Levenstein v S (890/12) [2013] ZASCA 147; [2013] 4 All SA 528 (SCA) (1 October 2013)

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[2013] ZASCA 147
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Levenstein v S (890/12) [2013] ZASCA 147; [2013] 4 All SA 528 (SCA) (1 October 2013)

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THE
SUPREME COURT OF APPEAL
OF
SOUTH AFRICA
JUDGMENT
Case No: 890/12
Reportable
In
the matter between:
JEFFERY ISRAEL LEVENSTEIN
...................................................................
Appellant
and
THE
STATE
.................................................................................................
Respondent
Neutral
citation:
Levenstein v The State
(890/12)
[2013] ZASCA 147
(1 October 2013)
Coram:
Cachalia, Bosielo, Leach and Willis JJA and Meyer AJA
Heard:
15 August 2013
Delivered:
1 October 2013
Summary: Criminal law ─ director of company
convicted of fraud and contraventions under the Companies Act 61 of
1973 ─
appeal succeeding on several counts and sentence
reduced.
Criminal Procedure ─ charge sheet and further
particulars thereto the exclusive memorial of the charge the accused
called
on to meet.
___________________________________________________________________
O R D E R
___________________________________________________________________
On appeal from:
South Gauteng High Court,
Johannesburg (Pandya AJ and assessors sitting as court of first
instance):
1 The appeal in respect of counts 2, 6 and 7 is upheld
and the convictions and sentences on those counts are set aside.
2 The appeal against the convictions on counts 1, 3, 4
and 5 is dismissed.
3 The appeal in respect of sentence on counts 1, 3, 4
and 5 succeeds to the extent that the sentences imposed by the trial
court
are set aside and replaced with the following:
(a) Count 1 ─ 12 months’ imprisonment.
(b) Counts 3, 4 and 5 (taken together for purposes of
sentence) ─ six years’ imprisonment.
(c) The sentences in (a) and (b) above are to be served
concurrently.
4 The appeal in respect of count 8 is dismissed and the
conviction and sentence on that count are confirmed.
5 The effective sentence is therefore one of eight
years’ imprisonment.
___________________________________________________________________
J U D G M E N T
__________________________________________________________________
LEACH
JA (CACHALIA JA AND MEYER AJA concurring)
[1] The appellant, a chartered accountant and
businessman, was tried in the South Gauteng High Court on six charges
of fraud ─
counts 1 to 6 ─ and two charges under the
Companies Act 61 of 1973 ─ counts 7 and 8 (the latter Act has
since been
repealed, but all references to the Companies Act
hereinafter are to the 1973 Act and not to the ‘new’
Companies Act 71 of 2008
). The appellant denied his guilt but, after
a marathon trial, was convicted on all eight counts. He was sentenced
to eight years’
imprisonment on each of the six counts of
fraud, to one year’s imprisonment or a fine of R500 000 on
count 7, and to
a further two years’ imprisonment on count 8.
The court also ordered that seven years of each of the sentences
imposed on
counts 2 to 6 and one year of the period of imprisonment
imposed in respect of count 8, should run concurrently with the
sentence
of eight years’ imprisonment imposed on count 1.
Effectively, then, the sentence is 15 years’ imprisonment, to
be reduced
to 14 years’ imprisonment on the appellant paying
the fine of R500 000 imposed in the alternative on count 7.
[2] With leave of the court a quo, the appellant appeals
to this court against all his convictions as well as the sentences
imposed,
save for that on count 7. Although leave to appeal was
granted on 8 October 2009, it has taken almost four years for the
record
to be prepared and the appeal to be heard by this court. As
appeared from an application for condonation granted at the outset of

the hearing, this unfortunate delay is in no way attributable to the
appellant.
Background
[3] The charges against the appellant relate to events
which occurred while he was an executive director of a bank and its
holding
company that collapsed in 2001. Before dealing with those
charges it may be useful to place the facts giving rise to the
allegations
levied against the appellant in their historical context.
[4] The appellant, who is by training an accountant and
auditor, founded an accounting practice known as Levenstein and
Partners
in about 1980. Later, in about 1988, he established a bank
known as Wingate Finance, a public company of which he was the chief

executive officer (‘CEO’) whose core business was banking
with specific emphasis on the financial needs of accountants.
In
1993, Wingate merged with Mercantile Bank but, although he was given
a seat on Mercantile’s board, he resigned in mid-1994
as a
result of a dispute about shares.
[5] Despite this, the appellant’s appetite for
banking had been whetted, and a year later he, his brother-in-law, Mr
Jack
Lurie, and a number of associates Messrs Ronnie Buch, Daryl
Krawitz, Zacha Lopes and Keith Diesel, were vendors of a new company,

called Rand Treasury Limited, incorporated on 17 July 1995. The
appellant was not only a director of this company and its designated

deputy chairman, but he described himself as being its ‘
de
facto
CEO’. It is clear from the evidence that at all times
thereafter the appellant was the driving force behind the company and

its business.
[6] On 10 September 1996, the Reserve Bank granted Rand
Treasury Limited a banking licence. A few days thereafter, on
16 September
1996, the company’s name was changed to Regal
Treasury Private Bank Limited
1
(for convenience I intend to refer to it simply as
‘Regal Bank’). On 30 December 1996 it was registered as a
bank.
[7] Regal Banks’s history was fraught with
tension, conflict and controversy. Its original chairman, Mr Peter
Springett, a
man with a long history in the banking industry and who
had been appointed in August 1995, resigned in January 1998 after
having
been embroiled in a lengthy dispute with the appellant about
the scope of his duties. The appellant thereafter assumed the mantle

of chairman, but this brought him into conflict with the Reserve Bank
which, in the exercise of its supervisory functions under
the Banks
Act 94 of 1990, objected to him being both chairman and CEO,
contending this was not good corporate governance. It took
until 30
September 1999 before the appellant backed down and his
brother-in-law Mr Lurie was appointed chairman. Another source
of
conflict at the bank into which the Reserve Bank was drawn was the
high turnover of executives and senior members of the bank’s

staff who found it difficult to work with the appellant, which led to
doubts about Regal Bank’s corporate governance. Moreover
there
was considerable conflict between the company and its auditors to
which I shall return in due course.
[8]
In any event, in a move both
supported and encouraged by the Registrar of Banks, Mr Christo Wiese,
whose policy was that banks should
not be involved in non-banking
business,
it was decided to
establish
a group structure to enable the
bank to conduct purely banking business and other companies within
the group to perform non-banking
business. On 27 November 1998, Regal
Treasury Bank Holdings Limited (‘Holdings’) was
incorporated as a public company
in order to achieve this end.
Thereafter, under a scheme of arrangement under
s 311
of the
Companies Act, the
entire issued share capital of Regal Bank was
acquired by Holdings with shareholders in Regal Bank receiving a like
number of shares
in Holdings. This took effect on 1 February 1999,
and was followed by Holdings being listed on the Johannesburg Stock
Exchange
on 25 February 1999.
[9] The fortunes and businesses of Regal Bank and
Holdings were thereafter inextricably linked. Indeed, both during the
course of
the trial and in the heads of argument filed by both sides
in this appeal, the identities of the two entities were conflated and

reference was made purely to ‘Regal’. As a matter of
convenience, I intend to do so as well although, when appropriate,
I
shall refer to each separate entity by name.
[10] During the course of Regal’s annual audit for
the financial year ending February 2000, a serious conflict arose
between
the appellant and Regal’s auditors, Ernst & Young
(‘E&Y’) in regard to the valuation of certain
unlisted
investments held by Regal. Referred to in argument as ‘the
branding dispute’, I shall deal with it more fully in
discussing
the first charge against the appellant. In any event, E&Y
referred the matter to the Registrar of Banks which led to various

meetings between representatives of the Reserve Bank, E&Y, the
appellant and various other members of the Regal boards. It
also led
to another firm of auditors, KPMG, being appointed to prepare a
report under s 7 of the Banks Act. Eventually the appellant
and Regal
capitulated in regard to the amount to be given to the branding
income and reflected in Regal’s financial statements,
which
were thereafter published in controversial circumstances on the Stock
Exchange News System (‘SENS’) and had to
be corrected
some days later.
[11] Further problems and audit issues arose out of
Regal’s financial results for the year ending February 2001,
that had
been published on 30 April 2001. This was followed by
various press articles about Regal’s business that were by no
means
complimentary, and at an extraordinary board meeting held on 13
June 2001 the appellant was removed as CEO of Regal Bank. At the
time
Regal was experiencing liquidity problems which it sought to ease by
selling off part of its business. With the view of a
possible
purchase, Investec conducted a due diligence on Regal, during the
course of which certain disclosures were made adverse
to the bank and
its practices. The proposed sale to Investec fell through.
[12] As Mr Wiese explained, the banking industry was in
something of a crisis at the time. The stock market had come to the
end
of a long bull run and the economy had run out of steam. There
were liquidity concerns about banks and the market was nervous,
especially about smaller banks, and a run of depositors withdrawing
their investments could easily have had a contagious effect
and
spread to other banks. The situation was exacerbated by there being a
number of new banks and greater competition to attract
the funds of
investors. According to Mr John Martin, an assistant general manager
in the Supervision Division of the Reserve Bank
who testified in the
court a quo, ‘the banking system was overbanked’.
[13] Urgent steps therefore had to be taken. On 24 June
2001, during another extraordinary board meeting, it was decided that
45%
of Holding’s issued shares that were then being held,
directly or indirectly by Regal, should be cancelled; the appellant

would retire with immediate effect; and the Reserve Bank would be
asked to provide liquidity assistance for a week. The next day,

following a meeting between representatives from Regal and the
Reserve Bank, a cautionary announcement on Holdings was published.

This led to a run on Regal Bank which was unable to pay its
depositors their investments. Within a day, Holdings shares were
suspended
on the Johannesburg Stock Exchange and an application was
brought to place Regal in curatorship. Regal never recovered and, on
14 February 2004, was placed into final liquidation.
[14] So much for the sad story of the life and death of
Regal. In the aftermath of these unhappy events, the appellant was
charged
and convicted on the various counts I mentioned at the
outset. I now turn to consider whether he was correctly convicted.
Count 1
[15] The first charge arises out of the so-called
branding dispute mentioned above. At the outset it is necessary to
deal in greater
detail with the nature of the dispute and the events
that occurred surrounding the publication of what the State alleges
amounted
to a fraudulent misrepresentation.
[16] Regal Bank had aligned itself with four companies,
in particular Kgoro and RMI,
2
with whom it had concluded licensing agreements
entitling them to use Regal’s brand name or trademark (defined
in the agreements
as being the name, logos, designs and similar marks
owned by Regal and the goodwill attaching thereto). As consideration
for this,
Regal was to receive a percentage of the total issued
shares of the ‘branded’ company. It was not the
acquisition of
shareholding in the branded companies but the value to
be placed on the asset acquired in the process that caused
difficulty.
[17] In preparing its financial statements for the year
Regal, at the appellant’s behest, adopted a valuation model
based
on potential rather than real income. This flew in the face of
what is commonly known as the Generally Accepted Accounting Standard

or ‘GAAP’, the standard recognised by the Reserve Bank
for banks under its supervision. Regal prepared its draft financial

results on the basis of a branding value of R55 million, a figure E&Y
was unable to approve on audit.
[18] The differences between the two sides were
substantial. E&Y, using a capitalization of earnings based
approach, valued
RMI’s business at almost R20.5 million and, as
Regal held 25% of RMI’s shares, was only prepared to value
Regal’s
share of that business at just over R5.1 million.
Regal, on the other hand, reflected RMI’s value at R23 million
in its balance
sheet, and the appellant attempted to persuade E&Y
to accept that its value could in fact exceed R32 million. Similarly,
although
E&Y viewed the Kgoro business opportunity as an exciting
and potentially profitable business venture, it felt that it was
still
unproved and at that stage was only worth a nominal value of R1
million. Accordingly it estimated Regal’s share thereof at

R250 000. As against that, the appellant argued that Regal’s
interest in Kgoro could even be valued at more than R44
million, a
figure substantially higher than the R15 million reflected in the
financial statements it had submitted for audit. There
was thus a
gulf between the two sides, with Regal pushing for a branding income
for the year of R55 million and E&Y not being
prepared to go
beyond R5.5 million.
[19] In support of the figures he advanced, the
appellant relied both on a valuation obtained from two consultants
who held themselves
out as having business valuation expertise to
endorse his method of business valuation. But E&Y were not swayed
and, in
May 2000, they informed the Reserve Bank
that they had reached an impasse with Regal in regard to the issue,
that they were not
prepared to recognise the model by which the
appellant valued Regal’s shareholding in the branded companies
and that, if
Regal would not alter its stance, they would qualify its
financial statements.
[20] Auditors qualifying the financial statements of a
company could well result in depositors becoming uneasy and starting
to withdraw
their investments. In a worst case scenario, there could
be a ‘run’ on the bank, upsetting the banking climate and
leading to similar runs on other banks, to the jeopardy of the entire
industry. Accordingly, if the financial statements of a bank
were
qualified the Reserve Bank would either seek the appointment of a
curator,
3
or apply to court for the deregistration or winding-up
of the bank. In order to attempt to avoid having to do so, the
Reserve Bank
arranged a meeting with E&Y on
5 May 2000 to discuss the valuation of Regal’s
investment in RMI and Kgoro. During the course of the meeting Mr
Wiese contacted
the appellant on a speaker phone and informed him
that if Regal issued results which E&Y qualified, a curator would
probably
be appointed and E&Y might resign as auditors. The
appellant responded by stating that his accounting model was ahead of
GAAP,
but agreed to postpone the release of the financial results.
[21] In order to obtain greater certainty on the issue,
Mr Wiese, acting under s 7 of the Banks Act, appointed KPMG, another
firm
of auditors, to assess the appellant’s accounting model
and indicate whether or not the appellant’s figures were
acceptable
under GAAP. While awaiting KPMG’s report, the
appellant wrote to Mr Wiese in an attempt to justify the model of
valuation
he had adopted, and expressed his belief that Regal had
provided irrefutable and persuasive evidence to KPMG that the
qualification
envisaged by E&Y was ‘totally unjustified and
indeed irresponsible’.
[22] The appellant’s optimism was shown to be
misplaced when the KPMG review report came to hand. It supported E&Y
and
concluded that it was too soon to reliably measure the branding
income. But it agreed that the amounts reflected in the financial

