In the few months since I last wrote about the Corpcapital saga a great deal of new and significant information has emerged, and it is now time, for me at least, to draw a line under the long running saga. Some of the information came from Corpcapital itself as the state’s section 258 investigation prised open the box and compelled the company to provide documents not previously disclosed. This in itself led to a fascinating analysis and revealed many contradictions. Unexpectedly, further information had surfaced from sources that came forward and volunteered new direct evidence of malpractices which were previously either unknown or only suspected. Forensic analysts studied the information and concluded that in their opinion much of the conduct of certain key executives was unlawful. It has also become quite clear to me that Cytech was merely the first surprise to emerge from this Pandora’s Box. Others followed, and a complex pattern of deception emerged, deception that started from the very inception of the group. Still, the long drawn out process suggests that, even now, the full extent of questionable behaviour may not have been fully exposed.

In hindsight, and given all the facts that have since come to light, it is painfully clear that the entire Corpcapital bubble would inevitably have imploded at some point in time. That Corpcapital continued to operate with the blessing of the board and the benign stewardship of the relevant authorities and gatekeepers remains one of those unexplained mysteries that litter the field of corporate mismanagement.

Corpcapital spokespersons, and I have consistently given different versions on almost every issue. Little wonder that there is confusion as what the real facts are in the absence of a credible reference site. This website places all of the known facts and evidence, from both sides, in the public domain. It is appropriate for these facts to be revealed, and to form a reference site for interested parties and a permanent record of a most unsavoury episode in the corporate history of South Africa.

This is the story of what I believe is one of the most significant serial corporate scandals South Africa has seen. The saga lasted for the best part of a decade, and made a select few fabulously rich. But those responsible have yet to be brought to account. The events which unfolded are quite unacceptable in a society which is making courageous and some notably successful attempts to reform its past, a society that places a high value on fighting corruption, and a society that is making strong efforts to compete globally and become a good global citizen. It is a self-evident truth that those countries that place a high value on the rule of law through effective enforcement provide the best and safest investment environments. It is no accident that the United States of America, the best example of liberal democracy and free enterprise, is also the country which has the highest criminal conviction rate per capita, and the highest per capita jail population. The record is equally impressive in civil society and in the business community. The criminal justice system works, and enforcement is taken seriously.

The latest analyses and reports have been submitted to the Minister of Trade and Industry, and it is now up to different Government agencies to decide how they will deal with the facts which emerged from the Corpcapital saga.

The questions arise; do these actions constitute fraud? Are they activities that breach civil law and Company Law? And, are they subject to criminal prosecution? The answer emerges from an examination of the facts against the legal benchmarks. This website sets out extensive evidence and opinion on both, and gives readers an opportunity to make up their own minds about these issues. I encourage everyone to do so because there are important lessons to be learnt in every sphere of society.


The occurrence of irregularities raise a related question,: What are the fiduciary duties of directors, and how far do they extend? Shareholders, the owners of the company, appoint directors to the board to be custodians of their company, and to represent their interests. Directors are thus custodians of the wealth of others, whether or not they personally own shares in the company. The board appoints the CEO and his or her executive team to manage the company as stewards of shareholders capital, answerable to the board. Company law establishes legal and equitable principles governing the relationship between the company, its shareholders, and its fiduciaries, the directors and corporate officers. Judicially created common law principles, notably the imposition of fiduciary duties seek to preserve and uphold the board’s centralized management role while at the same time holding directors and officers accountable, even personally liable, for failing to discharge their fiduciary responsibilities to the company and its shareholders. See WWB legal notes on fiduciary duties . WWB is an abbreviation for the corporate law firm Webber Wentzel Bowens that represented me throughout the long saga.

In carrying out their managerial roles directors and officers are charged with an unyielding and immutable fiduciary duty to the company and its shareholders to protect the interests of the company and to act in the best interests of shareholders. With the appointment and benefits of a directorship come responsibilities. Fiduciary duties attach to all aspects of the relationship of the fiduciary with the company and with its shareholders, and are the constant compass by which all actions must be guided, ensuring fidelity and industry by those entrusted with managing the wealth of others. Directors and corporate officers are not permitted to use their positions of trust and confidence to further their own personal interests. These are the principal rules of the game, and are set in law.

