Shoprite Zambia shares scam, the other side of the scandal

Investigations into Shoprite holdings and its subsidiary show a lot of malpractices  involving some top directors in South Africa. But Shoprite checkers is accusing its former local director Lewis Mosho of Lewis Nathan Advocates of wrong doing in executing its role as sales agents in disposing of 2,220,897 shares to Zambian investors.

And   Drug  Enforcement Commission officers  on Friday 17th February, 2012 conducted a search at Lewis Nathan Advocates in the afternnoon. The search, DEC sources say yielded documentation linked to Shoprite audit and controversial shares bought by Zambian investors. Earlier, the Law Association of  Zambia which supervised the search, had intervened in the matter as the DEC search warrant was blank on what they were looking for. And some DEC insiders noted that the officers are under pressure to act following the DEC’s freezing of  accounts belonging to the law firm and Mr. Lewis Mosho sometime late last year.
And  Shoprite is keeping their fingers crossed  and wish their unsucessful attempt to freeze the law firm’s accounts is this time around taken care by the DEC.

Lewis Mosho, who was appointed by Shoprite as Zambian local representative director in a very irregular manner since 2003 resigned as director in August 2011 following his discovery of irregularities in his appointment on the part of Shoprite. The appointment was not done by a board resolution and no Shoprite annual report or website reflected his appointment. The appointment was also not notified to CIPRO, a company registry office in South Africa.And some Zambians are now calling for an inquiry into the privatization of NIEC and ZCBC departmental stores. It is alleged that when Shoprite came to buy these Zambian assets, they were given a condition that they issue new shares to Zambians.

But instead of issuing new shares at discounted price in the primary market, Shoprite decided to issue the new shares instead to its subsidiary, Shoprite Checkers, when in fact no subsidiary may own shares in its holding company. The issue of new shares to the subsidiary was not even approved by shareholders in South Africa, and the Johannesburg Stock Exchange. The result was to make Zambians buy Shoprite shares at high prices. “We were defrauded and Shoprite must be answerable”, said another shareholder.

Further investigations have also shown that the Shoprite directors have in the past attempted to sell the company to themselves and delist Shoprite from the JSE, but this attempt was stopped by shareholders and regulatory authorities.

The story behind the complaint is that Shoprite Holdings  authorised its agent to collect money from the proceeds of the remaining 2.2million shares which were sold on the Lusaka Stock Exchange on instructions given by Shoprite to Lewis Nathan Advocates by a resolution passed by Shoprite directors in 2004.

The said agent official  made cash collections which he signed for on behalf of Shoprite on  several dates from 2009. In trying to evade responsibility and disguise this unfortunate event, Shoprite rushed to announce in South Africa, as reported on Moneyweb, that the entire shares in Zambia had gone missing, and that the company would make a provision in its accounts for the loss of (K49bn) R70m. Investigations show that such shares cannot go missing on the LuSE, and that making a provision by Shoprite directors in its accounts could not be made that fast before any effort was made to recover the alleged loss. “This is a way to silence shareholders by Shoprite so that shareholders do not keep on asking questions”, said one shareholder in Zambia. “We are consulting legal advisors and we shall soon sue Shoprite to show how they have misled us. They appointed Lewis Mosho as local director and this appointment was not backed by any board resolution, and no annual report showed that Lewis Mosho was a director at any point in time since 2003. What type of listed company is this?”, asked one shareholder visibly annoyed.

As it turns out, Shoprite claims of fraud and suspected money laundering because of the weaker financial crimes legislation in Zambia and would therefore wish to use the loophole to evade the strict South Africa justice system.
Thus, the Shoprite scam in which its directors, company secretary and the legal department deny authorizing the Zambian law firm to execute the transaction, when in fact there is a resolution signed by the same directors in 2004, and the use of a subsidiary as opposed to African Supermakets, or as opposed to issue of new shares directly to Zambians could be a ploy that set the current issues. “When we look at the events, it is very clear that Shoprite wants to use its financial muscle to run from regulations in Zambia. Is this country a playing ground for non’disclosure of material facts?” a shareholder complained. “Most people have been paid by Shoprite to circulate false information. Our legal counsel has advised us to be careful and wait until a final position is laid out”, retorted the shareholder.

Shoprite holding chief executive, Whitey Basson and financial director, Carel. G Goosen had on September 1 and 2, 2004 respectively, signed off the appointment of Lewis Nathan Advocates as sales agent, to sell the balance of the shares sold to Zambian investors in line with the privatisation agreement.

Lewis Mosho had made representation to the DEC on the matter in 2009 but the seemingly compromised DEC had not acted. But when Shoprite approached DEC with a view to appear clean in South Africa, the DEC has entertained Shoprite with both hands. This has created a lot of suspicion among DEC officers, and some circles are calling for a full investigation in the operations of DEC officers.

It is alleged that some officers have built a lot of houses and have a lot of properties in and around Lusaka contrary to their earnings. It is also alleged that some top DEC officers have now been building their houses at a very fast speed immediately they were appointed by the President, contrary to their earnings, when, before such appointment, they only had obsolete plots at foundation level for a long time.

.Shoprite checkers purchased the parastatals including their buildings through its wholly owned Zambian subsidiary, African Supermarkets running 18 outlets. This was a Government policy to achieve wide-share ownership among the locals.

Investigation reveal that Shoprite directors have since changed their story following their failure to compel LuSE to collaborate their claims as the Lusaka bourse wish the 18-strong chain store own up and pay dividends  to local investors due since last September and March this year.

Most shareholders talked to have resolved to take Shoprite to court to compel Shoprite to pay the dividends and are wondering why the DEC never took any action when Lewis Mosho brought matters relating to money laundering among Shoprite directors to their attention.

The Lusaka Stock Exchange had insisted equal treatment of all shareholders following Shoprite Checkers resolve to pay off South Africa and Namibian investors while their Zambian counterparts continue to languish.

Surprisingly, Shoprite  chief executive told the South African media in 2011 when he reported the “loss” of the shares that there was uncertainty that the shares would be recovered hence the firm made a provision to cover the loss hinting further that “They are shares in Shoprite Group in South Africa but they are blocked in Zambia. They were issued at the time we listed in Zambia (LuSE) with a view to gradual release over time. We thought they were with the transfer secretaries but they weren’t. We might well find them. If they were foul play, we would hope to get them back in the meantime we decided to provide for the loss in full”

Mosho became a local director in Shoprite in line with the Companies Act though Shoprite avoided procedures for this appointment. The law firm was appointed as transfer secretaries for purposes of effecting the listing on LuSE in compliance with conditions agreed during the privatisation of NIEC and ZCBC.

And the chain store was in 2007 gutted by fire which inferno started from the back-store before sweeping through some parts of the first floor of the building.

The fire fighting officers could not gain entry into the gutted part of the building. They claimed they did not have enough oxygen reserves to avoid suffocation in putting out the inferno. Senior management officials from Shoprite Checkers, found at the scene, did not comment on the incident which had early on in 2006 almost reduced the building’s main floor to rubble.
Earlier in 2006, Shoprite directors had sought to sell the company to themselves and this was stopped by shareholders in a very complicated transaction.

Recently, the attempts by Shoprite to freeze the law firm bank accounts was stopped by the High Court, and Shoprite was ordered to pay damages and costs to Lewis Nathan Advocates. The firm, which is one of the leading lawyers on complicated financial market transactions involving corporate finance, securitization etc, will soon be claiming damages in billions of kwacha as recently reported in Zambian media.

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