Millions looted while Private Security Sector Provident Fund was ‘run like a spaza shop’

14 May 2023

The FSCA upholds its decision to remove board members and impose penalties on them in their personal capacity, saying the ruling has far-reaching implications for trustees and principal officers.

Nine months after the Financial Services Conduct Authority (FSCA) took action against the errant management of the Private Security Sector Provident Fund (PSSPF), the Financial Services Tribunal has upheld the decision to remove the trustees and principal officer, Peter Zibi.

No fewer than six board members were removed from office last August and ordered to pay administrative penalties ranging from R10,000 to R230,000. The board members issued with administrative penalties were Zazi Zulu, Bonginkosi Qwabe, Sipho Miya and Cobus Bodenstein.

In a press release last Friday, the FSCA noted that the ruling has far-reaching implications for trustees and principal officers, as it confirms the powers of the FSCA to remove such officers from the boards of funds, and the feasibility of imposing penalties in the personal capacity of such representatives.

The FSCA also ruled that Bodenstein, with Marchel Coetzee and Anna Maoko, be removed from serving on the boards of the Private Security Sector Unclaimed Benefits Provident Fund and the Private Security Sector Umbrella Beneficiary Fund. The Tribunal upheld its decision to remove them, saying that “the way a board member acts in relation to the affairs of one fund quite clearly reflects on that member’s fitness in relation to another fund: one cannot defraud fund A and be a person fit and proper to be a board member of fund B.”

Principal officer ‘has a fiduciary duty’

The judgment reiterated the role and responsibilities of a principal officer, including the point that a principal officer holds a fiduciary responsibility to the stakeholders in the fund. In Zibi’s appeal against his removal, his defence ran along the lines that the only requirement for a principal officer was to be resident in South Africa, that a principal officer was bound to follow blindly the dictates of the board, and that he had no fiduciary duty and lacked any decision-making power.

In its ruling, the Tribunal made it clear that the principal officer of a retirement fund had a fiduciary duty to act in the best interests of the fund, to oversee the general workings of the fund and to ensure the board abided by the rules of the fund.

Zibi had signed off on four contracts with Salt Employee Benefits, three of which were signed after the effective date of the agreements – an irregular occurrence. Salt reportedly received R17-million as an upfront “take-on” fee. The fund also agreed to pay Salt another R33-million to load historical information, with 50% payable before any work was done. In other curious developments, Salt made various unexplained donations to organisations closely associated with board members who had supported its appointment. These transactions included the purchase of business class plane tickets for board member Cobus Bodenstein and his wife to attend a Sevens Rugby tournament in Hong Kong.

In a clear conflict of interest, Zibi was also the director and owner of a company called Vendicure, which received payment for, among other things, secretarial services. The Tribunal ruling says Zibi’s conduct in procuring his own company to provide services to the fund and receiving remuneration for such services “flagrantly disregarded the fund’s procurement policy and the duties he owed to the fund, and gave rise to a palpable conflict of interest”.

R25-million for 493 meetings

In what appears to be blatant looting of the fund, board members paid themselves more than R25-million for as many as 493 meetings, including travel and accommodation, in 2017 alone. Commenting on this, the Tribunal noted that the board members had “abused their fiduciary position for self-enrichment”. The Tribunal also upheld the view that the FSCA could take action irrespective of the office that individuals held at other funds.

Yet another board member, Zithulise Mqadi, appealed against his removal as a board member, alleging that the fund was “run like a spaza shop” and that he needed training as this was his first appointment to a board. However, the FSCA Tribunal noted that he had charged the fund R827,482 for the period September 2016 to September 2017, based on a fee of almost R8,000 per board meeting and R5,700 per sub-committee meeting, which was beyond the remuneration policy and without justification. “The rates were unjustified. They amounted to self-enrichment and the diminishing of the retirement savings of the members of the PSSPF,” the Tribunal said.

“While the FSCA accepts that the complexity of overseeing retirement funds could at times result in genuine mistakes by board members, certain conduct which can be construed as deliberate or grossly reckless, self-enriching, and an abuse of position with ulterior motives or malicious intent, will be sanctioned,” the regulatory body said. The statutory management of the PSSPF was terminated effective from 30 April 2023 and Kamlana said an enforceable undertaking had been entered into with the fund, which would see more independent trustees appointed to its board. BM/DM

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Principal officer ‘has a fiduciary duty’

R25-million for 493 meetings