results advanced by the appellant did not conform to GAAP.
[23] This report was delivered to the Reserve Bank at a
meeting on 15 May 2000. It was the start of a busy day. Regal was due
to
publish its annual financial statements within two days, and
finalisation of the audit was thus a matter of urgency, and the
meeting
between KPMG and the Reserve Bank was the first of four
meetings relating to Regal’s financial reports that took place
that
day. It was followed by a meeting between members of the Reserve
Bank and E&Y at which it was mentioned that the appellant had

stated that the market was expecting an earnings per share (‘EPS’)
announcement of 79 cents. To this Mr Strydom of
E&Y responded by
stating that until the branding scheme realised income it could not
be taken into account in assessing Regal’s
profit, and that if
Regal persisted with its financial statements reflecting an EPS of 79
cents it would convey the wrong picture.
In addition, Mr van Heerden
of E&Y stated that E&Y would be prepared to sign off on the
financial statements at 43 cents
per share.
[24] Flowing from this, another meeting was held at the
Reserve Bank later that day attended by representatives of the
Reserve Bank’s
Bank Supervision Department including Mr Wiese
and Mr Martin, representatives of KPMG and the appellant representing
Regal. The
appellant was told that KPMG concurred with the findings
of E&Y, and Mr Wiese urged him not to publish the financial
statements
if they were qualified as the Reserve Bank would then have
no alternative but to deregister the bank.
[25] The appellant appeared to be obdurate and so Mr
Wiese called a further meeting, this time with Regal’s
chairman, Mr Lurie,
and the chairman of Regal’s Audit
Committee, Mr Buch, to whom he explained that if Regal was to avoid
deregistration it would
have to accept the auditor’s suggested
valuation of the branding income being no more than R5.5 million.
Mr Strydom,
indicated that E&Y would sign off on the
financial statements if Regal used that valuation.
[26] Faced with this ultimatum, the appellant bowed to
the inevitable and instructed Mr Jonathan Davis, who was at the time
Regal’s
Chief Financial Officer, to redraft the financial
statements by reversing approximately R50 million of the amount
reflected in
the draft statements in regard of branding income so as
to allow only R5.5 million in that respect, and to amend the profit
announcement
accordingly. Mr Davis, who also testified, stated that
the appellant further instructed him to ascertain what level of
earnings
Regal required in order to avoid making a trading
announcement that its EPS was less than the 48 cents of the previous
year. Mr
Davis did the necessary calculation, and informed the
appellant that to do so Regal’s profit on the figures that
appeared
in its statements would have to be increased by R6 million.
The appellant instructed him to defer R6 million of the expenditure

for the year reflected in the statements (which had the effect of a
corresponding increase in profits) and to prepare the final
financial
reports on that basis. Mr Davis complied. His evidence on these
events was not challenged by the appellant in cross-examination
and
can be accepted, as the trial court did.
[27] According to Mr Davis, on the appellant’s
instruction the commentary in the draft press announcement was also
amended,
not only by the inclusion of a statement that branding
income had been deferred, but by the additional comment that expenses
of
R18 million relating to the branding income had already been
written off. However Mr Davis testified that the actual branding
expenditure
could never have been R18 million but was probably under
R1 million (in this he was supported by the auditor, Mr Strydom),
that
he had no idea how the appellant had arrived at the figure of
R18 million and that when he had asked what E&Y’s attitude

would be to the adjustments, the appellant had replied that he would
deal with them. The appellant later instructed Mr Davis to
contact Mr
van Heerden of E&Y
in order to get someone to
audit the R6 million adjustment, but he was unsuccessful in doing so.
The financial results in their
final form were therefore published
without the auditors having seen them. This the appellant knew. Not
only is this apparent from
his own evidence but Mr Davis told him
that Mr van Heerden’s secretary had said that he was away for
the day.
[28] It was in this way that Regal’s 2000
financial results came to be published, first on the Johannesburg
Stock Exchange
News System (‘SENS’) late on 16 May 2000
(a copy of which was forwarded to the Reserve Bank as required under
s 65
of the Banks Act) and, subsequently, in the popular press the
following day. Under a sub-heading ‘Banking Model’, the

financials contained the statement that ‘Regal’ had
developed a ‘futuristic financial model’ and that
‘prevailing accounting standards do not have the flexibility to
account for the model and this new asset class philosophy
in a
current year’. Despite this it went on to allege that the model
‘has, and will create enormous wealth for shareholders’

and that:
‘
Regal
are in disagreement with the Auditors regarding the disclosure and
treatment of certain investment securities created by the
model. By
appointment the complexities and design features of the model are
available for inspection and discussion at Regal’s
Revonia
office. . . . The divergence between old and new accounting standards
manifests in a so-called valuation difference of
R30,5m, after
taxation, reducing earnings per share by 30 cents . . .The Board
approved the year end results reflecting earnings
per share of 79.96
cents. At the request of the Registrar of Banks we have agreed to
defer the valuation difference. All expenditure
incurred to generate
this income has been written off in the current year. We estimate
that approximately R18 million of expenditure
relating to the
new model has been accounted for on this basis. Generally accepted
accounting practice allows for the setting off
of this expenditure
against the income deferral. Regal, as detailed above, has absorbed
the full brunt of this expenditure in the
current year.
’
[29] The publication of the financials in this form
brought an immediate and indignant response from E&Y. In a letter
the chairman
of E&Y, Mr Tom Wixley, addressed to the directors of
Holdings on 17 May 2000 (also copied to Mr Wiese at the Reserve
Bank),
he complained about the SENS announcement and demanded that a
correction notice be published immediately stating, inter alia, that

the ‘reference to earnings per share of 79.96 cents in the
announcement should be ignored.’ It was as a result of this

that on 25 May 2000 Regal published the following announcement:
‘
The
section under banking model in Regal’s audited results appears
to have caused a level of misunderstanding amongst shareholders
and
investors:
Regal Directors together with
our auditors Ernst & Young wish to place on record that the 50
cents per share referred to in
the results was arrived at in
accordance with generally accepted accounting practice and that
further reference to amounts of 79.96
cents per share were based on
alternative valuation and accounting methodologies.
’
[30] Subsequently E&Y agreed to sign off on Regal’s
statements in the form they had been published, but only after having

visited the bank when, on the appellant’s own version, he for
the first time explained to them how he had arrived at the
figure of
R18 million in respect of branding expenditure, a sum which he
contended was not to be married with operating expenditure.
However,
both Mr Wixley and Mr Strydom of E&Y testified that they had only
agreed to accept the published results as the adjustment
which had
been made without their knowledge fell within the audit materiality
of the company ─ that being an amount by which
the figures of
the company and its auditors could differ without the auditors having
to qualify the financials. In doing so, they
were also motivated by
there being a banking crisis in the country following the recent
demise of two other banks. Mr Strydom explained:
‘
Our
audit materiality was 6-million. We were extremely unhappy with the
6-million (that was deferred). However this was presented
to us after
the fact and we had to make a decision what would our reaction be. My
Lord we were very aware of the consequences of
any decision on our
behalf. Here was a profit announcement that was put in the paper
without our authority. We could very easily
(have) put on SENS a
statement that the profit announcement as published by Regal was not
audited. My Lord at that time we already
had the beginnings or a
portion of the so-called tier two bank crisis . . . a statement . . .
saying we have never given our consent
might just have been the end
of Regal. My Lord this is not only an audit materiality issue, where
we as auditors in the light of
the consequences had to justify the
6-million for audit purposes. The real issue is that a set of
financials, profit announcement
was published . . . with entries . .
. not vetted by the auditor and it was stated that it was vetted by
the auditor. The effect
of this 6-million is in fact extremely
material from the point of investors, because it changed their
earnings per share . . ..
If the 6-million was not deferred, there
would have been a decrease in earnings per share. After the deferral
of the 6-million
there was a slight increase in the earnings per
share. My Lord we as auditors decided for 6-million we were not going
to put the
future of Regal at risk . . . [T]herefore the reasoning
was that whatever the 6-million is, . . . we were in a position and I
would
say, would still be in a position, to live with the adjustment,
although forced on us to accept.’
[31] Although they were ultimately accepted by E&Y
in these circumstances, the publication of Regal’s financial
results
in the form they were in on 16 May 2000 formed the basis of
the charge against the appellant on count 1, it being the State’s

contention that the announcement contained misrepresentations of fact
fraudulently made to induce persons using the financials
to act to
their actual or potential prejudice. The charge set out in the charge
sheet was lengthy and convoluted. It included both
positive
allegations of factual misrepresentations actually made as well as
negative allegations relating to alleged fraudulent
omissions. The
State’s case in respect of the latter was not upheld by the
court a quo and it was not suggested on appeal
that it had erred in
failing to do so. The debate on this count thus centred upon alleged
misrepresentations of fact actually made
in the announcement.
[32] Pruned of the allegations relating to the unproved
omissions, the charge read as follows:
‘
IN
THAT, on or about 16 May 2000 and in Sandton in the District of
Randburg, the accused, in concert with others or otherwise, did

unlawfully, falsely and with the intent to defraud, expressly or
impliedly represent to Ernest & Young and/or the Reserve Bank

and/or Regal Bank’s depositors and/or Regal Holdings’
shareholders and/or users of its financial statements:
That
the preliminary results for the year ended 29 February 2000 had been
“audited” at the time of publication thereof
whereas in
fact it had not;
That
Regal Holdings’ board had approved the year-end results
reflecting earnings per share of 79.96 cents whereas in fact
it had
not;
That
approximately R18 million branding expenditure had been written off
during 2000 whereas in fact such expenses had not been
identified
and written off;
That
all expenditure incurred by Regal Bank to generate branding income
had been written off in the 2000 year whereas in fact
R6 million
branding expenditure had been deferred; . . . .
Causing
Ernest
& Young to express an invalid or defective audit opinion and/or
not to qualify its report;
Shareholders
and/or potential shareholders to buy, sell or hold their shares;
Depositors
to deposit, withdraw or hold their deposits;
Shareholders,
depositors and/or users of its financial statements to accept the
financial statements as correct;
The
Registrar of Banks to maintain the bank’s registration;
To the prejudice or potential
prejudice of Ernest & Young and/or the Reserve Bank and or Regal
Bank’s depositors and/or
Regal Holdings’ shareholders
and/or users of its financial statements;
WHEREAS in truth and in fact the
accused, when he so represented or gave out, well knew:
That
the preliminary results for the year ended 29 February 2000 had not
been “audited” at the time of publication
thereof;
That
Regal Holdings’ board had not approved the year-end results
reflecting earnings per share of 79.96 cents;
That
approximately R18 million branding expenditure had not been
identified and written off during 2000;
That
all expenditure incurred by Regal Bank to generate branding income
had not been written off in the 2000 year and in fact
R6 million
branding expenditure had been deferred.
.
. .
NOW THEREFORE the accused is
guilty of fraud.’
[33] The State’s case in respect of the alleged
misrepresentation relating to the 79 cents EPS
which
it alleged had not been approved by the board is confusing. The
evidence establishes that generally a company’s financial

statements, once audited, are only published upon approval by its
board. The State alleged this had not happened after the meetings
on
15 May 2000 and that the financials announcing an EPS of 79 cents had
not been so approved. However, having regard to the content
of the
publication, it is clear that what was announced was not an EPS of 79
cents. Instead it indicated that although the board
had approved an
EPS in that amount,
it
had been reduced by 30
cents due to the valuation dispute with the auditors. And we know
from the evidence not only that, on the
figures put forward by Regal
for audit an EPS of 79 cents was justified but also that, on 26 March
2000, the board had approved
a dividend policy to pay a 13 cents
dividend on an expected EPS of 79 cents should the financial
statements be accepted on audit.
Essentially then, even if the board
did not approve the financials before they were published (an issue
of some dispute –
the appellant contended that there had been
substantial compliance with this requirement), what was set out in
the announcement
in regard to an EPS of 79 cents was accurate and the
State failed to prove any misrepresentation in this respect.
[34] The allegation in the charge that the appellant
knew that all expenditure incurred by Regal to generate branding
income had
not been written off in 2000 as R6 million of such
expenditure had been deferred, is equally confusing. The evidence led
on behalf
of the State was that branding income could not have
exceeded R1 million, and thus R6 million branding expenditure
was not
available to be deferred. The evidence was, in fact, that R6
million of what had been set out as being Regal’s branding
expenditure
was treated as deferred in order to increase its EPS, but
that is not the essence of the misrepresentation alleged against the
appellant in the charge. This may well have been the product of
careless drafting of the charge, but the State is bound by that
which
it alleges. The appellant cannot be found guilty of fraudulently
misrepresenting that all the branding expenditure had been
written
off knowing that R6 million branding expenditure had been deferred
when expenditure in that amount had not been incurred.
[35] Turning to the other elements of the charge, as
proof of the allegation that the appellant had misrepresented that
the financial
statements as published had been audited whereas they
had not, the State relied upon the fact that the statements, as
adjusted
by Mr Davis (reducing the branding income but adjusting the
profits by deferring R6 million expenditure to justify an earnings
per share of 50 cents) had not been seen by E&Y nor approved by
them before being published. Consequently, so it was argued,
E&Y
had not signed off on their audit, the appellant knew this and
therefore knowingly made a false representation in this
regard; as he
also did in regard to the R18 million branding expenditure.
[36] There is no magic in the concept of an auditor
‘signing off’ an audit. As explained by Mr Strydom, the
process
involves no more than a verbal statement from the auditor
authorising the company concerned to go ahead and publish the
financials
in their final form. But there can be no doubt that the
financials in their final form had not been signed off as audited.
E&Y
had approved neither the deferral of R6 million of the
expenditure reflected in the draft financial statements so as to
result
in an EPS of 50 cents per share nor the statement that R18
million of branding expenditure had been written off. By the same
token,
the R6 million expenditure deferral had not been disclosed nor
approved by E&Y; instead the amount of the operating expenses

