The Free State Development Corporation (FDC) violated financial regulations in placing a massive R100m investment with the now collapsed VBS Mutual Bank (VBS).
News24 has established that the FDC, which is state owned, ignored or bypassed provisions in the Public Finance Management Act (PFMA) and Treasury regulations in placing the investment with VBS. The investment was also hidden from scrutiny, with no mention thereof in the FDC's financial statements.
In terms of the Free State Development Corporation Act, the FDC board is empowered to invest any funds or moneys not immediately required for its affairs.
The FDC chairperson, Hantsi Matseke, has made public statements confirming the R100m investment "was authorised".
It is, however, difficult to determine why VBS Bank was considered a viable option for the investment of public funds, or how legal requirements were circumvented to allow the investment in the first place.
In a statement released on Wednesday the FDC confirmed that it had invested funds with the bank, and that the R104m it received from VBS, mentioned in a bombshell forensic report on wide-scale fraud at the bank, was simply a return on this investment.
The forensic report titled "The Great Bank Heist" was authored by Advocate Terry Motau SC and Werksmans attorneys. The report was published by the South African Reserve Bank (SARB) last week.
The SARB placed VBS under curatorship in March this year after it became aware of a massive liquidity crisis which Motau's report now attributes to wide-scale looting and fraud worth nearly R2bn executed by the bank's top executives since 2017.
The chairperson of the FDC Hantsi Matseke confirmed to OFM, after a meeting of the Free State provincial Standing Committee on Public Accounts (Scopa) in Bothaville on Tuesday, that the corporation had been repaid its investment in four tranches after handing over the cash to VBS in June 2017.
News24 has confirmed that the four payments, which according to Matseke were R30m; R10m; R10m and R54m, commenced in November 2017 with the final payment taking place in February 2018.
This places the term of the investment into question, as the first tranche was paid back to the FDC less than six months after the initial investment.
This admission seemingly places the FDC in a predicament over possible breaches of investment policies that control how, and with which institutions, state organs such as the FDC may invest.
Matseke was appointed as the FDC chair in 2012 and as chair of the state-owned diamond mining company Alexkor's in 2015.
Matseke's husband, Peter "Kop" Matseke has been linked to the Gupta family in the past. The Sunday Times reported last year that the Guptas allegedly once wanted Hantsi to serve on the board of Sanral.
News24 previously reported that several sources confirmed that former Free State premier and current ANC secretary general Ace Magashule and Hantsi Matseke were long-time friends and allies.
Free State MEC of finance Elzabe Rockman has also been linked to Gupta projects and visits and was appointed by Magashule in 2013.
Rockman was responsible for the FDC and according to provisions in the FDC Act and the PFMA, would have been required to sign off on the VBS investment.
Questions sent to the FDC seeking to determine the origin of the investment plan with VBS went unanswered, and it remains unclear why the FDC invested with the Limpopo-based bank.
The FDC is a public business corporation listed in the third schedule of the Public Finance Management Act (PFMA). As a result, it must adhere to both the PFMA and Treasury Regulations.
Treasury regulations also require every state-owned entity to compile an "investment policy document" describing the credit risk analysis of counterparties.
This credit risk analysis as a review of the factors impacting the desirability of the investment, such as the credit rating of the investment destination, the size of the investment and the performance of the asset.
While News24 was not provided with a copy of the investment policy statement, a note in the FDC's annual financial statements gave an indication of the credit rating threshold.
"Public entities bank with major banks with high credit standing. Furthermore, the cash holdings with banks are spread amongst a variety of banks to reduce the concentration of their credit risk exposure. The minimum counterparty credit rating for placing deposits and investing in government bonds is 'A' by Standard & Poor's or its Moody's or Fitch's rating equivalents, while the minimum rating for investments in corporate bonds is 'AA-'."
At the time that the FDC invested R100m with VBS in June 2017, the now-floundering bank did not even have a credit rating, much less a "AA-" rating.
VBS curator Anoosh Rooplal confirmed to News24 that he did not believe the bank ever held any credit rating.
The FDC also had to base its decisions on the 2015/2016 financial statements for VBS, considering that 2016/2017 financials were only released a month after the deposit was made.
The 2015/2016 financials claimed VBS obtained "funding to the tune of R280 million raised from municipalities and institutions", bringing its total client deposits up to about R600m.
This means the FDC's R100m investment would comprise a third of VBS' institutional funding, about 16% of the entire funding of VBS based on these financials statements.This mismatch between the size of the investment when compared to VBS' total deposits was the same reason why Passenger Rail Agency of South Africa (Prasa) officials blocked the investment of R1bn in February this year, according to the Motau's forensic report.
According to Motau's report the former Prasa chief financial officer Yvonne Page had described VBS as a "Ponzi-scheme".
She was instrumental in ensuring Prasa did not push R1bn into VBS despite being under pressure from then acting CEO Cromet Molepo to make the funds available.
Treasury regulations are also very specific when it comes to the investment destinations for surplus state-owned funds.
Regulation 31.3.4(a) clearly states that public entities may only invest amounts of more than R1m with the Corporation for Public Deposits, a state-owned entity.
Yet despite this, the FDC invested R100m in VBS Mutual Bank in contravention of these regulations.
It also raises questions over a line item in the FDC's own financial statements for 2017/2018 in which it states it has R10m tied up in VBS as a result of the bank being placed under curatorship.
In the entire 112 page financial statement, VBS is mentioned once, and no mention is made of the sizeable R100 investment.
Despite the outstanding R10m indicated in the financials, on Matseke's own version, the FDC has been fully paid by VBS.
The remaining funds appear to be bogged down in a VBS call account, suggesting that it was a deposit at the bank and not an investment.
Treasury regulations required the FDC to obtain the Free State provincial treasury's approval of the bank before it could open an account with VBS.
This approval would come from Rockman.
Rockman was appointed by Magashule amid an investigation by National Treasury into the awarding of several communication contracts under irregular circumstances.
She was also one of several high-ranking Free State politicians that met with the Guptas on April 6, 2013, according to calendar entries found in the Gupta Leaks.
These meetings, a mere two weeks before the first payments were made to the failed Gupta-linked dairy farm Estina, were also attended by Free State Agriculture head Peter Thabethe and former minister of mineral resources Mosebenzi Zwane.
News24's questions sent to the FDC, Free State Provincial Treasury and the Free State Department Of Economic, Small Business Development, Tourism And Environmental Affairs regarding the nature, terms and legality of these investment remain unanswered.
Magashule has been linked to the FDC in previous reports by News24.
In January this year we revealed that Magashule was implicated in a dodgy property deal with the FDC and his long-lost daughter, Thoko Alice Malembe, that saw her score R9m for doing nothing.