simply a history of the Sharemax, Tigon, PSCGG or other corporate debacles, but takes up the deeper ideas presented in Basson’s Finance Week column, which still resonate a decade later: the failure of the bodies that are supposed to protect investors. In the book he goes beyond regulation, to accuse the media of having its critical facilities blunted by commercial interests, and is scathing of the auditing profession. In the light of the various scandals that have dented the credibility of one of the biggest auditing firms in the world, KPMG, in South Africa (Niselow, 2018), this was prescient. Basson noted that auditing firms have become marketing stalls to sell other lucrative services to clients – calling to mind the so-called discredited South African Revenue Services ‘rogue unit’ report, for which the firm apologised (Hosken, 2017).

A partial comfort is that one of the moves Basson suggested, a single regulator for the financial services sector, one of the peaks of South Africa’s new twin peaks regulation, will become a reality. Basson would be amused that the ‘liberalists’ are still complaining about new business regulation (Zyl, 2017). However, Basson’s history shows that regulators are not all knowing and an independent and well-resourced media must be able to shine a light on what needs to be regulated.

References

Cameron, B. 2008. ‘A tribute to Deon Basson, a public interest warrior’. Available at: www.iol.co.za/personal-finance/a-tribute-to-deon-basson-a-public-interestwarrior- 997674, accessed on 16 May 2018. Gutfreund, H. 2014. ‘An interview with David Cay Johnston, Pulitzer Prize winner’, The Politic. Available at: http://thepolitic.org/an-interview-with-david-cayjohnston/, accessed on 16 May 2018. Heystek, M. 2013. ‘Deon Basson was right about Sharemax’, Moneyweb. Available at: www.moneyweb.co.za/archive/soapbox-tribute-to-deon-basson-and-otherbravehear/, accessed on 16 May 2018. Hosken, G. 2017. ‘KPMG cans SARS “rogue unit” report‚ apologises to Gordhan’. Available at: www.timeslive.co.za/politics/2017-09-15-kpmg-cans-sars-rogue-unitreport- apologises-to-gordhan/, accessed on 16 May 2018. Niselow, T. 2018. ‘KPMG acknowledges its failings damaged auditing profession’, The M&G Online. Available at: https://mg.co.za/article/2018-05-07-kpmgacknowledges- its-failings-damaged-auditing-profession/, accessed on 16 May 2018. Slabbert, A. 2018a. ‘No obligation to diversify PSCGG investments – Porritt’, Moneyweb. Available at: www.moneyweb.co.za/news/south-africa/no-obligation-todiversify

todiversify- pscgg-investments-porritt/, accessed on 16 May 2018. Slabbert, A. 2018b. ‘Porritt acts just like Zuma, court finds’, Moneyweb. Available at: www.moneyweb.co.za/news/south-africa/porritt-acts-just-like-zuma-court-finds/, accessed on 16 May 2018. Slabbert, A. 2017. ‘Porritt is a R100-million man, state says’, The Citizen. Slabbert, A. 2016. ‘Porritt, Bennett and I committed deliberate fraud – Milne’, The Citizen. Wessels, V. 2003. ‘PSC fugitive Jack Milne breaks his silence’. Available at: www.iol. co.za/news/south-africa/psc-fugitive-jack-milne-breaks-his-silence-105392, accessed on 16 May 2018. Zyl, G. van. 2017. ‘Twin Peaks now law – “sad day” for SA financial services consumers – FMF’. Available at: www.biznews.com/sa-investing/2017/08/23/twin-peaksnow- law-sa-financial-services-consumers-fmf/, accessed on 16 May 2018

Stand up, real PSCGG regulator
Deon Basson, Finance Week, 16 August 2002

But there could be a third possibility. Due to its nondisclosure of its investment portfolio and selling investments without a valid prospectus, it could perhaps be seen as a deposittaking institution. In this case, the SA Reserve Bank’s bank supervision department would be the regulator. But it is possible that PSCGG is craftily slipping through all three legislative nets – the Companies Act, the Unit Trusts Act and the Banks Act – and making fools of all three regulators. Looking at the case study of the well-known Ref group and the alleged circumvention of three Acts by PSCGG which are meant to protect investors, a case can even be made for the Business Practices Committee to investigate PSCGG. The Ref group, under the leadership of David Romero, was investigated by the Business Practices Committee and was severely taken to task in a 77-page report published in the Government Gazette on 30 October 1996. This is a precedent that cannot be ignored. The power of regulators reminds me of a time 10 years ago when unlisted debentures were all the rage. One of the smaller schemes was OTC Finance International, managed by Freek Viljoen. In one of his marketing documents, he praised capitalism as ‘the only moral economic and political system’ which existed in history. During an interview, he made emotional use of further slogans by famous economists like Milton Friedman to support his argument.

comes to expression of alternative views. Similarly, some capitalists are among the most intolerant people when it comes to the disclosure of information. Let’s follow the laissez-faire attitude of Viljoen and his colleagues and scale regulation down to the minimum. Limit regulation to disclosure. Then give investors the freedom and the information to decide for themselves. The problem is that people like OTC’s Viljoen and PSCGG’s Jack Milne want all the freedom of capitalism to collect money from investors. But they conveniently object to disclosure as an essential counterbalance. Give us a single and modern regulator in SA that strictly enforces simple and meaningful disclosure. I have a feeling that in such circumstances, the market mechanism will function much better than it does now. I am in favour of a market mechanism that provides a level-playing field but certainly not the kind of medieval concoction Milne and others are now trying to dish up.

The Nel Commission, investigating investor protection in SA after the Masterbond debacle, found in 1997: ‘The fragmentation of supervision between the Registrar of Banks and the FSB and its predecessor led to inadequate supervision of the Masterbond, Owen Wiggins and Supreme group of companies with resultant losses to investors. ‘This can be illustrated by excerpts from an exchange of letters in 1994. There was reason to suspect that certain companies in these groups were carrying on business in contravention of the Banks Act.’ Hopefully PSCGG will not lead to a recurrence of these unfortunate events. Meanwhile, please tell us who PSCGG’s regulator is and what will be done about the apparent violations of the Companies Act.

An open letter to [Minister of Trade and Industry] Alec Erwin
Deon Basson, Finance Week, 28 June 2002

There is a compelling reason for writing to you. Finance Week has been investigating Tigon, a company listed on the JSE Securities Exchange, for a while now. I believe it’s time for you to use your powers in terms of section 258(2) of the Companies Act to appoint an inspector or two to investigate Tigon’s affairs. The media has at its disposal freedom of speech in terms of section 16 of the Constitution. We don’t have the power to search, summon or interrogate and it would be inappropriate to have those powers. An inspector would have such powers. I think it is fair comment to say that for once at least SA’s financial media have made a contribution in exposing Tigon’s unusual business and accounting practices. On that score, we have done better than our US counterparts with regard to Enron …

Finance Week will continue to investigate Tigon and publish the results as they become known. But I consider it prudent to warn you that in Tigon, SA may, on a smaller scale, have its own Enron-in-waiting. I do not say that the company acted corruptly or fraudulently. I cannot speak for them, but I would venture to say that if you consult institutions such as the Financial Services Board, the SA Reserve Bank, the SA Revenue Service, the SA Institute of Chartered Accountants and the JSE Securities Exchange, you will probably find that they will largely share my opinion. Your colleague, Finance Minister Trevor Manuel, highlighted the demise of LeisureNet, Macmed, Regal Treasury Bank and Unifer in his Budget speech earlier this year. In all these instances, investigations followed only after the train smash. As the reports of the Nel Commission show, SA regulatory institutions regularly wait for the accident to happen and do little to avert it.