contained in Regal’s statements was merely adjusted.
[37] I am therefore satisfied that in those limited
respects the appellant knew that the financial statements contained
figures
that did not bear the auditors’ approval. But that does
not in itself justify a conviction of fraud. For that to result, he

must have knowingly misrepresented the truth with the intention to
induce persons embarking on a course of action to their actual
or
potential prejudice. It is to this issue that I now turn.
[38] I accept that the appellant felt passionately that
his method of valuation was ahead of its time, believed that GAAP was
inadequate
for this purpose and felt that the auditors ought to have
placed a far higher value upon Regal’s branding income. I also
accept that by adopting the appellant’s method of valuation, it
may well have been possible to show, as he alleged, that at
least R18
million branding expenditure had been written off. However the fact
remains that he knew that E&Y, as well as the
other accountants
and the Reserve Bank, firmly disagreed with his methodology. He also
knew E&Y had approved neither R18 million
being written off in
respect of branding expenditure nor R6 million expenditure being
deferred in order to achieve an EPS of 50 cents.
Moreover he
knew that if the branding income E&Y was prepared to allow was
used, Regal’s EPS would have been substantially
less than that
of the previous year ─ and that Regal’s results had been
manipulated by way of the R6 million deferral
in order to avoid that
result.
[39] Thus although the audit process had dragged on for
many months, and despite many of the figures used to draw the
financial
statements having been approved on audit, the inescapable
reality is that the figures as ultimately published did not bear the
auditor’s approval. The appellant not only knew that to be so
but orchestrated their misrepresentation in order to make Regal

appear more attractive to investors and depositors than would
otherwise have been the case. Not only had the R6 million
deferral
resulted in a higher EPS value but the announcement was
misleading in stating that as a result of Regal having ‘absorbed
the full brunt’ of the R18 million branding expenditure that
year, it was ‘positioned very powerfully for the ensuing
year’.
The inference is inescapable that the appellant intended to influence
investors and depositors by setting out information
that he knew had
not been approved by the auditors despite the claim that the
financials had been audited; and he must have appreciated
that they
could act to their actual or potential prejudice if they relied on
financial statements falsely declared to have been
audited.
Consequently, on this limited basis the appellant was correctly
convicted of fraud on this count.
Count 2
[40] The charge on this count relates to an alleged
misrepresentation made by the appellant to E&Y during the course
of their
annual audit for the financial year ending February 2000.
The State relied upon the content of a standard printed form document

headed ‘Directors’ Remuneration Notification’ that
company directors are required to complete for use in the
preparation
of their company’s annual financial statements and audit. Under
the heading ‘Emoluments’, it contains
a list of items
such as director’s fees, basic salary, bonuses, and expense
allowances, with a space provided alongside each
to be filled in by
the director in respect of the financial year in question. It is
common cause that for the year ending 28 February
2000 the appellant
completed and signed such a form in which the only amount inserted
was his basic salary of R413 000. Although
the date of signature
was not inserted, it was admitted at the outset of the trial that it
had been signed in March 2000 and that
it constituted an advice to
E&Y that his remuneration for the year was R413 000
(presumably on the basis that it was made
available to E&Y during
the annual audit).
[41] As I understood the case of the State both on this
and several of the other charges of fraud, reliance was placed on
what may
be termed a primary misrepresentation made to E&Y to
induce them to prepare factually inaccurate financial statements
which
would represent a consequent, secondary misrepresentation to
other users of those statements. In any event, it alleged that the

content of this form was false in that the appellant knew that he had
failed to disclose certain additional emoluments he had received,

namely;
(a) A bonus of R2 million paid to him by Regal Bank on
or about 15 February 2000;
(b) Approximately five million Regal Holdings shares
that had been allocated to him; and
(c) An additional amount of approximately R220 000
paid to him by Regal Bank during the period March 1999 to February
2000.
[42] Pertinent to the alleged bonus of R2 million and
the five million shares is a letter dated 29 December 1999 addressed
by the
appellant to the chairman of Regal Bank in which he requested
that certain matters be taken up with Regal’s board at its
meeting in January as a matter of urgency as he saw ‘the next
three weeks as presenting a brief “window of opportunity”

to satisfactorily address my requests, which opportunity may not
present itself again’. After having stated that he had largely

shouldered the pressures and responsibilities of the bank and that
more than 50% of the bank’s profits had been generated
directly
from his desk, the appellant went on to say:
‘
I
submit that my efforts for Regal from inception to date justifies a
cash bonus of R2m and a structural re-design of my restraint
share
allocation. The Greenwich deal crystallizes into focus the gross
share allocation distortion that currently prevails. When
the
Greenwich transaction is completed and new Regal shares are issued to
Greenwich shareholders, an unacceptable result thereof
will be that
certain Greenwich executives will then hold substantially more Regal
shares than myself. I may not, and cannot function
on an equity
platform that is subservient to people under my control. I submit
that a fair and reasonable change to my existing
equity position
should embrace the following:
(i) a further restraint
allocation of 5 million shares, subject to a sale embargo thereof
over a three year period;
(ii) the prevailing structure
(regarding the original allocation of shares) to remain contractually
unchanged.
Cognizance must be taken that
the rationalization of various listed groups onto the Regal equity
platform will expand the number
of shares in issue. I am told by the
market on a regular basis that (K) is not . . .“in my League”.
I am certainly
not in his financial league (equity and income). I . .
. have had to carry the group during its entire history. Justice and
fairness
must now prevail.
In the interest of protecting
and safeguarding shareholders and depositors, this issue should
arguably have been rectified proactively
by the Board in the past.
This letter however should provide the impetus for driving the
process. My patently inequitable financial
predicament must be
rectified expeditiously. The status quo is untenable.’
[43] It is common cause that the foot of this this
letter was subsequently endorsed by the chairman with the comment:
‘
The
non-executive directors of REGAL have unreservedly and
unconditionally authorised and approved the contents of this letter
relating to cash and the shares requested by the Chief executive
officer ─ Mr Jeffrey Levenstein.’
This endorsement was not dated. However, in a letter
dated 26 January 2000 addressed to the chairman of the board by Mr PF
Nhleko, at the time a non-executive director of Regal, mention is
made of a meeting of the non-executive directors held on Tuesday
25
January 2000. Mr Nhleko went on to confirm that in principle he had
no qualms with the appellant’s remuneration structure
being
reviewed and Regal’s restraint agreement with the appellant
being re-assessed, although he suggested that a remuneration

committee should be established in accordance with the ‘King
Code’ for corporate governance.’ In the light of
this,
the endorsement was presumably made by the chairman pursuant to the
meeting mentioned by Mr Nhleko.
[44] Dealing first with the State’s allegation
that the appellant failed to disclose a bonus of R2 million, it is
common cause
that Regal paid him that sum on 15 February 2000. In
essence the State’s contention is that the appellant asked the
board
for a R2 million bonus in his letter of 29 December 1999; was
thereafter paid R2 million on 15 February 2000; and that must
therefore
have been the bonus for which he had asked.
[45] Things are not always as simple as they seem. The
sum of R2 million was paid the day after the appellant had concluded
a written
agreement with Holdings and Regal Bank. This agreement
records that in 1995 the appellant had signed a restraint of trade
agreement
in which, as consideration for the restraint obligations to
which he had bound himself, he had been issued and allotted shares in

Regal Bank which had been exchanged for a like number of ordinary
shares in Holdings prior to its listing in February 1999. It
went on
to record that in recognition of the value of the appellant’s
‘know how and intellectual capital’, the
necessity for
the Regal group to continue to have that benefit and in order to
protect Regal from competitors, agreement had been
reached to modify
and amplify the terms of the original restraint ─ and that as
consideration for the additional restraint
obligations (the terms of
which were spelled out in the agreement but are unnecessary to
repeat) Regal agreed to pay the appellant
a cash amount of R2 million
and to transfer to him five million ordinary shares in Holdings.
Clause 4.2 of the agreement reads:
‘
The
[appellant] acknowledges that, if he is not restricted from competing
with Regal, Regal will potentially suffer considerable
economic
prejudice, including loss of custom and goodwill. Accordingly, Regal
considers it essential to protect the Regal’s
interests that
the [appellant] agrees to a restraint of trade undertaking in its
favour to ensure that [he] will be precluded from
carrying on certain
activities which would be harmful to the business of the Regal;
restraint period being 3 years.’
[46] In the light of this, the appellant testified that
the R2 million he received was not in fact a bonus but a payment made
in
restraint of trade. As mentioned by the court a quo in its
judgment, he also pointed out that in his tax return for the year
2000
he had recorded the R2 million payment as being a non-taxable
receipt or accrual forthcoming from a restraint of trade.
[47] At the time the R2 million was paid, amounts paid
to employees to compensate them for binding themselves to restraint
agreements,
and thereby sterilising a part of their earning capacity,
were indeed regarded as being receipts of a capital nature and not as

taxable income,
4
although a change in that regard was imminent. Under the
Taxation Laws Amendment Act 30 of 2000
, the definition of ‘gross
income’ in the Income Tax Act 58 of 1962 was shortly due to be
amended to render taxable
any compensation paid for a restraint of
trade received or accrued on or after 23 February 2000
5
(this might explain both why the appellant regarded the
matter as urgent and his reference to a ‘window of opportunity’

that might not again present itself, but that issue was not explored
during the trial). But as the payment to the appellant was
made
before 23 February 2000, if it was indeed a restraint payment he was
perfectly entitled to regard it as being non-taxable.
[48] The R2 million was reflected in Regal Bank’s
books of account as being a payment in respect of a restraint of
trade and
dealt with as such: it was reflected under the title
‘Intellectual Capacity’ as a fixed asset with the amount
being
capitalised and the charge to the income statement spread over
a period of ten years. This shakes the very foundation of the State’s

case. If Regal regarded the payment as being one in restraint of
trade, and it was accepted as such by the appellant, then it cannot

be construed as having been a bonus. In order to succeed on this
issue, the State was therefore obliged to show that the restraint

agreement of 14 February 2000 was not what it purported to be.
[49] The State did not seek to prove that the agreement
was a fraud on the fiscus (to avoid the payment being subjected to
tax)
nor did it allege that both Regal Bank and Holdings, both of
whom signed the restraint, were complicit in such a fraud. In
addition,
the representatives of Regal who signed the agreement were
not called to explain why they had done so. That is a major
difficulty
for the State. The mere fact the appellant was paid R2
million after he had asked for it as a bonus does not necessarily
lead to
the conclusion that Regal bowed to his demands and treated it
as such. Restraints of trade are commonplace, and it may well be that

on agreeing to pay such a large sum to the appellant, Regal felt it
would be best to protect itself at the same time by extending
the
terms of the original restraint. That is of course speculation, but
it illustrates that Regal may well have had some good reason
to pay
the amount as a restraint consideration rather than as the bonus
originally requested.
[50] Consequently, the existence of the restraint
agreement cannot be ignored on the simple basis that the appellant
had initially
asked for a bonus. Importantly as appears from Mr
Nhleko’s letter of 26 January 2000, Regal’s non-executive
directors
had agreed to the appellant’s restraint agreement
being re-assessed at their meeting the previous day. Not only does
this
support the appellant, but it provides the explanation for the
subsequent restraint amendment. Indeed when Mr Nhleko testified on

behalf of the State, he confirmed that the non-executive directors
had agreed that an amount of R2 million be paid to the appellant
as a
restraint and that Regal’s board had subsequently approved and
ratified that decision at a board meeting. This had led
to the
restraint agreement being drawn up and signed on 14 February 2000. I
have read the judgment of the minority in this matter
and in the
light of these facts, and with great respect, their conclusion that
an inference is to be drawn that the R2 million
was paid to the
appellant as a bonus disguised as a restraint consideration, is
unsustainable. It flies in the face of the existence
of a written
restraint agreement and Nhleko’s testimony in regard thereto.
[51] There is thus no justifiable reason on the evidence
to go behind the terms of that agreement. The State therefore failed
to
prove that the R2 million paid to the appellant after that
agreement was concluded was not in fact a restraint payment but a
bonus.
[52] The finding of the court a quo in convicting the
appellant of fraud on this issue was somewhat equivocal. It concluded
that
the R2 million had been a bonus ‘or at least a material
benefit’ (seemingly as envisaged by
s 297
of the
Companies Act
to
which I shall revert below) which the appellant had been obliged
to mention in the director’s remuneration notification. This

reasoning is fallacious. Not only was the amount not shown to have
been a bonus but the appellant was charged with failing to declare
a
bonus and not with a fraudulent non-disclosure of a ‘material
benefit’ in the form of a restraint payment. In the
result, the
payment of R2 million was incorrectly taken into account in
considering whether the appellant was guilty of the fraud
with which
he was charged.
[53] The finding of the court a quo that the failure of
the appellant to mention the five million shares Regal had agreed to
give
him also constituted a fraud, can similarly not stand. Despite
the appellant’s agreement with Regal, those shares were never

transferred to him and, quite simply, there was no obligation on him
to declare a benefit he had not received. Indeed during argument
the
State informed the court a quo that it did not seek the appellant’s
conviction in regard to his failure to mention the
shares.
Startlingly, the court did not agree and proceeded to convict the
appellant of fraud in that respect. Not surprisingly,
and quite
correctly, the State did not seek to persuade this court to accept
the correctness of that decision.
[54] I turn now to the sum of R220 000 which the State
alleged the appellant had fraudulently not disclosed. This issue
related
to various amounts of the appellant’s household
expenditure that had been paid on his behalf by Regal. The court a
quo correctly
found that the State’s evidence fell short of
establishing what sums were paid but founded its conviction on the
appellant’s
own testimony that Regal had expended an average of
about R5 000 per month (a total of approximately R60 000) during the
year in
question in respect of his domestic expenses such as
telephone, lights and water etc, and held that this should have been
declared.
[55] The appellant alleged that he had an office at his
home where he worked after hours on company business, and that Regal
had
agreed to pay these amounts, in effect, to reimburse him for the
expenditure he had incurred on its behalf in providing him with
a
working space. This he said had been the on-going position since
1995, and the State did not dispute this. Nor did it dispute
that
Regal had agreed to these amounts going through its books.
Arrangements of this nature are commonly made in the commercial

