Ghavalas tells how pension funds were stripped

By Evan Pickworth

THE mastermind of the 1990s multimillion-rand pension fund scandal Peter Ghavalas admitted on Tuesday in the Johannesburg Magistrate’s Court that the Financial Services Board (FSB) would not have allowed the schemes if it had known their true nature.

Mr Ghavalas, who now spends his time making furniture in Australia, is testifying in the trial of Cadac executive chairman Simon Nash, who is accused of trying to steal millions of rand in pension surpluses.

He already admitted guilt for his role in the stripping of pension surpluses, and spent most of Tuesday explaining the structure of the schemes as an elaborate process of "reverse engineering". The scheme, dubbed the "Ghavalas option", quickly became popular and eventually involved nine pension funds.

The stripping of surplus money left in pension funds was achieved through an elaborate process that was made to look like genuine sales of a commercial business between employers having pension funds.

These pension funds were then allowed to be merged by the Financial Services Board, which believed them to be legitimate mergers. This allegedly gave the various parties, such as complicit employers and brokers, access to the surplus money at the expense of pensioners and fund members.

While Mr Ghavalas admitted to becoming owner of the Power Pack pension fund in one scheme, the prosecution requested a postponement to gather requisite documents to prove the sudden arrival of demutualised Old Mutual shares had interrupted plans to hatch the scheme relating to this fund.

The prosecution is trying to prove that Mr Nash, and his firm Midmacor, benefited from the stripping out of pension surpluses from pension funds such as Power Pack.

The charge sheet holds Mr Nash personally liable for numerous offences committed and lists Power Pack, Sable Industries pension fund and Cadac pension scheme as registered pension funds in which Mr Nash was a trustee.

The seven counts against him include contravening sections of the Prevention of Organised Crime Act, which includes the offences of money laundering, fraud and theft.

Alexander Forbes and Sanlam have already paid large fines relating to facilitating surplus stripping, but Mr Nash has been fighting a raging battle in the courts and media for years and has made counteraccusations of his own.

An alleged smear campaign against the FSB by Mr Nash was raised in August last year, as well as accusations of intimidation against journalists who took the side of the FSB-appointed curator of many of the funds, Tony Mostert.

Before being amended in 2001 pensions funds legislation did not provide for what happens with actuarial surpluses, but it is being argued this does not mean the money could be stripped out by employers and brokers in schemes of this nature as the money belongs to the fund and its pensioners.

The evidence on Tuesday given by Mr Ghavalas explained in detail how the aim was to take the surplus money by implementing a plan to merge companies and then pension funds, which allowed the money to be accessed and then 70% of the surplus to go back to the controlling shareholders of the original principal employer.

This would see a company such as Mr Nash’s Midmacor getting 70%, while Mr Ghavalas as broker via his companies and Lifecare split 30%. Mr Ghavalas is reported to have got dividend payments of R42m, but repaid R18m as part of a 15-year suspended sentence, which included giving testimony in criminal trials related to the schemes.

Nedbank was an Old Mutual subsidiary and owned Mr Ghavalas’s employer at the time, Finansbank. He had acted as an adviser to the Lifecare pension fund on behalf of Finansbank, the fund of the Lifecare Hospital Group. The Lifecare fund and Mr Ghavalas were paid significant commissions once the funds were channelled.

The Power Pack evidence is important as the normal way of running the scheme in this case was allegedly changed after an ownership change and it is believed this may indicate that the true intent was never to simply transfer businesses or take a "contribution holiday".

A legal expert said while the minimum jail time is 15 years, Mr Nash could face life if money laundering accusations are proved with regard to the Power Pack fund.




Source: Business Day