The law dealing with fiduciary duties does not distinguish between “interested” directors (those who are either executive, or have a shareholding, or both) and “disinterested” directors (those who do not have a shareholding, and are sometimes known as independent directors). Such a distinction is premised on the unproven belief that somehow a director may allow his/her personal interest to interfere with the manner in which they conduct themselves as directors. My own experience is that independence is a state of mind which is influenced by personal values. I have seen directors with an interest in the company apply meticulous independence, and I have seen others who have no shares in the company but who act in concert with the CEO on issues that require greater scrutiny. It is the integrity of the individual which is decisive.

There can, therefore, be no debate that directors of companies are obliged to take direct and prompt action when they encounter suspected irregularities, whatever the circumstances or threats of retaliation. Their duty is to report their suspicions so that the board can investigate the facts and take appropriate action. That is what shareholders are entitled to expect. However, the board may not take action because they are either dilatory or compromised. What to do then? The story which unfolds here deals with how I faced this dilemma in unchartered waters, and perhaps will provide guidelines to others who may find themselves in a similar situation.

The website points out some serious inadequacies in regulatory and enforcement functions as well as in the Companies Act legislation. I expect that it will help restore a proper balance between the law and corporate governance codes, which are not legally enforceable, and cannot substitute for a system that has consequences. It enables me to take a personal and public stand on the difference between right and wrong in a situation which matters to our society and to me personally. I hope that this website will facilitate further scrutiny of how allegations of this nature are dealt with in South Africa, and the way in which the rule of law is applied in a way that makes it unnecessary for anyone ever again to go through the expense and emotional trauma when they do their duty.


Warren Buffet, “People will always try to stop you doing the right thing if it is unconventional.”

Why the website on the internet? There are two relevant facets relating to governance, theory and practice. The first, due process, has to do with the statutory framework dealing with corporate irregularities and how they are prosecuted, and the second, the real world, has to do with how directors and companies actually handle these matters. Needless to say, there is often a great disparity between the two. The first facet involves a process, and the system provides ample opportunities for those alleged to have engaged in misconduct to drag the matter out, as has been the case at Corpcapital. The second relates to the roadmap for directors when they encounter what they perceive as irregularities, and is of more interest to me now.

It is a matter of historical record that due process (the statutory process) failed thus far to get out all of the facts in the case of Corpcapital. My suspicions, which I reported to the board, were not properly investigated, nor was appropriate action taken. The board, under pressure from shareholders, appointed an investigator, Nigel Payne, who cleared the company in a tawdry “whitewash”, which observed few principles of proper investigation and evidence testing. The state investigation of Corpcapital under section 258(2) of the Companies Act took much longer but did little better. Prominent and credible independent forensic analysts have repeatedly pointed in clear terms to the irregularities, and even stated that blatant fraud was, in their view, present. As the Corpcapital saga has amply shown we lag far behind the United States in how these matters are dealt with. From my standpoint this track, due process, has run its course. Whether or not further action is taken by interested authorities is a matter that is not up to me. I have fulfilled, in every respect, my duty and obligations to shareholders and the investing public..

What is of concern to me is the second track, the roadmap for directors who may from time to time encounter irregularities. I have a moral duty, born out of my personal experiences, to ensure that the “blueprint” to defend against allegations of fraud is not the one followed by the directors and executives of Corpcapital, but rather focusing on the real issues and dealing with them properly and transparently. Our society cannot benefit if future cases are decided in this way. It is for this reason that I have decided to make all of the information, from both sides of the argument, available on the internet as a permanent record of what happened. This will enable a broad debate to take place, and in time for the necessary changes to be made where they are appropriate to further the rule of law.
My objective has never wavered, namely to take such actions as would get the facts out so that appropriate action could be taken in the interests of shareholders and the investing public. It has become progressively apparent to me, for many reasons, that this matter will not reach finality until the full facts are revealed. This is a step in that direction. The complexity and intensity of the saga invited the most demanding analysis and discussion, often in territory previously unexplored where there were no precedents to fall back on. As a result I sought advice from acknowledged experts in the fields of accountancy, law, and business, and was fortunate to have the sage advice of a group of experienced and respected senior leaders in the business community. Every decision that I have made has been taken under comprehensive advisement, and with careful thought.

When some of these events were taking place I was a director of Corpcapital and therefore intimately involved in the saga. In the succeeding years I have stepped back and am now able to look at the events as an outside observer, even though I could never claim to be a disinterested and totally-independent observer. The content is written in the third person, a method that I am more comfortable with and that best suits my consideration of these events.