sector and there is no reason to reject the appellant’s
evidence on this as false. That being so, the R60 000 paid on

the appellant’s behalf cannot be construed as remuneration. On
the contrary, if Regal had not paid it, the appellant would
have had
to have recovered the sum from Regal. The payments Regal made merely
short-circuited that process, and can in effect be
regarded as no
more than the reimbursement of expenditure the appellant had incurred
on its behalf. It was therefore not remuneration
that had to be
declared.
[56] In my judgment, then, the State failed to establish
that the appellant’s directors’ remuneration notification
was
factually incorrect in all three respects alleged in its charge
and the appellant’s conviction of fraud on this count cannot
be
sustained.
[57] In the light of this conclusion, it becomes
necessary to consider the alternative charge, namely, an alleged
contravention
of
s 249(1)
of the
Companies Act which
reads
:
‘
Any
person who in any statement, return, report, certificate, financial
statement or other document required by or for the purposes
of any
provision of this Act, whether in non-electronic or electronic
format, makes a statement which is false in any material
particular,
knowing it to be false, shall be guilty of an offence.’
[58]
It was
argued by the State that the appellant had failed to disclose all
emoluments he had received during the year 2000 in the
directors
remuneration notification, although it correctly abandoned any
reliance on the five million Regal shares on this count
for the
reasons I have already given. In the light of my conclusion that the
payment of R60 000 amount to a reimbursement
of expenditure made
on Regal’s behalf that sum, too, did not have to be mentioned.
Consequently the State focussed its argument
on the R2 million
payment which, so it was submitted, for whatever reason it was paid,
was nevertheless an ‘emolument’
that had to be disclosed
under
s 297(1)
(a)
of
the
Companies Act (it
required the annual financial statements of a
company to contain particulars showing ‘the amount of the
emoluments received
by directors’).
[59]
Section 297(2A)
of the
Companies Act went
on to
provide an extremely wide definition of what was to be construed as
‘emoluments’, including the monetary value
of any
‘material benefits’.
6
I accept that it was important for shareholders to know
what the company was paying its directors and that
s 297
was designed
to achieve that end. But whether the appellant had been obliged to
declare the R2 million as an emolument, in the
directors’
remuneration notification he signed, even if he had been paid that
sum, is irrelevant and unnecessary to decide,
despite the issue
having been dealt with at length both in evidence and argument.
[60] In criminal proceedings it is always necessary to
bear in mind the details of the offence which the accused is alleged
to have
committed as set out in the charge sheet, it being the
exhaustive memorial of the case against him.
7
On this count, it was alleged that the appellant had
contravened
s 249(1)
of the
Companies Act, not by
making false
statements in the directors’ remuneration notification, but by
making ‘statements in the year 2000 preliminary
results . . .
which were false in a material particular, knowing them to be false,
in the respects as set out in Count 2’.
Accordingly the content
of the directors’ remuneration notification and whether a
payment in restraint of trade should have
been shown as an emolument
is irrelevant to the charge. What has to be considered is whether the
preliminary results (ie those
presented to E&Y for audit)
contained the false particulars alleged in count 2.
[61] It is common cause that the R2 million paid to the
appellant was reflected in those results as being payment made in
restraint
of trade and, as I have already mentioned, it is treated in
the books of account as such. E&Y were aware of it, and informed

Regal’s management that as a restraint payment it should be
disclosed. Indeed in due course it was reflected in the audited

financial statements as a restraint payment. The State therefore
failed to establish that the appellant falsely made statements
in the
year 2000 preliminary results as it alleged, and he cannot be
convicted on the charge which he faced in the alternative
on count 2.
Count 3
[62] This charge concerns the immovable property known
as 93 Grayston Drive, Sandton (’93 Grayston’) which
had
been purchased by another Holdings subsidiary, Regal Property
Investments (Pty) Ltd (‘Regal Property’), with the
intention
of building offices to be leased to generate rental income.
This development started during 2000 and it was estimated that the
work would be completed towards the end of 2001.
[63] The appellant however devised a scheme to convert
93 Grayston into a financial instrument by selling it for delivery at
a future
date with the profit derived from the sale being brought
into Regal’s income statement from the date of contract until
transfer
eventually took place. To achieve this end, on 17 November
2000 he signed a number of transactions relating to 93 Grayston:
(a) An agreement of sale concluded between Regal
Property on the one hand and Mettle Properties International (Pty)
Ltd (‘MPI’)
under which 93 Grayston was sold to MPI
for R600 million with transfer to be effected as soon as reasonably
possible after
the ‘effective date’ (defined as being 1
January 2012). This sale (referred to as the ‘forward sale
agreement’,
a convenient title which I intend to use as well)
was subject to a resolutive condition that unless Regal Bank granted
MPI the
funding necessary to pay the purchase price by date of
registration of transfer, the agreement would lapse and be of no
further
force and effect.
(b) A preference share agreement between Regal Bank and
MPI.
(c) A put option agreement between Regal Property and
MPI under which MPI was entitled to sell 93 Grayston back to Regal
Property
in 2017.
(d) A call option between Regal Property and MPI in
terms of which Regal Property could buy all the issued shares of MPI
from Mettle
Limited (‘Mettle’).
[64] It was admitted by the appellant that he had
provided E&Y with the forward sale agreement during the 2001
year-end audit.
However, due to the resolutive condition just
mentioned, E&Y were not happy to treat the agreement as an
unconditional sale
as MPI was under no obligation to buy unless Regal
Bank provided the purchase price. This led to the appellant deleting
the resolutive
condition, and the agreement, so amended, was signed
on 7 March 2001 but backdated with effect to 28 February 2001 to
ensure that
it fell within that financial year. A copy of the amended
agreement was then made available to E&Y.
[65] Unbeknown to E&Y, the same day the amendment to
the forward sale agreement was signed, the appellant also concluded
an
amendment to the preference share agreement with MPI, inserting a
term rendering the sale of 93 Grayston conditional upon Regal
Bank
subscribing for the preference shares as regulated by the preference
share agreement and that, if Regal did not do so, the
sale agreement
would lapse. The effect of this was to restore the position as it had
been before the amendment.
[66] There can be no doubt from this that the appellant
intended to mislead E&Y. It is not without significance that.
according
to Mr Davis, when E&Y first requested a copy of the
forward sale agreement (prior to its amendment), the appellant told
him
not to disclose anything relating to the Mettle deals to the
auditors without consulting him. There can of course be no doubt that

E&Y were entitled to see the various other documents relating to
93 Grayston, as Mr Davis candidly admitted. Without them,
the forward
sale agreement did not paint a full and proper picture of what the
scheme entailed; but it was given to E&Y as
proof of an
unconditional sale of the property which in fact it was not. Had all
the relevant agreements been disclosed to them,
E&Y would not
have allowed any income to be recognised in terms of the scheme.
Ultimately, however, labouring under the misapprehension
that there
had been an unconditional sale of 93 Grayston, and after having
obtained various valuations in respect of the property,
E&Y
allowed Regal to recognise income derived from the sale in an amount
of R54 million of which R36.5 million was brought
into Regal’s
income statement with the balance of R17.5 million being taken to the
statement of audit difference as an under-accrual
of income. The
R36.5 million reflected as income accounted for approximately 41% of
Regal’s total income for the year and
increased its EPS by some
40 cents.
[67] It is readily apparent from this that the appellant
purposefully withheld necessary information relevant to 93 Grayston
from
E&Y to prevent them from learning the true state of affairs,
to cause them to audit the financial results to show that Regal
had
performed much better than it had in fact, and to make Regal a more
attractive investment haven than it was in truth. The obvious

intention in doing so was to mislead not only E&Y but also all
users of Regal’s audited financial statements and to cause
them
to act to their prejudice by taking financial decisions on the
strength of incorrect information. The appellant was correctly

convicted of fraud on this count.
Count 4
[68] This count also relates to an alleged
misrepresentation of fact affecting the audit of Regal’
s 2001
financial statements. It is common cause that Pekane Investments
(Pty) Ltd (‘Pekane’), a wholly owned subsidiary of

Worldwide African Investments Holdings Ltd, had acquired 15% of the
shares of Holdings and this had led to Mr Nhleko, already mentioned

when dealing with count 1, being appointed to Regal’s board.
Tension later arose between the appellant and Mr Nhleko, who

indicated that Pekane intended to sell its 15% shareholding in
Holdings. The appellant attempted to persuade him not to do so but,

in December 2000, Pekane offered the Holdings shares it held to Regal
Bank at R3.90 per share (less than its earlier offer of R5,50
per
share), which amounted to a total consideration of approximately
R60.2 million.
[69] Regal Bank purchased these shares. It did so as it
feared that if it did not, the shares would be dumped onto the
market, possibly
causing a collapse in the share price. Mr Van der
Walt testified that the appellant had stated that Pekane had them
‘over
a barrel’ while the appellant, in his own evidence,
described Pekane’s threat to sell as ‘pure unadulterated
blackmail’. The appellant succumbed to the pressure and on 29
December 2000, Regal Bank issued a cheque, co-signed by the

appellant, in the amount of R60.2 million as payment for the shares.
In order to raise the funds to pay this sum, Regal had to
raise a
loan from ABSA bank secured by a preference share investment it had
with ABSA. Pekane delivered the share transfer certificates
to Regal
Bank together with blank transfer forms to enable Regal to transfer
the shares to whomever it so chose.
[70] It appears that the decision to buy Pekane’s
shareholding was influenced by a opinion the appellant had obtained
from
an attorney, Henry Vorster, who had suggested that under
s
38(2)(
c
) of the Banks Act, the shares could be purchased by
Regal Bank in order for it to place them with a purchaser within six
months.
I would prefer not to comment on the validity of this opinion
but it gave rise to the appellant developing a ‘conduit
strategy’
in which he relied on s 38 as entitling the bank to
hold the shares with the view to subsequently dispose of them.
[71] Having purchased the shares, Regal’s
executive directors were requested to assist in finding a buyer for
them. This led
to Mr JC van der Walt of Regal’s executive
committee approaching a company known as Hanover Re to attempt to
persuade it
to buy the shares (the approach was unsuccessful). In
addition, as appears from the minutes of a Regal Board meeting on
31 January
2001, it was decided that the shares could be
distributed to loyal Regal supporters at a discount. Similarly, a
Regal Board minute
of 30 May 2001 reflects that the dividends
received from the Pekane shares were to be used to pay dividends to
members of
Regal’s staff who were to receive shares in due
course. And not only did Mr van der Walt approach Hanover Re to
sell
the shares but he was also tasked to establish another trust
(referred to as the ‘Executive Trust’) to create a
‘backstop’
in which to place the shares should Regal be
unable to find a buyer. All of this indicates clearly that Regal had
unconditionally
purchased the shares from Pekane..
[72] Despite this, at the appellant’s instruction
the R60,2 million Regal paid for these shares was incorrectly
reflected
in its books as an ‘overnight loan’ (viz a loan
with no agreed terms as to its repayment). It was argued on behalf of

the appellant that this was more consistent with what had occurred
than with the company purchasing its own shares. That cannot
be
accepted. Regal did not buy the shares on behalf of another nor did
it lend the purchase price to Pekane as was reflected in
the books.
It bought the shares in an attempt to avoid their price dropping and
in the hope that at some stage it might find a
buyer to whom it could
sell them.
[73] In the light of this there can be no doubt but that
the appellant orchestrated Regal Bank purchasing Pekane’s
shareholding
in Holdings for approximately R60.2 million and
reflecting the price it paid as an overnight loan to Pekane in order
to obscure
the truth. This gave rise to the State averring in the
charge sheet that he had misrepresented to E&Y or the Reserve
Bank or
Regal Bank’s depositors or Holdings’ shareholders
or users of its financial statements that Regal had made a loan to

Pekane in an amount of approximately R60 million which was secured by
shares with a market value of approximately R70 million whereas
in
truth and in fact no such loan had been made, and it had bought the
shares from Pekane.
[74] This charge flows from events that occurred during
an audit meeting E&Y held on 9 March 2001 with Regal’s
management,
including both the appellant and Mr Davis. The latter
testified that when the issue of the overnight loan to Pekane was
raised
there was an awkward silence in the room, and that he had just
blurted out that the loan was secured by a portfolio of shares valued

at R70 million. The appellant did not correct him and, in fact,
later congratulated him, saying that his answer had been ‘brilliant’.

