Court applications by Iqbal Survé and his brother-in-law business partner, Khalid Abdulla, have exposed details of a shocking contract signed by PIC chief executive ‘Dr Dan’ Matjila that purported to provide the PIC with some protection against further losses on its R4.3bn investment in AYO.

In fact, notes Sam Sole in an amaBhungane report on the Daily Maverick site, the contract, dated 16 October 2018, provided no protection to the PIC at all.

The Financial Sector Conduct Authority (FSCA) is investigating trades in AYO shares between 17 December 2017 (when AYO listed on the Johannesburg Stock Exchange) and 28 February 2019, just over a month after the downside protection agreement would have come to end.

Details of the FSCA investigation emerged from court papers lodged by Abdulla, who heads African Equity Empowerment Investments (AEEI) – the controlling shareholder in AYO – and separate papers lodged by Survé – the controlling shareholder in AEEI via his family-owned Sekunjalo Investment Holdings.

Both are challenging the search warrant which authorised an FSCA raid on 9 October this year on the premises of Sekunjalo and AEEI, during which the companies’ computer servers were duplicated.

Attached to Abdulla’s papers is the affidavit used by the FSCA to obtain the search warrant. It shows that Survé utterly dominated the trade in AYO shares and sets out the FSCA’s case that he artificially propped up the AYO share price. It also highlights the downside protection agreement.

Full amaBhungane report on the Daily Maverick site

Details of the trades in AYO are spelt out in another amaBhungane report.

It says that over months, practically no one but Survé’s family holding company, Sekunjalo Investment Holdings, and asset manager, 3 Laws Capital, bought shares. Survé’s domination of the market for AYO shares was especially true during three months when the share price was the subject of what the report on the Daily Maverick site describes as ‘a deeply flawed downside agreement that required minimum effort to squirm out of’.

Being the only person interested in your own company – he is indirectly AYO’s biggest shareholder by far – is not a crime and Survé has denied market manipulation, saying that he simply sees AYO as an ‘attractive long-term investment’.

More important, though, is the way in which Survé traded the shares, which can be an offence under section 80 of the Financial Markets Act – carrying a fine of up to R50m and imprisonment of up to 10 years. The JSE referred suspicious AYO trading to the FSCA, leading to the October raids.

The report notes that FSCA has only successfully prosecuted or settled eight market manipulation cases in the past decade and none related to the owner of the company in question.

The FSCA is particularly interested in Survé’s trading during the operation of the downside protection agreement, which required that the AYO share price stays above R22 from 19 October 2018 to 19 January 2019, failing which AEEI would have to pay part of the difference to the PIC.

In a lengthy and technical affidavit motivating for the search and seizure warrant, FSCA investigator Alfred Shimati notes there was a ‘notable increase’ in Survé’s trading in AYO shares during this period.

‘It is reasonable to suspect that this potential liability … may serve as a motive to manipulate the AYO share price,’ he said, according to the amaBhungane report.

Although the FSCA investigation only covers the period up to the end of February 2019, JSE market data shows that both Sekunjalo and 3 Laws have kept on buying AYO shares through the year. They still dominate the market. Survé has previously defended his dominance in the market for AYO shares.

‘The Sekunjalo Group is an investor in many companies on the JSE and sees AYO as an attractive long-term investment. Sekunjalo generally invests in companies and takes a five to 10-year view like Warren Buffet, Berkshire Hathaway,’ he said by WhatsApp as far back as September 2018.

Full amaBhungane report on the Daily Maverick site

Shimati affidavit