Nic Frangos
Johannesburg, South Africa 11 August 2008


Economist Milton Friedman once commented, “There is one, and only one, social responsibility of business, to use its resources and engage in activities designed to increase its profits, so long as it stays within the rules of the game, which is to say, engage in open and free competition without deception or fraud.”

This website will present the hard facts of the Corpcapital saga, tested in the real world of business. It was created and written by Nic Frangos, the non-executive director who was part of Corpcapital’s founding consortium and who investigated and reported the allegations of irregularities to the company’s board. The current version is an update of the earlier version and now takes into account all of the additional evidence which came to the surface during the states section 258(2) investigation of Corpcapital , which will be referred to as the Myburgh Investigation and the Myburgh Report.


The core of the issue
The unravelling of Corpcapital began with a single, scarcely-noticed event — a low-key change in accounting policy in February 2002. It may have been portrayed as low-key in the company’s financial statements, but it was to have profound effects on the company’s bottom line and, as things progressed and ordinary shareholders were misled, on the personal fortunes of a privileged few.

The change in accounting policy directly concerned an associate company which was hidden from most of Corpcapital’s shareholders and known at the time to only a select few : Jeff Liebesman, Corpcapital’s CEO and the brains behind this and other corporate sharp practices, and certain of his hand-picked team of executives. The company was Cytech, an online gaming casino domiciled in the Central American tax haven of Belize and well away from the scrutiny of the board of directors, auditors, shareholders, investment analysts and financial regulators.

Name changes and litigation were in vogue at Corpcapital, and Cytech was no exception. It started life as Netainment based in the Netherlands Antilles, another tax haven in the same Caribbean neck of the woods as Belize, until its move to Belize in 2001 when litigation ensued in the Caribbean between Corpcapital/Cytech and its contractual software provider, Micro Gaming Systems of Switzerland.

Cytech was to perform much the same role for Corpcapital as the exotic offshore entities set up by the crafty managers who ramped up Enron and who eventually took that ill-starred house of cards into disaster. In both cases the entities were the vehicles to pump up reported profits in public companies while disguising the murkier reality from investors. The executives at Enron had created the offshore entities to provide hidden ownership and to give management full freedom of currency movement. They were also created to provide the full anonymity that would hide losses that the company was, in reality, taking.

These entities made Enron look significantly more profitable than it actually was, and created a dangerous spiral in which, each quarter, corporate officers would have to perform more and more contorted financial deception to create the illusion of billions in profits while the company was actually losing money. This practice drove Enron’s stock price up to new levels, at which point the executives began to work on insider information and trade Enron stock worth millions of dollars on the stock market. The executives and insiders at Enron knew about the offshore accounts that were being used to hide the company’s real losses, but they were way out of sight of ordinary shareholders who relied on published figures to price their holdings. (Context taken from Wikipedia and the testimony of Frank Partnoy, Professor of Law, University of San Diego).

At the heart of the Corpcapital saga are the pivotal profits in the Annual Financial Statements of Corpcapital in 2000 which arose from an upward and unjustified revaluation of the company’s investment in Cytech. The adjustment to reported profits was brought about by a year-end bookkeeping entry without the required checks and balances. The mechanism was “creative accounting”, in what appears to be a mirror image of the techniques used by Enron and a device that fooled investors about the true state of the company. Without the notional and speculative profits attributable to Cytech, Corpcapital would have experienced a catastrophic year. Instead a rosy picture of strong profits and healthy growth was presented in the 2000 Annual Financial Statements, a picture which did not fairly represent the company’s parlous situation. And that is putting it mildly. The reality was deliberate obfuscation by directors and executives.

At Enron and Corpcapital the central character was the CEO — Jeff Skilling at Enron and Jeff Liebesman at Corpcapital. They held their associate directors and executives in thrall, using their positions of power to pervert reality. For further background on the career of Liebesman see Jeff Liebesman.

The numbers tell a story
Cytech was set up in 1998 by Liebesman and commenced operations in 1999, with Corpcapital holding a 50% share, later diluted to 47.5%. It was sold in 2004 as part of the dismantling of Corpcapital. During this period Cytech was revalued upwards from zero to a stratospheric figure in two short years and then down to an insignificant figure over the following two. All of the increases to valuation were taken into Corpcapital’s income statements as profit using the controversial “mark-to-market” accounting method, and on the back of assumptions which bore no relationship to reality. When the inevitable collapse in valuations occurred, the mark-to-market method was abandoned and the accounting policy was changed to equity accounting to avoid having to account for the declines in the income statement of Corpcapital in the same way that the increases had pumped up profits.