Not only did the appellant endorse by silence what both he and Mr
Davis knew was untrue, but the falsehood was subsequently confirmed

in writing by Mr Davis in a memorandum which was approved by the
appellant and forwarded to E&Y a few days later.
[75] Mr Strydom testified that he had no reason to
disbelieve what he had been told and, consequently, a R60.2 million
asset
was reflected in the financial results as an overnight loan on
which income of approximately R500 000 was brought into Regal’s

income statements as interest. He further testified that if he had
been aware of the true nature of the R60 million payment (that
it was
a purchase price of Regal shares being bought from Pekane) the loan
would have been reversed, the share capital in Regal’s

financial statements would have been reduced and a disclosure made in
the financial statements that Pekane had sold its shareholding
in
Regal.
[76] It was clearly to avoid this occurring that the
appellant endorsed the false representation of the facts made by Mr
Davis.
Any doubt about this is removed by the fact that after the
sale of the shares Pekane continued to be reflected in Regal’s

records as a shareholder, which provides the clearest evidence of an
intention to obscure the sale of the shares. It was only on
23 June
2001, during the course of the Investec due diligence that Mr van der
Walt informed Mr Strydom of the true state of affairs
and that Pekane
had in fact sold their shares to Regal for R60.2 million.
[77] It is readily apparent from this that the appellant
made himself guilty of a misrepresentation of the facts to the
auditors.
Whether he believed in the ‘conduit strategy’,
which he said ‘shaped his mind’ and which he said was
supported
by the opinion of attorney Vorster, is irrelevant. He
purposefully misled the auditors, once more with the intention to
ensure
that certain vital financial information was not reflected in
the audited results of Regal. He was clearly correctly convicted on

this charge.
Count 5
[78] This charge also relates to the preparation of
Regal’s 2001 financial statements. It arises out of
representations made
in regard to a trust Regal had established on 15
March 1996, was referred to by its shortened name of the
‘Shareholders Trust’.
The State alleged that during the
period November 2000 to June 2001, during the course of E&Y’s
annual audit, the appellant
fraudulently represented to them that the
Shareholders Trust had sold eight million Holdings shares to a
company known as Mettle
Ltd (‘Mettle’) or one of its
subsidiaries at R5,50 a share, (a total consideration of R44
million), that the transaction
was part of the normal operations of
the trust, that the sale was an unconditional, out and out sale, and
that the price was an
indication of the market value of the shares
whereas he knew that the shares had not been sold as part of the
normal operations
of the trust and that the transaction relating to
the shares had formed part of a structured financial deal with
Mettle, was not
a true indication of market value and was not an
unconditional arm’s length sale.
[79] In August 2000, Deloittes had been appointed by the
Registrar of Banks to conduct a review of corporate governance at
Regal.
In its report, Deloittes drew attention to the fact that as at
31 August 2000 the Shareholders Trust held some five million Holdings

shares while the Incentive Trust (another Regal trust) held in excess
of 9.5 million such shares, and that the two trusts had acquired
more
than 10 million Holdings shares in the previous six months. The
minutes of trustees meetings recorded that this had been done
‘to
take advantage of the lower levels of the share price’.
Importantly, these acquisitions had been funded by substantial

advances Regal Bank made to the trusts that were secured only by the
shares themselves. The loans were not being repaid and, including

interest, the bank had an exposure of R87.4 million. Much of this was
unsecured; at the then prevailing price of Holdings shares,
the value
of the Shareholders Trust shareholding was only R17.6 million as
opposed to its debt to Regal Bank of some R36 million
while the
Incentive Trust’s debt of in excess of R51 million was secured
solely by its shareholding in Holdings of some R33.3
million
.
[80] It is common cause that when Deloitte’s
presented their findings to the Registrar of Banks at a meeting
attended by the
appellant on 23 October 2000, the appellant explained
that the aim of the trusts was not to support the share price but to
‘remove
shares from weak shareholders and to sell them to
strong holders’. He also claimed that eight million of these
shares were
to be sold at R5.50 per share within the course of the
following week. Subsequently, during November 2000 the appellant
informed
the Reserve Bank in writing that eight million shares
had indeed been sold to Mettle at a price of R5.50 which was ‘in

excess of the average price’ at which shares had been purchased
in the first instance. These are the shares which the State
alleges
were not in fact sold to Mettle.
[81] On 1 December 2000, the Financial Mail reported
that Mr Hein Prinsloo of Mettle had stated in an interview that
Mettle was
not holding a stake in Regal and that the sale of eight
million Regal shares had merely been the back leg of a structured
finance
deal. This, understandably, generated some concern on the
part of the Reserve Bank, and it requested E&Y to investigate the

issue of the sale of the shares as part of its annual audit of Regal.
It should immediately be recorded that in Regal’s draft

financial statements for the 2001 financial year, a company in the
Mettle group, Mettle Securities, had been reflected as being
a major
shareholder with eight million Holdings shares.
[82] Mr Strydom of E&Y testified that the sale of
these shares was raised at various audit committee meetings attended
by the
appellant and that the appellant had told the committee that
Mettle had erroneously denied any connection with Regal in order to

avoid bad publicity when talking to the press. He specifically stated
that the shares were unconditionally registered in Mettle’s

name. Mr Strydom’s evidence on this is supported by the minutes
of the audit committee meetings. And in a letter addressed
to E&Y
on 26 April 2001, the appellant again recorded that the sale of the
shares to Mettle ‘was unconditional and that
the shares are
registered in Mettle’s or its nominees’ name’.
[83] Despite the appellant’s assurances to the
contrary, in fullness of time it was revealed that there had not been
an out
and out sale of the shares and that, instead, the appellant
had been the architect of a complicated structure of agreements of
which the purported sale of the shares had been but one. It is not
necessary for present purposes to consider the various transactions

in any detail (they comprised a preference share agreement, a
subordinate loan agreement, a portfolio management agreement and
put
and call option agreements). It suffices for present purposes to
mention the following important features:
(a) Regal subscribed to preference shares to a value of
R125.5m in a Mettle subsidiary known a Hollowprops.
(b) Within the Mettle group, the R125.5 million
preference shares subscription price was used to acquire the eight
million shares
from the Shareholders Trust for R44 million,
which was used to settle the trust’s liability to the bank.
(c) The eight million shares were thereafter held in a
portfolio created for the benefit of Regal and managed by Mettle
Securities
but vested in a company in the Mettle group known as
Metshelf Trading 1.
(d) R80 million of the R125.5 million subscription price
was placed by Mettle on deposit with Regal Bank and vested in the
aforementioned
portfolio for the benefit of Regal.
(e) As appears from this, Regal purportedly paid Mettle
R125.5 million of which R124 million was used to buy shares from the
Shareholders
Trust for R44 million and R80 million was placed on
deposit with Regal (the difference of R1.5 million seems to have been
a fee
earned by Mettle for doing this). However, as the R44 million
was in fact used by Regal to extinguish the debt owed by the trust
to
Regal Bank, there was merely a ‘round tripping’ of money
(as so aptly described in the evidence).
(f) In terms of a put option, Regal was extended the
option to sell its preference shares in Hollowprops to Metshelf
Trading 1 while,
in terms of a call option, Mettle granted the
Shareholders Trust the option of purchasing the entire share capital
of Metshelf
Trading 1. This would include the Metshelf 1 portfolio
which consisted of the eight million Holdings shares and the R80
million
invested with Regal Bank.
(g) Apart from the R1.5 million fee Mettle earned, the
only beneficiary of the Metshelf 1 portfolio was Regal itself, and
all the
risks and rewards of the scheme rested with it.
[84] From this it appears that Regal was in effect
‘sitting on both sides’ in respect of the deal and
‘transacting
with itself with Mettle interposed as a party to
create the impression that it was an arm’s length deal’
as alleged
by the respondent. Oblivious to this, E&Y audited the
various transactions as being separate, there having been nothing in
the books of account to suggest the existence of a link between them.
The sale of the eight million shares was thus treated as
unconditional, and the financial statements audited on that basis. Mr
Strydom, who had been responsible for the audit, testified
that it
was only much later, at the time of the Investec due diligence when
he was alerted by Mr van der Walt to the truth, that
he realised that
Regal had in effect bought its own shares from the Shareholders Trust
and housed them in a portfolio of which
it was the sole beneficiary
and in respect of which it bore all the risks and rewards.
[85] It is clear from this that Regal’s 2001
financial statements as audited reflected incorrect information as a
result of
the appellant’s misrepresentations and that he had
lied, both to the audit committee and in his letter to E&Y dated
26
April 2001, by stating that the sale of the shares to the Mettle
subsidiary was an unconditional sale and not part of a structured

financial arrangement. Thus, knowing that E&Y wished to
investigate the issue, he failed to disclose the full suite of
transactions
that made up the arrangement with Mettle and
intentionally gave them false information with the clear intention to
deceive. He
achieved that goal. The evidence of E&Y was that had
the true nature of the transaction been known, the sale would not
have
been recognised and the eight million shares would have been
cancelled against Regal’s share capital. The failure to do so

led to Regal’s assets and liabilities being incorrectly
increased by R80 million, its profits being inflated by R3 million

and its shareholders’ equity being over-valued by R44 million.
[86] The appellant clearly wished to make Regal appear
to be in a better financial position than it was. And he pursued this
objective
by withholding crucial information from the auditors
knowing that the financial statements would be used by interested
parties
to make investment decisions. The prejudice, actual or
potential, this caused is obvious. I have no reservation in
confirming the
appellant’s conviction of fraud on this count.
Count 6
[87] The charge on this count flows from dealings Regal
had with Sempres Ltd (‘Sempres’), a company that held
certain
intellectual property relating to telecommunications in which
Regal was interested. Regal, in turn, had a banking licence and held

intellectual property relating to financial services. Each side
attached a value to its respective intellectual property, and an

agreement was negotiated for each to acquire the right to use the
intellectual property of the other for their mutual benefit.
This
scheme was to be funded by means of a share swop arrangement, with a
proposed smaller component involving the purchase of
each other’s
shares. The effect of both the share swops and the share purchases
would be cash neutral. However, a proposed
third component was for
Regal Bank to advance Sempres R5 million as a loan to enable it to
fund certain operations.
[88] According to Mr van der Walt, Regal Bank’s
executive committee was uncomfortable with combining the loan
application
with the other components of the scheme, being of the
view that a loan should ‘stand on its own feet and should be
viewed
independent from the share swop’. It thus resolved that
the Sempres transaction would only be considered if Sempres did not

also insist on a loan as a condition of entering into the agreement.
[89] The appellant’s attitude was that although
the executive committee could disapprove having a loan built into the
Sempres
transaction as a condition, it was not responsible for the
approval of loans made by Regal Bank, that being a function that fell

within his operational mandate. He therefore removed the condition
from the draft agreement and, at a subsequent meeting held on
21
February 2001, he informed the executive committee that the lending
condition had fallen away. As a result of this, the Sempres

agreement, from which the loan condition had been removed, was signed
on 7 March 2001 and was thereafter approved by Regal’s
board on
16 March 2001.
[90] On 26 April 2001, some six weeks after the Sempres
agreement was concluded, Regal advanced a loan of R5 million to
Sempres.
Once more this was not done in the form of a simple loan but
was the product of a complicated structure of transactions involving

a number of parties in which Regal Bank purchased five million
Sempres shares for R5 million from a third party; but which
also
involved put and call options (again, the details of these
transactions need not be discussed).
[91] What the appellant had not informed the executive
committee was that Sempres’ application for a R5 million loan
was going
to be considered by the credit committee of the bank. But,
although he may have acted in an underhand manner by not disclosing
this to the executive committee, that is not the subject of the fraud
levied against him. The charge is solely that he fraudulently

represented to the boards of Regal Bank or Holdings that the Sempres
agreement would be cash neutral whereas ‘Regal Bank
intended to
or made a loan of R5 million in terms of the transaction’.
[92] The appellant’s defence to this charge was of
course that the loan to Sempres was a separate transaction to the
Sempres
transaction which had indeed been cash neutral. The State
sought to rebut this defence by relying upon the evidence of Mr van
der
Walt and of Mr Diesel to the effect that the executive committee
had made clear to the appellant that no loan at all should be
extended to Sempres.
[93] Under cross-examination Mr van der Walt stated that
the executive committee had said it would not entertain the Sempres
transaction
‘in any way, shape or form whether by means of a
separate application or not if there was a request for funding’.
However
his testimony was that when the original Sempres proposal had
been debated it had been decided ‘that we would not entertain

the lending part, the R5 million loan part, as part of that
transaction’. When pressed on this in cross-examination and
asked whether the transaction relating to the purchase and swopping
of shares was interlinked with the loan or whether they were
distinct
and severable, Van der Walt replied:
‘
Initially
they were presented as one and at the insistence of the executive
committee they became separate.’
This comment, taken with Mr Van der Walt’s comment
mentioned above that the loan ‘should stand on its own feet and
be
viewed independent from the share swop’ is consistent with
the appellant’s case that the issue of a loan became a separate

issue.
[94] The evidence of Mr Diesel failed to throw any
clearer light upon the matter. He stated at the outset that his
understanding
of the Sempres transactions ‘was somewhat
limited’. When it was put to him that the transaction with
Sempres was concluded
without any precondition relating to the
loaning fund and that the loan was thereafter separately considered
and granted but not
as part of the transaction, his reply was that
this ‘did happen’.
[95] In these circumstances the State’s evidence
fell short of establishing that the executive committee had
prescribed that
no loan should be granted to Sempres if the
share–swop agreement was concluded. Indeed much of the State’s
evidence
was to the effect that the loan application should be
considered not as part of the Sempres transaction but as a separate
issue,
which supports the appellant’s version. After all Regal
Bank was in the business of lending money, and there could have been

no reason why it should not have advanced Sempres a loan, subject of
course to it being approved like any other.
[96] While I accept that Regal in fact paid R14.1
million to Sempres for its right to use the latter’s
technology, and to
that extent the transaction was not ‘cash
neutral’ as found by the trial court, this does not mean that
the appellant
was guilty of the fraudulent misrepresentation with
which he was charged. The R14.1 million was paid to Sempres in terms
of clause
7.1 of the Sempres transaction to which Regal had knowingly
bound itself, and formed no part of the loan Regal subsequently made

to Sempres. It is thus irrelevant to the State’s charge that
the appellant fraudulently misrepresented to Regal that the

transaction was ‘cash neutral’ as it intended to make a
loan of R5 million in terms of the transaction. It was the
loan, and
not the payment of R14.1 million that formed the subject of the
charge. The court a quo thus convicted the appellant
on the basis of
facts irrelevant to the charge. Not only can the conviction not stand
for that reason alone, but the State failed
to establish that the R5
million advanced to Sempres was part of the Sempres transaction
rather than as a separate transaction
concluded by Regal in the
course of its normal banking activities. The appellant was wrongly
convicted on this count.
Count 7
[97] On this count the appellant was charged with having
contravened
s 38(1)
of the
Companies Act which
prohibited a company
giving financial assistance for the purpose of a purchase of any of
its shares or shares of its holding company.
Section 38(3)
(a)
further provided that upon breach of the section, every
director or officer of such a company was guilty of an offence unless
it
was shown that he or she had not been a party to the
contravention. The object of
s 38
was to avoid a company’s
capital being diluted by it supplying funds for the purchase of its
own shares to the detriment
of its creditors who were entitled to
look to the company’s paid-up capital to discharge their
debts.
8
[98] It is trite that a charge should be framed in
language that does not leave an accused to speculate as to the true
nature of
the charge and the allegations he or she has to meet.
9
Section 35(3)
(a)
of
the Constitution prescribes that the right of an accused to a fair
trial includes the right to be informed of the charge with
sufficient
detail to answer it. Furthermore
s 84(1)
of the
Criminal Procedure
Act 51 of 1977
lays down that ‘a charge shall set forth the
relevant offence in such manner and with such particulars as to the
time and
place at which the offence is alleged to have been committed
and the person, if any, against whom and the property, if any, in
respect of which the offence is alleged to have been committed, as
may be reasonably sufficient to inform the accused of the nature
of
the charge’. And in that regard the comment of Wessels CJ in
R
v Alexander & others
1936 AD 445
at 457,
albeit made many year ago, remain apposite. He said:
‘
What
is the object of an indictment? Its real purpose is to inform the
accused in clear and unmistakable language what the charge
is or what
the charges are which he has to meet. It must not be framed in such a
way that an accused person has to guess or puzzle
out by piecing
sections of the indictment or portions of sections together what the
real charge is which the Crown intends to lay
against him.’
[99]
The
State was consequently obliged to clearly allege when, to whom and in
what amounts it contended that Regal had advanced financial

