{"id":9223,"date":"2019-07-05T03:40:15","date_gmt":"2019-07-05T03:40:15","guid":{"rendered":"https:\/\/amabhungane.org\/?post_type=stories&p=9223"},"modified":"2024-09-21T09:15:12","modified_gmt":"2024-09-21T09:15:12","slug":"iqbal-and-friends","status":"publish","type":"post","link":"https:\/\/further.co.za\/amabwp\/iqbal-and-friends\/","title":{"rendered":"Iqbal and friends"},"content":{"rendered":"\n

On 19 January this year, a remarkable thing happened to the share price of Iqbal Surv\u00e9\u2019s controversial AYO Technology Solutions.<\/p>\n\n\n\n

After holding steady at just above R22 for three months, the share suddenly collapsed, spiraling to the current level of R9.<\/p>\n\n\n\n

It just so happens that 19 January was the day a downside protection agreement with the Public Investment Corporation (PIC) ended. This agreement lasted three months from 19 October and would have penalised AYO if its share price fell below R22.<\/p>\n\n\n\n

This might just be happenstance.<\/p>\n\n\n\n

It could also be that someone was buying shares at a price needed to avoid triggering the downside protection agreement and then stopped when the danger passed.<\/p>\n\n\n\n

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By far the largest buyers of AYO shares in this period (and indeed since it listed<\/a>), were Surv\u00e9\u2019s family investment company Sekunjalo Investment Holdings \u2013 as well as his boutique asset management company, 3 Laws Capital.<\/p>\n\n\n\n

Other activity came from a company linked to his brother-in-law, Khalid Abdulla.<\/p>\n\n\n\n

These dealings in AYO shares are outside the purview of the Mpati Commission of inquiry into the PIC, which has been examining the PIC\u2019s R4.3-billion investmen<\/a>t in AYO.<\/p>\n\n\n\n

However, the FSCA is investigating possible share manipulation between May and October last year at all three of Iqbal Surv\u00e9\u2019s companies listed on the Johannesburg Stock Exchange (JSE): AYO, African Equity Empowerment Investments (AEEI) and Premier Fishing.<\/p>\n\n\n\n

The FSCA has declined to give details about its investigations \u2013 so it is not possible to link the probe to specific share trades or specific parties (including Surv\u00e9, Abdulla, Sekunjalo and 3 Laws).<\/p>\n\n\n\n

The FSCA did confirm to amaBhungane that its investigations specifically deal with possible contraventions of sections 80(3) (c), (d) and (g) of the Financial Markets Act. These subsections deal with specific prohibited practises.<\/p>\n\n\n\n

Prohibited practises<\/h5>\n\n\n\n

The first is \u201capproving or entering on a regulated market orders to buy a security listed on that market at successively higher prices or orders to sell a security listed on that market at successively lower prices for the purpose of unduly influencing the market price of such security\u201d.<\/p>\n\n\n\n

The second is \u201capproving or entering on a regulated market an order at or near the close of the market, the primary purpose of which is to change or maintain the closing price of a security listed on that market\u201d.<\/p>\n\n\n\n

The third is maintaining, at a level that is artificial, the price of a security listed on a regulated market.<\/p>\n\n\n\n

\u201cHowever we are not limiting the investigation to just those sections,\u201d the regulator\u2019s spokesman Alex Pascoe told amaBhungane.<\/p>\n\n\n\n

Surv\u00e9 counters any suspicion of wrongdoing by stating that it was Sekunjalo that initiated the FSCA investigation in the first place.<\/p>\n\n\n\n

In response to questions, he said via Whatsapp, \u201cDear Dewald. I have informed you that I am overseas travelling with time difference. I suggest you direct your questions on Ayo, Aeei \u2026 and 3 laws to those companies\u2019 CEO. I am not aware that it is practice to ask questions of the shareholder. With regard to the FSCA it is Sekunjalo that has lodged the complaint and asked the FSCA to investigate the trading in the shares mentioned above.\u201d<\/p>\n\n\n\n

AYO faces a second FSCA investigation for possibly misleading the market as early as 2017.<\/p>\n\n\n\n

This necessarily means that the investigation includes AYO\u2019s first market announcement in December 2017 \u2013 its prelisting statement.<\/p>\n\n\n\n

According to a summons lodged by the PIC<\/a> with the Cape Town high court on 29 May, the state pension fund manager was persuaded to invest the R4.3-billion in AYO based on misrepresentations of its prospects.<\/p>\n\n\n\n

AYO is defending the summons.<\/p>\n\n\n\n

The Mpati Commission has heard that Dr Daniel Matjila, the PIC\u2019s chief executive officer at the time, signed an irrevocable subscription for AYO shares even before the PIC investment committee had considered the proposed investment.<\/p>\n\n\n\n

Matjila has yet to testify.<\/p>\n\n\n\n

The downside protection agreement, negotiated long after PIC had already paid for the shares, represented a belated attempt to create some cushioning for the Government Employees Pension Fund investment.<\/p>\n\n\n\n

It is not hard to see why a financial watchdog might be worried about possible share manipulation.<\/p>\n\n\n\n

AYO is tightly held and thinly traded, meaning a small set of shareholders do all the buying and selling of shares which determines the share price.<\/p>\n\n\n\n

