CPJ

The Journal of Crime & Punishment

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CORPORATE FRAUD                                                 price TBA   

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 Placeholder page for corporate fraud only. Please come back later.

  Consumer Fraud, Corporate Bonds, Corporate Fraud, Corporate Governance, Financial Crime, Investor Relations

Definition of 'Corporate Fraud'

CPJ 24th April 2014  

When my father died in 1982, he left a number of Johannesburg Consolidated Investments Limited Ordinary  shares, about 25 or 50, with an issue value of 1 Rand and a market value of 10 Rand. When my mother died in 1990 these came to me. About the end of the millenium, the price or value of these share had risen to 4,000 Rand each.

The reason, it appears, is that the company secretary, a Mr M.J.Meyer had been following the company directive of maximizing profits for the company, and the company had sold off various portions of its assets, not all of which had ever been paid for. He issued a large number of options, which is a system which enables the company to issue shares and only pay 10% of the share price. If the option is not fully paid by a certain date, the option price is forfeit. Fortunately for Mr Meyer and JCI Limited some of the assets sold were paid for, enabling him to fully pay the shares, giving JCI a majority shareholding in itself. The company then began buying back its shares, which is why the price rose to 4,000 Rand. This was just prior to the year 2,000. I have valuations of these share obtained from Craig and Co, New Zealand sharebrokers, and have the document still. What appears to have happened since is that a new company secretary (Meyer died) and manager started to issue shares to the public again, although why and on what authority is not clear. It would not help the company profits to pay dividends to shareholders unnessarily. Shares are only issued usually when a business is having difficulty raising a loan from a bank, or a group of banks.

JCI or Johannesburg Consolidated Investment Co. Ltd. was founded in 1889 by the British entrepreneur Barney Barnato. JCI was a major force in South African mining for over 100 years. Using his investments in the Kimberley diamond fields, particularly his 25% share in De Beers, Barnato foresaw the value of and invested in the potential of the Witwatersrand gold mines. At first he bought small but rich mines near Germiston – the New Primrose, named after his daughter, and others in the same region.

In 1913 JCI bought the Randfontein Estates Gold Mining Company, which was a fabulously rich mine, from Sir J.B. Robinson. At the peak of its production Randfontein was equipped with 600 stamp mills, the roar of which could be heard in Johannesburg. Randfontein Estates was an extraordinarily rich mining property, and in the 1950s was a pioneer of uranium production. During the 1930s Randfontein was the largest gold producer in South Africa, if not the world.

JCI was also involved with numerous mining ventures – New State Mines at Brakpan, Modder Deep Mines at Benoni, Van Dyk Mines at Benoni. In the 1960s Randfontein was virtually closed down, and mining was developed at Western Areas on the other side of the shallow valley, but in the 1970s new deposits were discovered to the south of Randfontein and the Cooke Section was opened up in 1976. Cooke produced gold and uranium, the uranium being destined for the Koeberg Nuclear Power Station fuel.

In addition to the gold mines, 25% of De Beers and a controlling interest in Rustenburg Platinum Holdings, the world's largest platinum producer, JCI owned large industrial and property holdings, including the Houghton Estate in northern Johannesburg, and substantial shareholdings in South African Breweries, Toyota South Africa, Lennings Industrial, etc., and was long a target of developers who lusted after the property holdings. Anglo American Corporation purchased a 52% holding in JCI, agreeing to protect the company against predatory takeovers, and this situation continued until 1994.

JCI installed a technically advanced Precious Metals Refinery at Rustenburg, which processed Platinum Group metals totally in South Africa, and built a ferrochrome smelter at Lydenburg which was the first in South Africa to directly smelt chromite fine ore.

In the late 1980s JCI started development of an ultra deep mine to the south of Western Areas, South Deep. The ownership of South Deep has now devolved to Gold Fields, and the deposit is still being developed as one of the largest low-grade gold deposits in the world.

In 1995 the majority shareholder, Anglo American Corp, decided to offer JCI to the new political dispensation in South Africa as a Black Economic Empowerment vehicle. A new Chairman, Mzi Khumalo, took over the mining side, whilst the property and investment side was separated and morphed into Johnnic Communications. The platinum interests were moved into Anglo American Platinum, Amplats. JCI was always at the forefront of technical development – trackless mining, ferrochrome processing (CMI, Lydenburg), computer control of process plants, treatment of refractory gold ores – to name a few areas where pioneering work was done.

It has been alleged by Four Corners that Brett Kebble, John Stratton, and others in their roles as Chairman and directors of the company respectively defrauded and conspired to defraud the company of some 7.6 billion rand. Additionally, it was alleged that John Stratton then procured Brett Kebble's murder, with which Glenn Agliotti has been charged.

In August 2010, an American company Hemispherx was awarded $188 Million Judgment Against JCI by Court in Miami, alleging that JCI wrongly obtained confidential information as part of an effort to devalue Hemispherx's stock price and gain control, according to court papers.

 MacDuff v JCI.

MacDuff & Co Ltd (in Liquidation) v Johannesburg Consolidated Investment Co Ltd^[1] is the leading case in South African contract law on the issue of fictional fulfilment of suspensive conditions.

JCI was a specialised and prominent resource and finance house investing in South Africa and elsewhere in Africa.

Following bad management, fraudulent activities and a total disregard for corporate governance the company found itself in a severely stressed financial situation around 2004.

The management was eventually replaced in the second half of 2005 and after extended negotiations, reached settlement agreements with various parties that previously had substantial claims against the company. These settlement agreements were finally implemented in 2010 and completed early in 2011.

In view of the damage caused by the previous administration it was decided to wind the company down and this process is ongoing and nearing completion. A result of these difficulties caused the delisting of JCI on the JSE on 16 April 2013, following its suspension on the exchange since August 2005.

TRADING IN THE UNLISTED SHARES

No real market exists for trading in the shares currently, but any shareholder holding shares should approach their stock broker or bank. Trading in the shares will be very similar to the past, provided a corresponding buyer or seller has been identified. After the trade the transfer of the shares will be effected in the exact same manner as previously, i.e. Computershare will do the necessary transfer between the parties. Should any further assistance be required kindly contact the company secretary, Diane Eurelle on +27 (010) 060 5518 or Candice Sachs on +27 (011) 783 8896.