assistance for the purchase of its shares. But, once again, the
charge of the State is vague and confusing. It reads as follows:
‘
. . .
[D]uring or about the period October 2000 to April 2001 and in
Sandton in the District of Randburg, the accused, in concert
with
others or otherwise, unlawfully and intentionally, by means of loans,
guarantees, the provision of securities or otherwise,
directly or
indirectly, gave financial assistance to the amount of approximately
R125m, to Mettle SPVs and/or JL Associates and/or
Levenstein Data
and/or other persons or entities, for the purpose of or in connection
with the purchase of shares of Regal Bank’s
holding company,
Regal Holdings, which financial assistance did not constitute the
lending of money in the ordinary course of the
business of Regal
Bank.’
[100] Rather than clarifying the details of what the
State’s case might be, the request for particulars to the
charge and
the State’s reply served rather to aggravate the
uncertainty; although in an answer that bore no relation to an
irrelevant
question as to what the ‘entrenched ordinary course
of business of Regal Bank’ may have been, the State stated:
‘
As at
date of curatorship, the records of Regal Bank reflected that the
bank had lent money to related parties to buy Regal Holdings’

shares to the amount of approximately 45-50% of its shares (at the
value of approximately R190 million), with the sole security
being
the pledge of Holdings shares to the bank.’
[101] It should be mentioned that after the Metshelf 1
structured scheme (detailed in count 5) had been concluded, Regal
entered
into two further similar schemes with Mettle (referred to as
Metshelf 2 and Metshelf 3), each of which involved a preference share

investment to the amount of R10 million (apart from the amounts
involved the schemes were identical to Metself 1). In the State’s

heads of argument it was suggested that the reference in the charge
to ‘Mettle SPVs and/or . . . other persons or entities’

included the three Metshelf schemes and various Regal trusts. But
although it may well have been the intention to embrace all the

Metshelf transactions, it is almost inconceivable that there was not
specific mention of the trusts if it had been intended to
include
them.
[102] More importantly, whatever the intention of the
framer of the charge may have been, without the trusts being
mentioned the
appellant was not to know that this charge related to
advances Regal had made to them. Certainly the vague reference to
‘other
persons or entities’ in the charge can hardly be
seen as being an adequate identification of the trusts. The net could
hardly
have been thrown wider or more vaguely. It would not be fair
to the appellant, and would constitute a breach of his rights to a

fair trial under s 35(3)
(a)
of
the Constitution, for the charge to be regarded as embracing
allegations of loans to the trusts.
[103] Despite this, the court a quo accepted that the
Shareholders Trust and the Incentive Trust were ‘other
entities’
as envisaged in the charge and found the appellant
guilty on this count by reason of the fact that they were entities to
whom advances
had been made for them to purchase Regal’s
shares. In the light of what I have set out above, the advances to
the trusts
should not have been taken into account in assessing the
appellant’s guilt on this charge, and the appellant was
incorrectly
convicted by the court a quo doing so.
[104] I turn to consider whether there are other
transactions that are adequately covered by the charge in the manner
in which it
is framed. The key to unravelling the confusion lies, in
my view, in the reference to ‘Mettle SPVs’ and
the
sum of R125 million. The inference is irresistible that the framer of
the charge intended to refer to the Metshelf 1 scheme
(to which I
have referred in count 5), albeit without appreciating that only R44
million of the R125.5 million purportedly paid
to Mettle was for
Regal shares. Indeed I understood counsel for the respondent to
concede this to have been the case and, ultimately,
to limit the
State’s argument to Metshelf 1 and to contend that the purchase
of Regal’s shares from the Shareholders
Trust under that scheme
had been financed by Regal.
[105] At first blush the State’s argument is
plausible as, ex facie the document of sale in Metshelf 1, Regal
advanced Mettle
R 125,5 million of which R 44 million was used to pay
for eight million shares sold by the Shareholders Trust. But once
more, things
are not that simple. It must be remembered that a sale
embraces the concept of the object of the sale, often referred to as
the
res vendita
, being
transferred from one person to another, and the general rule is that
an owner who sells, on receipt of payment, is obliged
to transfer
ownership to the purchaser.
10
On the State’s own case this is not what happened.
In count 5 it alleged that there had been no sale of the eight
million
shares to Mettle; that such purported sale had been part of a
scheme designed for Regal to continue as the beneficiary of the
shares
in respect of which it bore the risks and rewards; that Mettle
had not been advanced the funds used to pay the alleged purchase

price but the trust’s debt to Regal had merely been cancelled
and the funds round tripped back to it; and that had the true
nature
of the scheme been known the sale would not have been recognised by
the auditors and the sale of the shares cancelled against
Regal’s
share capital.
[106] For the reason’s already given, there can be
no reasonable doubt that the State’s allegations in regard to
the
falsity of the representation can be accepted and that the
so-called ‘sale’ to Mettle was not a sale at all.
Consequently
not only was there no dilution of Regal’s capital
(which
s 38
of the
Companies Act was
designed to penalise) but Regal
did not give financial assistance to Mettle to purchase the shares
(the amount it paid was ‘round-tripped’
back to itself.)
Therefore, to use a colloquial expression,
11
the State cannot have both ‘the money and the
box’: it cannot be heard to say in respect of count 5 that the
eight million
shares had not been sold to Mettle but to contend on
this count that such a sale had taken place and that Regal had
financed it.
As there was no sale, there was no contravention of
s 38
and the appellant’s conviction on this count must be set aside.
Count 8
[107] I turn to the final charge against the appellant,
brought under 424 of the
Companies Act, the
material provisions of
which were as follows:
‘
(1)
When
it appears, whether it be in a winding-up, judicial management or
otherwise, that any business of the company was or is being
carried
on recklessly or with intent to defraud creditors of the company or
creditors of any other person or for any fraudulent
purpose, the
Court may, on the application of the Master, the liquidator, the
judicial manager, any creditor or member or contributory
of the
company, declare that any person who was knowingly a party to the
carrying on of the business in the manner aforesaid, shall
be
personally responsible, without any limitation of liability, for all
or any of the debts or other liabilities of the company
as the Court
may direct.
. . . .
(3) Without prejudice to any
other criminal liability incurred, where any business of a company is
carried on recklessly or with
such intent or for such purpose as is
mentioned in subsection (1), every person who was knowingly a party
to the carrying on of
the business in the manner aforesaid, shall be
guilty of an offence
.’
[108] In order to succeed on a prosecution under this
section, the State must prove that the accused was knowingly a party
to the
carrying on of the company’s business recklessly, or
with intent to defraud creditors of the company or creditors of any
other person, or for any fraudulent purpose. In the present instance
the matter can be decided on whether the appellant was knowingly
a
party to the carrying on of Regal’s business in a reckless
manner.
[109] Of course the test for recklessness is objective.
In
Philotex (Pty) Ltd and others v Snyman and
others
1998 (2) SA (SCA) at 143G Howie JA
stressed that to be the case and held that the actions of a person
concerned are subjective only
‘insofar as one has to postulate
[the reasonable person] as being to the same group or class as [the
accused], moving in
the same spheres and having the same knowledge or
means to knowledge’, and that a consciousness of risk is not an
essential
component of recklessness. He concluded:
12
‘
In its
ordinary meaning, therefore, “recklessly” does not
connote mere negligence but the very least gross negligence
and
nothing in
s 424
warrants the word being given anything other than
its ordinary meaning.
In the
application of the recklessness test to the evidence before it a
Court should have regard,
inter
alia
,
to the scope
of operations of the company, the role, functions and powers of the
directors, the amount of the debts, the extent
of the company’s
financial difficulties and the prospects, if any, of recovery.’
[110] In
Tsung
v Industrial Development Corporation of South Africa
2013 (3) SA at 468 (SCA) this court
reaffirmed the principles set out in
Philotex
and went on to hold
13
that conduct on the part of a director which deliberately diminished
the company’s ability to repay its debts fell within
the ambit
of
s 424.
It also approved the comment of Cameron JA in
Ebrahim
14
where he stated that
s 424
becomes
applicable ‘when the level of mismanagement of the
corporation’s affairs exceeds the merely inept or incompetent

and become heedlessly gross or dishonest’ and that ‘those
running the corporation may not use its formal identity to
incur
obligations recklessly, grossly negligently or fraudulently.’
[111] These are the principles that have to be borne in
mind when considering the State’s charge on this count in which
it
alleged that the appellant had contravened
s 424
by having
recklessly carried on the business of Regal by:
‘
Dominating,
prescribing to,
disregarding
and/or overruling the boards and/or directors and/or committees
and/or management and/or staff of Regal Bank and/or
Regal Holdings;
Ridding the bank and/or Regal
Holdings of directors who did not agree with his plans, schemes
and/or methods;
Remaining as both CEO and
Chairman despite the Reserve Bank’s disapproval;
Taking whatever measures
necessary to enhance and/or maintain the share price of Regal
Holdings;
Entering into and disguising
the true nature of structured financial agreements in which Regal
held the sole risk and reward with
the motive of enhancing or
maintaining the share price of Regal Holdings and falsely increasing
the assets and liabilities of
Regal;
Allowing the sole security for
financing share purchases of Regal Holdings’ shares be those
shares;
Not exercising proper corporate
governance within Regal Bank and Regal Holdings;
Allowing the bank’s money
to be utilised for the purchase of Regal Holdings shares by
non-legal entities and the Trusts;
Buying back the shares of its
major shareholder, Pekane;
Committing the offences
contained in counts 1 to 7.’
[112] I must immediately record my surprise at the last
bullet point which included specific references to the other offences
with
which the appellant had been charged. To find the appellant
guilty of the various criminal actions with which he was charged in

the previous counts, and then to have regard to those actions once
again in considering whether he had contravened
s 424
, would clearly
amount to an impermissible duplication of convictions. Unfortunately
this is indeed what the court a quo did. Having
found the appellant
guilty on counts 1 to 7, it proceeded to also find that he had
carried on Regal’s business recklessly
by committing the
offences set out in those counts. It was wrong to do so, and the
conviction on count 8 in relation to those issues
cannot stand.
[113] The court a quo also found that it had not been
shown that the appellant acted recklessly by serving both as Regal’s

CEO and its chairman, but went on to hold that in the manner in which
he had dominated Regal employees and ridded Regal of directors
who
did not agree with his plans and schemes, amounted to his carrying on
Regal’s business recklessly. Certainly the appellant
was a
dominating character who fell out not only with Regal’s initial
chairman Mr Springett but also with various other members
of Regal’s
board and employees. But whether his domination, forcefulness,
impatience with others and suchlike resulted in
the business of Regal
being carried on recklessly is another matter (and indeed I did not
understand the State to persist in arguing
that to have been the
case). In the light of what is set out below, it is not necessary to
decide that issue nor, indeed, many
of the other issues that were
raised as allegedly relevant to the reckless conduct of Regal’s
business.
[114] I have already mentioned how the Shareholders
Trust, Incentive Trust and Executive Trust were established and
received advances
from Regal Bank used to fund the purchase of Regal
shares. The only security held by these trusts was, of course, the
shares themselves.
But the shareholding vested in the trusts was
substantial, as were those of Holdings’ shares in the Metshelf
1, 2 and 3 portfolios
held on Regal’s behalf but financed by
Regal Bank.
[115] In February 2001 the Executive Trust, which until
then had been inactive, bought Holdings shares at a price in excess
of R3.3
million. And despite the appellant having agreed that the
Shareholders Trust would be wound down and Regal having advised both
its auditors and the Reserve Bank that this would be done, in the
period from 23 May 2001 until Regal was placed into curatorship,
a
further 4.6 million Holding shares were bought by the Incentive
Trust and the Shareholders Trust at a cost of approximately
R20
million advanced to them by Regal Bank. These purchases were done at
a time when Regal Bank was facing a liquidity crisis as
is evidenced
by it just having been obliged to borrow R60 million from ABSA to pay
for the Pekane shares.
[116] But these were not Regal’s only acquisitions
of its shares. Based on an analysis of the records of the
Johannesburg
Stock Exchange, Mr Strydom testified that during the
period 1 January 2000 to 26 June 2001 approximately 51 million
Holdings
shares were traded, almost 32 million of which were acquired
either by Regal and its trusts or by Mettle. This would include the

eight million shares which in effect were moved from the Shareholders
Trust to the Metshelf 1 portfolio when R44 million purportedly
paid
for those shares was used to reduce the trust’s loan liability
to Regal Bank. In addition, during the last month before
curatorship
almost every share that became available on the market was acquired
by the Shareholders Trust. These acquisitions were
done on the
specific instructions of the appellant. Mr Faber, who was
employed within the Regal group as an equities trader,
and who was
responsible for the acquisition of these shares on the appellant’s
instructions, testified that in most instances
he was the only person
who was really bidding for shares. Tellingly, he stated that it
became a joke amongst his stock market colleagues
that Regal had
become ‘the buyer of last resort’ of Holdings shares. As
a result of all of this, having regard to the
direct and indirect
shareholding held by Regal in its trusts and portfolios, by June 2001
Regal held approximately 47% of its own
shares.
[117] Of course it was extremely risky for Regal to buy
shares in this fashion, but it appears to have found itself in the
position
of a hamster on a treadmill. It had already bought so many
of its own shares with its own money that its share price would
decline
if it stopped buying, and the only way to prevent suffering a
loss was to buy more shares to shore up the value. The inference is

irresistible, as Mr Strydom confirmed that had it not been for Regal
purchasing its own shares its share price would probably have

