It’s one of the largest companies in Namibia, run by the gruff Quinton van Rooyen and listed on exchanges in Joburg, New York and Windhoek with 3,723 shareholders. Yet when it was caught out by the JSE for misleading investors, it asked to be given a hidden “private censure”.
It’s a wild tale of accounting high jinks, but you’d think that after the number-fiddling at Tongaat Hulett, Steinhoff and EOH (combined value: more than R120bn), executives would know better. Apparently not.
In this case, Trustco (which owns property, banks and even a diamond mine) bought 100% of Huso Investments from Van Rooyen in a messy related-party deal.
What made it messier is that Van Rooyen had apparently lent R295m to Huso and, after Trustco shareholders voted to approve the deal in September 2017, he surreptitiously changed the terms of that loan. The upshot: Huso’s NAV plunged from a positive R92m to a negative R240m. Investors, wrong-footed by this mystery loan, were roundly shafted.
In May 2021, the JSE told Trustco it had breached its listings rules “for not disclosing the changes to the financial position of [Huso]”. Trustco, in turn, argued that a “reasonable investor would not have considered it to be a significant factor in making an investment decision”.
The JSE was having none of it, declaring it would issue a “public censure” so the wider market knew what was going on. Trustco appealed to the Financial Services Tribunal where it was slapped down last week by the panel, led by Chris Woodrow.
“The publication and integrity of financial information of listed companies are critical elements of a well-functioning market,” the ruling said. “Enforcement actions ... contribute to educate the market, influence compliance culture and attitude, and enhance corporate governance. These aims cannot be achieved through private censure.”
The JSE, it said, was “bound to interfere”, because this behaviour has “the potential to cause individual and systemic harm”.
It’s yet another remarkable case from a company that has pushed the ethical boundaries repeatedly. In a related case, it fought the JSE’s ruling that it “failed to comply with International Financial Reporting Standards and should restate its financial statements” for 2019 in every forum. Trustco appealed first to the tribunal (where it lost) and then to the high court (where it lost); it has now appealed to the Supreme Court of Appeal (SCA).
“We are going to litigate this to the end,” Van Rooyen told the FM this week.
Self-servingly, he’s pitching this as a valiant battle for the greater good of executives against the nanny-like overreach of the JSE. Never mind that Trustco’s share price has shed 92% over five years, which reflects the brittle trust investors have in his firm.
“I’m the moer in [with the JSE],” he says. “Our company’s value has been beaten down by the JSE’s actions. So if we win in the SCA, we’ll sue for damages — you can be sure of that.”
Still, given a litigation record that would make Jacob Zuma wince, shareholders probably shouldn’t hold their breath.
The way Van Rooyen tells it, the JSE overstepped by telling his company it must account for transactions in a specific way, even though Trustco’s auditors (who are accredited by the JSE) believe their treatment is fine.
“If your auditors approve a financial transaction in a specific way, who is the JSE to say it’s not right? he says. “We must know who has the authority to say a transaction must be recorded in a specific way: is it the auditors, the JSE or the company?”
Van Rooyen says Trustco is fighting this battle for clarity on behalf of all companies listed on the JSE.
But, the FM asked Van Rooyen, if Trustco disagrees with the JSE’s rules demanding transparency and uniformity, why doesn’t it just delist from the exchange?
He says it’s a question of principle. “The JSE is still the best exchange in Africa to raise capital, and that’s just a fact. Its systems are good and it works, but I do think the JSE focuses too much on protecting shareholders, rather than growing shareholder wealth.”
That’s a controversial opinion, raising all sorts of questions about his view on governance. As it is, the JSE has come under fire for not doing enough to protect investors from dubious accounting. Most investors would say it must do more — not less.
JSE director of issuer regulation Andre Visser tells the FM that the exchange has become a lot tougher precisely to address this imperative.
“We’ve been a lot more deliberate in holding companies and executives to account, and that’s why we’ve seen more legal challenges against us, like in the Trustco case, and the challenges from [Steinhoff’s former CEO] Markus Jooste,” he says.
The JSE has now imposed a R15m fine on Jooste and barred him from being a director of a listed company for 20 years.
Yet, as the number of listed companies has dwindled to 294 from 601 in 2001, executives aren’t above using the leverage of their listing to try to extract governance concessions. (Van Rooyen himself says Trustco is “considering whether we want to stay listed”, given how “badly” it has been treated.)
But, as Just Share’s Tracey Davies warns, if the JSE capitulates to pressure from firms, “it is laying the ground for big governance failures in the future”.
Visser responds that the JSE isn’t loosening rules: instead, it has imposed maximum fines and disqualified several directors, including Tongaat’s former finance director Murray Munro, and Ayo Technology Solutions’ Mbuso Khoza and Telang Ntsasa.
Either way, it’s not easy running a stock exchange with a quasi-regulatory function, obliged to take customers to task at times.
Visser says this can’t be a factor in the way the JSE enforces its governance rules. “We have to look at this simplistically: if someone breaks the rules, we have to act,” he says. “Consequence management is important for the integrity of our financial markets.”
That’s why this tribunal ruling not only underscores the JSE’s powers, Visser says, it also reinforces the value of public censure in ensuring corporate accountability.