In actual numbers the valuation of Cytech went from a modest R9.5 million at the start of the 2000 year, its first full year of operations, to R314 million at the end of the year, an increase of R304.5 million, and then to R480 million a year later. Corpcapital’s took its share of the increase in capital value in 2000, R144.5 million, and transferred it as revenue to the income statement of Corpcapital, recognizing it as profit. These profits were notional and had no relationship to Cytech’s true current profits in 2000. They were also of a non-cash nature, and were unsustainable.

The notional profits created in 2000 by revaluing Cytech were material, contributing more than 60% of Corpcapital’s reported earnings in 2000. In specific terms, the 2000 Annual Financial Statements of Corpcapital showed headline earnings of R133 million, 33% up on the 1999 earnings, portraying a rosy picture of the company and its future. Without Cytech Corpcapital’s results were disastrous. The 1999 profits of Corpcapital were purported to be R100.6 million, but have they never been scrutinized. While the focus is on 2000 it is quite possible that the entire history of Corpcapital may have been largely an illusion. None of these happenings were disclosed to unsuspecting shareholders who were entitled to believe the positive spin reported in the annual financial statements. They were, after all, approved by the board and the audit committee. And they had been audited by Fisher Hoffman, a significant firm of accountants, or so investors thought.

The ownership of Cytech
During the government investigation of Corpcapital Frangos requested the inspectors to verify the ownership of Cytech, this information having been denied to him during his internal investigation. The inspectors obtained share certificates numbered 9 to 12 and provided them to Frangos on 3 November 2003. See Cytech share certificates. Frangos asked where certificates 1 to 8 were, and why they had not been furnished. No response was received from the inspectors, who nevertheless found “On the basis of the evidence, the inspectors find that the beneficial ownership of Netainment and Cytech resided in Corpcapital Investments (47,5%), Rose (23,75%), Harpaz (23,75%), and Dawson (5%).” There may be a plausible explanation for this conclusion, but in the absence of explanations and evidence it does raise questions.

According to Jade Hamburger, the Corpcapital executive responsible for Cytech, Schindlers Reg Treuuntemehmen (“Schindlers”), a trust company based in London and Lichtenstein, was appointed to assist in the administration of the corporate structure and became the initial corporate directors for Netainment, CFI and Interactive. Schindlers, as will be shown on this website, played a significant role in assisting Liebesman and Liebmann to establish entities in tax havens apparently in violation of exchange control legislation. Cytech was subsequently sold in 2004 to the vendors at a price which was a fraction of its former inflated valuations, equating precisely to the nominal written down book value. And what of Cytech’s scanty offshore management team? Tal Harpaz and Sean Rose, the young two-man team relocated from the United Kingdom to Australia as the investigations commenced.

Legal benchmarks to test the conduct of Liebesman and the executives
Investigations into allegations of corporate accounting fraud are not easy and require great thought, meticulous procedures and the application of principles to bring about a fair result in the public interest. The investigators are required to be independent and be committed to a procedure which has unquestioned integrity. The starting point is to determine which relevant accounting and legal rules apply to the specific circumstances of the case under review, and with which the company was required to comply? This determines the legislative framework in which the investigators will operate. Having determined the framework of applicable rules the investigators carefully select a process and advise the relevant parties. The acquiring, and often the extraction, of real and full evidence presents a special challenge? How then to test the veracity of the facts and evidence ensuring that involved parties are given a full opportunity to provide evidence and have it tested properly? When the investigators have satisfied the requirements of independence, integrity and proper procedure how do they arrive at preliminary findings? How are these findings tested? How are the preliminary findings converted into final findings? Have all parties been treated fairly? Has the process been fair? How do the investigators respond to challenges? And, how to determine further action and recommendations? These are complicated matters, and a brief explanation follows.

The boundaries, or rules, in which corporate governance operate are contained in GAAP and the Companies Act, as well as criminal law, which deal, inter alia, with the common law crime of fraud. The nature of the investigation, its complexity and sophistication, the mechanisms used by those accused of misconduct, and the volume of evidence, provide the essential input to the investigators to determine the way in which the investigation ought to be conducted. It is the specific circumstances of the task at hand that define the scope and nature of an investigation. No two investigations, by definition, can be the same. The key ingredients for a successful investigation are sufficient qualified resources, specific know how in relevant areas of expertise, such as fraud, a methodology which is capable of piercing the veil of concealment, and ensuring that the veracity of all material evidence is thoroughly tested. The seriousness of the misconduct can only be determined when the infringements have been identified and tested against the benchmarks of the law. Recommendations for further action are predicated on the results of the foregoing.