collapsed at a much earlier stage. But in buying its shares as it
did, Regal was obviously reducing its liquidity at a time when
it was
facing a liquidity crisis.
[118] As I have already mentioned, in June 2001, a few
days prior to curatorship and once E&Y had eventually established
that
Regal was holding a vast number of Holdings shares, it was
decided to cancel 45% of Regal’s shares which were then,
correctly,
written off against Regal’s share capital. An
announcement in that regard was made on 25 June 2001, curatorship was
imposed
the following day and the share price collapsed. This, in
turn, resulted in an instant loss of approximately R200 million,
being
the amount Regal had used to acquire all its shares either
directly or indirectly. Regal’s acquisition of such a vast
holding
of its own shares at a time it was in a liquidity crisis can
only be regarded as reckless. It was also a state of affairs brought

about directly as a result of the appellant’s actions.
[119] In these circumstances, I have no hesitation in
concluding that the appellant was a person who was knowingly a party
to the
carrying on of Regal’s business in a reckless manner and
that he was therefore guilty of a contravention of
s 424(3)
of the
Companies Act. Even
without considering the various other aspects in
respect of which it was alleged Regal’s business had been
carried on recklessly,
the conviction on this count must stand.
Sentence
[120] As appears from what I have set out above, the
convictions on counts 2, 6 and 7 cannot stand and the sentences
imposed on
those counts must of course be set aside. What then has to
be considered is the appropriateness of the sentences imposed on
counts
1, 3, 4, 5 and 8.
[121] It should be remembered that the ‘cause’
of criminal punishment is the ‘offence’, consisting of
‘all
factors relevant to the nature and seriousness of the
criminal act itself, as well as all relevant personal and other
circumstances
relating to the offender which could have a bearing on
the seriousness of the offence and the culpability of the offender’

and that consequently ‘the length of punishment must be
proportionate to the offence’.
15
[122] Turning to the appellant’s personal
circumstances, he is a first offender, married with two children and
was 58 years
of age when sentenced (he is now 62 years old). He is
now of an age where the impact of imprisonment is more dramatic than
it will
be upon a younger man. He is clearly an extremely intelligent
person who was rendered destitute by the collapse of Regal and in
the
eight years between its collapse and sentence being imposed, he had
unsuccessfully failed in various attempts to obtain employment,

including in the second-hand car business. The court a quo took into
account that the appellant had been subjected to anxiety in
regard to
the outcome of the matter over a long period of time, stressing that
the trial itself had taken almost two years to complete.
That anxiety
must have been heightened after he was sentenced to a lengthy period
of imprisonment and had to face uncertainty as
to his future during
the four years it has taken for his appeal to reach this court ─
a delay which, as I mentioned at the
outset of this judgment, can in
no way be attributed to him. Whilst ordinarily only the facts known
to a court at the time of sentence
should be taken into account on
appeal, that is not an inflexible rule, particularly when there has
been a lengthy delay before
the appeal is heard,
16
and in
S v Roberts
this court observed that it would be
‘callous to leave out of account the mental anguish which
respondent must have endured’
17
during a period of two years pending his appeal. The same approach
was followed by this court in
S v Michele
18
where there had been a six year delay. Accordingly the anguish and
stress experienced by the appellant and his family for the period
it
has taken to hear and dispose of this appeal is a significant factor
to which regard must be had in the assessment of sentence.
[123] The extent to which the bail conditions imposed on
the appellant pending this appeal have impacted upon his personal
freedom
must also be considered. He has not been able to leave the
province of Gauteng nor has he been permitted to be within a
kilometre
of an airport or a railway station; he has been obliged to
contact the investigating officer daily to confirm that he is at his

residence; and most importantly, he has not been entitled to leave
his residence between 18h00 and 06h00 ─ effectively house

arrest for 12 hours a day from six in the evening. The State argued
that these restrictions are neutral and ‘cannot possibly
be
regarded as a mitigating factor’, but even though their effect
has been less intrusive than actual incarceration, it would
be
callous and unjust to ignore them. Of course this was not taken into
account by the trial court but it cannot be ignored when
this court
is called on to consider the issue of sentence.
[124] On the other hand, and a matter of great concern,
is that a mere reading of the record shows the appellant to be an
arrogant
individual who at no stage during the lengthy trial
displayed any insight into the wrongfulness of his actions. Instead
he systematically
insulted, belittled and defamed the various
witnesses who were called to testify against him, including
accusations of corruption
and perjury. He showed no sign of remorse,
and it needs to be forcefully brought home to him that his actions
were unacceptable.
[125] All save one of the convictions upheld by this
court are for fraud, which by its very nature is ‘always a
grave and
ugly offence’.
19
It was argued on behalf of the appellant that his criminal actions
were motivated not by personal greed but by his undoubted passion
for
the company he had founded and a misplaced desire to attempt to
support it in times of financial woe. To an extent that may
be so,
but his fortunes and those of Regal were intertwined and his criminal
actions to attempt to attract investment in Regal
and to keep it
going cannot be divorced from the undoubted benefits he would have
received had Regal not collapsed. That notwithstanding,
I accept that
the appellant’s prime motivation was not personal enrichment.
[126] It is also necessary to record that it has not
been shown that any of the fraudulent misrepresentations made by the
appellant
were the direct cause of Regal’s demise. But that
does not mean that the frauds were inconsequential. Those responsible
for
the financial statements of public companies are under an onerous
obligation to ensure that their financial results placed in the

public domain are accurate so that shareholders, both actual and
potential, are not misled about the financial health of the company.

This is all the more so where, as here, the company carries on
business as a bank which seeks to attract custom and deposits from

the general public at large. It is intolerable that a CEO of a bank
can play fast and loose with the truth in regard to the bank’s

financial state, as the appellant purposefully did. Any sentence
imposed in these circumstances must embrace an element of deterrence

to bring home to those holding responsible positions in public
companies, and banks in particular, that behaviour of this nature

cannot be countenanced. The only way in which the investing public
can be protected is by imposing salutary sentences upon persons
who
fraudulently misrepresent the financial state of their companies.
Such offences deserve much more than a slap on the wrist.
The notion
that so-called ‘white collar crime’ is not serious was
emphatically dispelled by this court in
S v Sadler.
20
[127] On the other hand, an offender is not to be
sacrificed on the altar of deterrence. In imposing sentences in even
the most
severe crimes it is necessary to remind oneself that
striving after severity is amongst the most harmful faults of judges
21
and that:
‘
A
judicial officer should not approach punishment in a spirit of anger
because, being human, that will make it difficult for him
to achieve
that delicate balance between the crime, the criminal and the
interests of society which his task and the objects of
punishment
demand of him. Nor should he strive after severity; nor, on the other
hand, surrender to misplaced pity. While not flinching
from firmness,
where firmness is called for, he should approach his task with a
humane and compassionate understanding of human
frailties and the
pressures of society which contribute to criminality.’
22
[128] Turning to the sentences imposed, of course a
court of appeal cannot interfere with a sentence unless there was a
material
misdirection by the trial court or unless there is such a
disparity between that appealed against and the sentence it would
have
imposed that the sentence can be regarded as strikingly
inappropriate. It is similarly trite that there can be no standard
sentence
and that each case must be considered in the light of its
own particular facts and circumstances which need to be discretely
weighed
in the scales to determine an appropriate punishment. As
Nugent JA stressed in
S v Vilakazi
23
‘
each detail can be vitally important’, the
imposition of sentence is cause for ‘considerable reflection’
and sentences
of imprisonment ‘are not merely numbers’.
[129] In respect of each fraud count, the court a quo
imposed a sentence of eight years’ imprisonment. But while
fraud is
always an odious crime, some frauds are more severe than
others, and those committed by the appellant differed in severity and
effect. Despite this, what might be termed a ‘flat rate’
of imprisonment was imposed on each count. This speaks of a
failure
to appreciate the necessity to reflect on the differences that there
indeed were between the various frauds, and constitutes
a
misdirection which in itself entitles this court to interfere with
the sentences imposed.
[130] In the light of these remarks I turn to consider
these individual sentences, commencing with that imposed on count 1.
The
fraud committed by the appellant on this count is far more
limited and less severe than those in counts 3, 4 and 5. The
appellant
was responsible for the publication of Regal’s
allegedly audited financial statements for the year 2000, well
knowing that
the auditors had not given their final approval to them
in that form. Nevertheless he had attempted to get the approval
before
their publication, albeit without success. But whilst his
actions were cavalier, the figures reflected in the statements showed

an EPS of merely five cents or so more than what would have been the
case had the expenditure deferral of R6 million not been taken
into
account. Moreover the amount of R6 million fell within the range of
Regal’s audit materiality and, after the appellant
had
published a correction as insisted on by the auditors, audit approval
of the statements was given, albeit somewhat under duress.
In all
these circumstances, including the anxiety in the restriction upon
his freedom that the appellant has already suffered,
I am of the view
that 12 months’ imprisonment is an adequate sentence on this
count. The appeal on this count must succeed
to the extent that the
sentence is reduced to imprisonment for that period.
[131] As a general rule, it is desirable for a court
sentencing an offender to impose a sentence in respect of each
offence rather
than a globular sentence for a number of convictions.
But this rule is not immutable, particularly where there are a number
of
closely connected offences. In the present case, the frauds in
counts 3, 4 and 5 all relate to misrepresentations made in regard
to
the audit of Regal’
s 2001
financial statements. Not only do
they have that in common but they could easily, and more
conveniently, have been consolidated
as a single offence. That being
so, this is a case in which departure from the general rule is
justified and I intend to take these
three counts together for
purposes of sentence.
[132] The misrepresentations on these counts led to
Regal’s financial position being distorted to a large degree in
the financial
statements:
The alleged sale of 93 Grayston led to R36.5 million
being incorrectly brought into the income statement. This made up
41% of
Regal’s total annual income and increased its EPS by 40
cents.
The R60.2 million purchase price Regal paid to purchase
its shares from Pekane was incorrectly reflected in its books as a
loan
with the shareholding still vested in Pekane. Not only should
the loan have been reversed but there ought to have been an
equivalent
reduction of Regal’s share capital. Moreover, and
most importantly, had the true state of affairs been known, the fact

that a 15% shareholder had sold its shareholding in Regal would have
been disclosed by way of a note in the financial statements.
The alleged sale of shares in the Metshelf 1 scheme
incorrectly led to Regal’s assets and liabilities being
increased by
R18 million, its profits being inflated by R3 million
and its equity being over-valued by R44 million. That this
constituted
a serious distortion of Regal’s financial health
is self-evident.
[133] The consequences of these frauds were therefore
extremely serious. Shareholders and investors are entitled to know
the true
state of the finances of public companies in which they
invest and make deposits. Not only was crucial information disguised
and
hidden from them, but the financial picture that emerged itself
from the audited financial statements was distorted and wholly
unreliable. This was all done in order to make Regal a more
attractive investment proposition than it really was.
[134] In the light of these and the other factors that I
have mentioned, a lengthy period of incarceration must be imposed.
However
the effective term of ten years’ imprisonment imposed
by the court a quo on these three counts is too severe and, in the
light of the misdirection in regard to the fraud sentences mentioned
above, interference by this court is justified. In my opinion
an
appropriate sentence is one of six years’ imprisonment. The
appeal against sentence on counts 3, 4 and 5 must succeed
to that
extent.
[135] Turning to count 8, the sentence of two years’
imprisonment for contravening
s 424
of the
Companies Act was
the
maximum sentence of imprisonment that could have been imposed upon
the appellant.
24
It is unnecessary to detail once more the appellant’s actions
which established his guilt on this count. He conducted himself

without regard to the interests of the shareholders of a public
company. The purchase by Regal of its own shares on a vast scale

obviously affected its liquidity and contributed towards its
inability to pay depositors when there was a run on the bank. I did

not understand counsel for the appellant to seriously contend that
there had been any misdirection by the trial court in regard
to the
sentence on this count and, certainly, the period of imprisonment
imposed is in no way disproportionate to the crime. Indeed
it was
richly deserved. The appeal against sentence on this count must fail.
[136] Having regard to all the factors I have mentioned,
an effective sentence of eight years’ imprisonment is
appropriate.
That can be achieved by ordering the sentence imposed on
count 1 to run concurrently with the sentence of six years’
imprisonment
imposed in respect of counts 3, 4 and 5. This will be
reflected in the order set out below.
[137] The following order is made:
1 The appeal in respect of counts 2, 6 and 7 is upheld
and the convictions and sentences on those counts are set aside.
2 The appeal against the convictions on counts 1, 3, 4
and 5 is dismissed.
3 The appeal in respect of sentence on counts 1, 3, 4
and 5 succeeds to the extent that the sentences imposed by the trial
court
are set aside and replaced with the following:
Count 1 ─ 12 months’ imprisonment.
Counts 3, 4 and 5 (taken together for purposes of
sentence) ─ six years’ imprisonment.
The sentences in (a) and (b) above are to be served
concurrently.
4 The appeal in respect of count 8 is dismissed and the
conviction and sentence on that count are confirmed.
5 The effective sentence is therefore one of eight
years’ imprisonment.
______________________
L E Leach
Judge of Appeal
WILLIS JA (BOSIELO JA concurring)
[138 ] I commend my brother Leach for his industry and
analysis of the facts with which, for the most part, I agree. In
summary,
Leach JA has confirmed the correctness of the convictions
made in the court below in respect of counts 1, 3, 4, 5 and 8 but
disagrees
with that court’s verdict on counts 2, 6 and 7. In my
opinion, the court below correctly convicted the appellant on all
counts.
[139] My differences with Leach JA relate not to the
facts but to the inferences which may be drawn from the facts. It is
necessary
to understand the person with whom one is dealing in this
case in order to understand why I have drawn the inferences which I
have.
I present the picture of the man, as I do, not out of any
facile belief that simply because a person is found to be a liar, it
is permissible to draw inferences as to his guilt. I also do not
intend any gratuitous assassination of his character.
[140] The aggregate of the factors of his position with
Regal, his opportunities, his power, his personality and his
untruthfulness,
together with certain incontrovertible facts justify,
in my opinion, the conclusion that he was guilty on the counts that
are in
contention between Leach JA and myself.
[141] The appellant was, at the time of these offences,
a mature man, a chartered accountant with many years of experience in
the
business of banking. The record reveals him to have been
domineering, arrogant, bullying, deceitful and manipulative. He
performed
appallingly under cross-examination. For example, he said
that the bank had no liquidity problems when all the evidence
indicates
that this is patent nonsense. He was evasive; he blamed his
own attorney for unsatisfactory aspects of his evidence, including
the failure to put his version of events properly to State witnesses;
he disagreed that it was the duty of management to provide
the
auditors with all relevant information relating to the business of
the bank; he failed to put it to witnesses that he disagreed
with
their evidence; he disagreed with the proposition that all major
decisions of a bank should be made by the board; he made
propositions
which are not supported by the evidence; he repeatedly used the
expression ‘substance over form’ in an
attempt to justify
his conduct; he contradicted himself; he said that witnesses could be
called to confirm his version when they
were not.
[142] The appellant said that the auditors lacked
‘appropriate expertise to deal with issues of sophistication’
and
were ‘totally incorrect’. He said that Ernst and
Young were guilty of ‘outright fraud and deception of the worst