An analysis of the company\u2019s minor shareholders apart from the PIC, AEEI and AYO\u2019s BEE consortium makes it apparent that most of the investors actually participating in the market did not buy those shares on the market, but have been selling them.<\/p>\n\n\n\n

The major active sellers of shares since AYO listed include ex-Sekunjalo directors who, almost two decades ago had the option of buying shares in AYO\u2019s precursor, Sekunjalo Health. This company was meant to be listed back then but never was, leaving the directors with untradeable shares.<\/p>\n\n\n\n

Now they can convert their shares into AYO shares and, in principle, sell them. The lack of an active market has left them selling shares in dribs and drabs at ever lower prices.<\/p>\n\n\n\n

Other active sellers include businessmen who had their companies bought by AYO before it listed \u2013 and were paid partly in shares.<\/p>\n\n\n\n

So who has been buying?<\/p>\n\n\n

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<\/p>\n\n\n\n

Mostly it has been Surv\u00e9\u2019s Sekunjalo and 3 Laws Capital who have bought 556 631 AYO shares between them in small tranches most months since April 2018.<\/p>\n\n\n\n

They are the only shareholders who have only increased their shareholding without ever selling shares.<\/p>\n\n\n\n

3 Laws Capital is 85%-owned by Sekunjalo and got a R470 million deposit from AYO almost immediately after the controversial PIC investment.<\/p>\n\n\n\n

3 Laws had to return the R470 million to AYO (with interest) after objections from the then-executives of AYO, some of whom later gave damaging evidence at the Mpati Commission.<\/p>\n\n\n\n

According to JSE records, 3 Laws Capital invests in only three listed companies: Surv\u00e9\u2019s AEEI, AYO and Premier Fishing.<\/p>\n\n\n\n

Investment director Arthur Johnson did not respond to emailed questions around what else the company might own and did not respond to follow-up messages and phone calls.<\/p>\n\n\n\n

In February last year AYO\u2019s share price briefly crashed from R43 to R24.<\/p>\n\n\n\n

In March, during which 3 Laws started buying AYO shares, the share price recovered back to R43, but publicly available data does not provide sufficient information to conclude that it was 3 Laws that pushed the price back up.<\/p>\n\n\n\n

Surv\u00e9\u2019s Sekunjalo is the largest buyer of AYO shares. In the past year it has bought tiny amounts of AYO shares practically every month.<\/p>\n\n\n\n

There is nothing wrong with that in principle, but in combination with 3 Laws, it completely dominates the market for AYO shares \u2013 and even small trades can have a large impact of the share price because the market is so thin.<\/p>\n\n\n\n

Asked about these purchases Surv\u00e9 previously said that Sekunjalo \u201cinvests in many companies on the JSE and sees AYO as an attractive long term investment. Sekunjalo generally invests in companies and takes a long term view like Warren Buffet\u2026\u201d<\/p>\n\n\n\n

As mentioned above the AYO share price was, from October to January, maintained at exactly the price needed to avoid triggering a downside protection agreement with the PIC.<\/p>\n\n\n\n

This period saw Sekunjalo particularly active with its small investments in AYO.<\/p>\n\n\n\n

There is another strange investor in all three Surv\u00e9 companies on the JSE, tied to Surv\u00e9\u2019s brother in law Khalid Abdulla.<\/p>\n\n\n\n

It was, until December 2018, simply known by its registration number K2011146299 when its name changed to Kata Strategic Investments. AEEI CEO Khalid Abdulla joined it as a director in October 2018.<\/p>\n\n\n\n

Before that the sole director was Leonardo Altini whose family company Miramare Investments is AEEI\u2019s second largest shareholder after Surv\u00e9.<\/p>\n\n\n\n

Like 3 Laws, Kata seems to invest only in AYO, AEEI and Premier Fishing.<\/p>\n\n\n\n

Kata\u2019s strategy with AYO is however puzzling.<\/p>\n\n\n\n

The company started off with 145 250 AYO shares after listing. In May it transferred these shares to the other Altini company, Miramare Investments. A few months later in December Miramare then sent the same 145 250 shares back to Kata.<\/p>\n\n\n\n

Altini told amaBhungane that the movement of the shares took place \u201coff market\u201d, meaning they were not sold but simply moved from one entity to the other. That implies the transfers could not have affected the AYO share price.<\/p>\n\n\n\n

During May, when the shares evidently went from Kata to Miramare the AYO share price however staged a remarkable but short-lived improvement from R25 to R36. Someone was even offering to trade them for R43 in the busiest day of trading in the share at the end of May. The reverse transfer of the shares happened in November, in the middle of the downside protection agreement.<\/p>\n\n\n\n

JSE rules require off-market trades to be reported if a director of the company whose shares are being traded is involved. Abdulla is a director of Kata and AEEI, but not AYO. Despite AEEI controlling AYO, this means there was no requirement to report the trade.<\/p>\n\n\n\n

The PIC case<\/h5>\n\n\n\n

Allegations of manipulation and collusion also emerge from the summons delivered by the PIC in an attempt to get its money back \u2013 or, more precisely, the sum of R4,290,654,165.00 plus interest at the rate of 10.25% per annum from 22 December 2017.<\/p>\n\n\n\n

According to the PIC case, AYO misrepresented key parts of its investment case, including:<\/p>\n\n\n\n