nature’ and he disagreed with the self-evidently correct
proposition that Regal was not immune from the small bank crisis
of
1999 and thereafter. In essence he regarded himself as the alter ego
of Regal.
[143] For convenience I shall focus upon the three
counts in respect of which I disagree with Leach JA: counts 2, 6 and
7.
[144] Count 2 relates essentially to earnings of R2
million paid to the appellant as consideration for the ‘restraint
of trade
agreement’. I agree with Leach JA that the
consideration of fraud in regard to the agreement that the appellant
be given
five million shares in Regal falls away. The reason is that
the appellant did not receive the shares. The issue of the payment of

the appellant’s personal expenses by Regal in an amount of some
R60 000 is too small an issue, in relation to the broader
picture, to
warrant attention in this dissenting judgment.
[145] The appellant addressed a letter to Mr Jack Lurie
on 29 December 1999 requesting that Regal pay him a cash bonus of R2
million.
The appellant was paid R2 million on 15 February 2000. The
evidence permits no other reasonable conclusion than that this
payment
derives from the appellant’s request in this letter.
The payment was not disclosed in the Directors’ Remuneration
Notice.
The reason the appellant has advanced for this was that the
payment did not constitute remuneration.
[146] I disagree with Leach JA’s assessment that
the State’s case depends on ‘the mere fact [that] the
appellant
was paid R2 million after he had asked for a bonus’.
I also disagree with Leach JA when he says that there is a ‘major

difficulty for the State’ in the fact that those who signed the
restraint of trade agreement on behalf of Regal were not
called as
witnesses. The fact that the agreement was signed is, in my opinion,
irrelevant.
[147] I accept, as Leach JA seems to do, that agreements
‘in restraint of trade’ were, at the time, a vogue item
for
the avoidance of the payment of tax. As Leach JA has observed, we
are not, however, dealing with a fraud allegedly perpetrated against

the fiscus. We are not concerned here with whether or not the
appellant could reasonably have believed that the agreement ‘in

restraint of trade’ was a ‘clever tax dodge’ or
not.
[148] My principal disagreement with Leach JA is where
he says that, as the sum of R2 million was reflected in Regal Bank’s

books of account as being a payment in respect of a restraint of
trade and dealt with as such, it being reflected under the title

‘Intellectual Capacity’ as a fixed asset with the amount
being capitalized and the charge to the income statement spread
over
a period of ten years, this shakes the very foundation of the State’s
case against the appellant in regard to the bonus
issue.
[149] It is correct, as Leach JA has observed, that the
appellant was charged with fraudulently having failed to disclose
that he
had received a bonus of R2 million on 15 February 2000, not
that he had failed to disclose having received the payment of R2
million
arising from an agreement in restraint of trade. I am
irresistibly compelled to draw an inference which is different from
that
of Leach JA on this issue. My conclusion is that this ‘restraint
of trade agreement’ was the bonus the appellant had
requested,
disguised as a restraint of trade agreement. Whether the other
parties to the restraint knew or believed that it was
a disguise is
beside the point. If one reads the evidence as a whole and, more
particularly, his own performance under cross-examination,
the
appellant knew that he was receiving a bonus, disguised as a
‘restraint of trade agreement’ as a matter of convenience

intended purely for his own benefit. Most importantly, he knew that
it was a disguise. The appellant was correctly convicted on
count 2.
[150] Count 6 relates to the so-called ‘Sempres
transaction’ effected between April 2001 and June 2001. During
April
2001 the executive committee of Regal had in clear, unequivocal
and unmistakable terms refused to grant a loan of R5 million to

Sempres. Subsequently the appellant reported to the executive
committee that the loan condition had fallen away. The evidence of

the State, especially that of Mr Johannes van der Walt, an executive
director at Regal, and Mr Keith Diesel, the chief financial
officer
of Regal at the time, was that the appellant had thereafter gone
ahead and granted the loan. This is deception. Mr van
der Walt was
adamant: ‘We said we would not entertain the Sempres
transaction in any way shape or form if, whether by means
of a
separate application or not there was a request for funding’.
[151] The fact that there was indeed a share swap in
terms of which Regal acquired shares in Sempres and Sempres in Regal
does not
alter the fact that Regal, as a result of the appellant’s
instructions, lent money to Sempres. The appellant instructed Mr

Diesel to open a loan account for Sempres. The appellant went ahead
with the loan after the executive committee, at a meeting at
which he
was present, had decided that the investment committee could
reappraise the application for a loan. As Leach JA said,
having
removed the condition relating to the loan and having informed the
executive committee that the lending condition had fallen
away, the
appellant sought to justify his subsequent granting of the loan by
saying that, although the executive committee could
disapprove a loan
as part of the Sempres transaction, it was not responsible for the
approval of loans made by Regal. That, so
the appellant contended,
was a function that fell within his operational mandate. This
justification is absurd. A loan of this
magnitude may well have
fallen within the appellant’s ordinary authority but, once the
executive committee had made a decision
not to approve the
transaction with the loan, the appellant had no authority to override
it and deceitfully to proceed with the
transaction – in effect
as he had originally intended it should. It is also an inadequate
answer to the inference of deceit
that the appellant knew that the
loan would appear in Regal’s books. The disguise consisted in
the breaking up of the transaction
into digestible portions.
[152] The court below correctly analysed the passing of
three million Regal shares to Sempres as having taken place through a
route
by which Regal advanced R14.1 million in cash to the Rand
Shareholders Treasury Trust (of which the appellant was himself a
trustee)
to purchase Regal shares on the Johannesburg Securities
Exchange. The Trust then purchased the Regal shares and then passed
on
those shares to Sempres as a ‘quid pro quo’ for Regal
being allowed access to Sempres’ technology. The Trust then

made over the technology to Regal in exchange for shares to the value
of R14.1 million which the Trust used to settle its indebtedness
to
Regal. Through this merry-go-round money was directed by Regal to
Sempres to enable Sempres to purchase Regal shares. The
merry-go-round
gathered its momentum solely as a result of the
appellant’s orchestrated deceit.
[153] The appellant performed woefully when
cross-examined on this issue. The appellant held out that this series
of transactions
was ‘cash neutral’ for Regal. As the
court below correctly observed, the net effect of this series of
transactions
was that Regal parted with R14.1 million in cash in
exchange for access to Sempres’ technology. That is not a ‘cash

neutral’ transaction. If I understood the appellant’s
counsel, Mr Roux, correctly, he accepted that the transaction
could
not sensibly be described as ‘cash neutral’.
[154] I disagree with Leach JA when he concludes that
the State failed to show that the Sempres transaction was not cash
neutral
and that the State failed to show that the sum of R5 million
lent to Sempres had not been concluded by Regal in the course of its

normal business activities. I consider that the conviction on this
count was correctly made.
[155] Count 7 relates to the alleged contravention of
section 38(1)
read with
sections 38(3)
and
441
of the
Companies Act,
by
way of the giving of financial assistance for the purchase of
shares in Regal Holdings.
[156] The allegation in the indictment is that during
the period from October 2000 to April 2001, the appellant conspired
in the
giving of financial assistance in an amount of approximately
R125 million to Mettle SPVs and/or JL Associates and/or Levenstein

Data and/or other persons or entities for the purchase of shares in
Regal Holdings.
[157] The appellant admits that on or about 25 October
2000 he negotiated and signed all agreements held by Rand Treasury
Shareholders
Trust at R5.50 per share to Mettle Securities for a
purchase consideration of R44 million. He also admits that on 9 March
2001
he negotiated and signed all agreements pertaining to the sale
of three million Regal shares held by Rand Treasury Shareholders

Trust to International Holdings Ltd and Unitrade 50 for a purchase
consideration of R14.1 million.
[158] It is also common cause, as noted by the trial
court, that it was resolved by the trustees of Rand Treasury
Shareholders Trust
on 1 March 2001 that the trust would buy shares in
Regal Treasury Holdings Limited and that the trust would enter into
loan agreements
with Regal Treasury Bank Limited to purchase those
shares. The trust also resolved that the appellant would be
authorized to act
for the trust in its dealings with a view to
implementing these resolutions.
[159] It is not disputed that the appellant was a
shareholder in company in which a ‘related party transaction’
occurred.
It is true, as Mr Roux has submitted, that these
transactions took place before February 2000 (ie outside of the time
period mentioned
in the indictment insofar as count seven is
concerned). Others did, in fact, take place during the period
alleged.
[160] Prima facie there was, therefore, a transgression
of
s 38(1)
of the
Companies Act. There
is an exemption provided for
by
ss 38(2)
(a)
of the Act:
‘
the
lending of money in the ordinary course of its business by a company
whose main business is the lending of money.’
For Regal, as a bank, its main business was the lending
of money. The key issue was therefore whether the transaction in
question
could, as a matter of law, be found to be ‘in the
ordinary course of business’ thereof.
[161] Mr Davis testified that he had raised concerns
that certain share transactions had not been arms-length transactions
and had
involved money being lent by Regal to purchase shares in the
holding company.
[162] Mr Petrus Johannes Strydom, a chartered accountant
who had been partner at Ernst and Young, the firm which undertook the
audit
of Regal Bank at the relevant period, testified as to other
affected transactions which took place within the period alleged in

the indictment. He confirmed the facts which amounted to a
transgression of section 38.
[163] The appellant placed reliance on various opinions
given by counsel but most especially upon that given by Mr André
Gautschi SC. It is dated 28 November 2000. Mr Gautschi said that it
was clear that Regal Bank fell foul of s 38(1) of the old
Companies
Act and
that the question was whether Regal could bring itself within
the exemption provided for in
s 38(2)
(a)
thereof.
[164] Mr Gautschi was careful to qualify his opinion
with the fact that his instructions were that the shares had merely
been bought
for the asking price. He said that whether a transaction
escaped the taint of criminality would depend on ‘the facts in
respect
of each and every transaction.’ Similar observations as
to the qualifications with which the opinion was hedged may be made

with regard to the opinions of Advocate Oelofse and Mr Henry Vorster.
[165] With regard to the transactions in question, the
buyers were no ordinary customers. They were legal entities in
respect of
which the appellant was the dominating and controlling
influence. The trial court correctly found that the loans were given
in
order artificially to drive up the price of the public shares of
the holding company. The unsatisfactory answers of the appellant

under cross-examination permit no other conclusion. The verdict on
count 7 was correct.
[166] Insofar as sentence is concerned, the fact that
Leach JA correctly found that the appellant was guilty on count one
on a more
limited basis than was found by the court a quo would, if
this count was considered in isolation, justify a lesser sentence in
regard thereto. Nevertheless, the court a quo considered the
cumulative effect of the sentences on each count and arrived at a
term of imprisonment of 15 years. I have no difficulty with that.
[167] I should have dismissed the appeal against
conviction and sentence in respect of all counts.
_________________
NP Willis
Judge of Appeal
APPEARANCES:
For Appellant: B Roux SC
Instructed by:
Michael Werner & Associates Inc, Sandton
E G Cooper Majiedt Inc, Bloemfontein
For Respondent: C McKelvey (with him Me E Eksteen)
Instructed by:
The Director of Public Prosecutions,
Johannesburg
The Director of Public Prosecutions,
Bloemfontein
1
Rand
Merchant Bank had objected to its original name.
2
These
are their abbreviated names which suffice for purposes of this
judgment.
3
See
s 69 of the Banks Act.
4
See
Macguire v Commissioner, South African Revenue Service
2009
(4) SA 345
(SCA) and ITC 1338
(1980) 43 SATC 171
(T).
5
See
s 13(1)(
f
) and
s 22(2)
(a)
of the
Taxation Laws
Amendment Act 30 of 2000
.
6
Section
297(2A)
(e)
.
7
S
v Hugo
1976 (4) SA 536
(A).
8
See
Lewis v Oneanate (Pty) Ltd
& another
[1992] ZASCA 174
;
1992 (4) SA
811
(A).
9
Eg
S v Hugo
1976 (4) SA 536
(A) at 540E-G.
10
See
eg
De Wet v Santam Bpk
[1996] ZASCA 1
;
1996 (2) SA 629
(A) at 638D-639I.
11
Derived
from a popular game show.
12
At
144A.
13
Para
51.
14
Ebrahim
v Airport Cold Storage (Pty) Ltd
[2008] ZASCA 113
;
2008 (6) SA 585
(SCA) para 15
15
Per
Ackerman J in
S v Dodo
[2001] ZACC 16
;
2001 (3) SA 382
(CC).
16
See
eg
S v Jaftha
2010 (1) SACR 136
(SCA).
17
S
v Roberts
2000 (2) SACR 522
(SCA) para 22.
18
S
v Michele
& another
2010 (1) SACR 131
(SCA) para 13.
19
S
v Rabie
1975 (4) SA 855
(A) at 862H.
20
S
v Sadler
2000 (1) SACR 331
(SCA) paras 11 and 12.
21
Per
Corbett JA in
S v Rabie.
22
S
v Rabie
supra at 866A-C.
23
S
v Vilakazi
2009 (1) SACR 552
(SCA) para 21.
24
Compare
s 44(1)(
d
) of the
Companies Act.
>