GAAP and the Companies Act are filled with a myriad of rules with which companies are expected to comply. Those relevant to a particular inquiry are determined by the specific circumstances of the case. For Cytech the principal questions boiled down two;

1. Was Corpcapital entitled to apply the mark-to-market accounting method which generated a contrived end result?
2. Was fair presentation made to shareholders in the reported profits?

From these two questions a range of accounting regulations and rules are extracted as the benchmarks. Corpcapital’s case failed at the first hurdle. Forensic investigations showed that Corpcapital provided false evidence to support its case for the use the mark-to-market method. The executives contended that Cytech was held available for sale in the short term, a pre-condition for using the method. On the director’s own evidence, it was shown that Corpcapital was not truthful in sworn submissions to the inspectors of the states investigation. See Report of C A Stride 071207 . Therefore, all of the hyper-technical arguments raised by Corpcapital were irrelevant to the investigation because they were all predicated on the premise that Corpcapital was entitled to use the mark-to-market method. They are dealt with here to develop an understanding of the manner in which the executives sought to deflect the investigation. The hyper-technical arguments focused on the following questions;

• Could the valuation of Cytech be objectively determined, could it be “measured reliably”? An important question, but not relevant if the company was not permitted to use the methodology. However, a useful aid to keep inspectors occupied and deflect from the real issues.
• Was the discounted cash flow (DCF) method of valuation appropriate for a start-up company?
• Were the assumptions realistic?
• Was the valuation appropriately conservative?
• Did Corpcapital make genuine efforts to sell Cytech?
• Did Liebesman and his executives have “significant influence” over the decisions of Cytech? Certain conclusions flow from these analyses, which did not favour Corpcapital, but they are only useful if the first two questions outlined above are answered in favour of Corpcapital.
If further proof was required it came in the form of the manner in which Corpcapital conducted its defense. Corpcapital focused its efforts on persuading the inspectors of the states investigation of the legitimacy of its actions in the above areas as what appears to have been a diversionary tactic. To do so the directors enlisted the services of at least ten “experts” who were mandated to comment in these areas. But there was a fatal flaw. It does not appear from an examination of these expert reports that the experts were given the full facts, nor given open mandates, in contrast to every forensic investigator appointed by Webber Wentzel Bowens on behalf of Frangos.

Fair presentation of Corpcapital’s reported results, the second relevant question, was not achieved because;

• Cytech was massively overvalued.
• Disclosure was not made in a manner in which a reader of the accounts could have known the materiality of Cytech, nor that the purported profits were unsustainable.
• Cytech’s contribution was material (more than 60% of Corpcapital’s profits).

As with the first question, the hyper-technical subsets of this question, argued by Corpcapital, are of no consequence because fair presentation was not achieved. Once it has been shown that there has not been fair presentation there is no purpose to further analysis. Unaccountably, the bulk of the Myburgh report is devoted to hyper-technical argument, with the inspectors playing referee in what appeared to be a numbers game relating to the number of experts on each side.

It is axiomatic that the decision to employ a specific accounting method is not a choice that can be freely made by the CEO. If it were, many unscrupulous managers would simply use the accounting method which gives them the bottom line they desire. There are strict guidelines, and GAAP, supported by the legal framework of the Companies Act, sets out these rules indicating the specific circumstances which direct this important decision. The objectives are to safeguard investors from the abuse of accounting rules and to achieve fair presentation because different accounting treatments bring about very different results on the bottom line.

Finally, the acid test. Who benefited? And by how much? The forensic analyses of Charles Stride (See Report of C A Stride 071207 ) and SAB&T (see SAB&T forensic report 210807) are clear and explicit on the value of misappropriation and it distribution. According to the these reports Liebesman, Liebmann and a small team of executives embarked on a series of fraudulent actions resulting in benefits to themselves in the R billions, much of which took place offshore without any disclosure to boards of directors or shareholders.


“The only thing necessary for the triumph of evil is for good men to do nothing”.
Edmund Burke 1729-1797

The W&A debacle 1987-1994
Liebesman started his career as an auditor with the accounting firm of Kessel Feinstein in Johannesburg in the 1970s. He acquired the scaffolding company FormScaff Industries (FSI) in the early 1980s with money from his father-in-law, Kassie Israelite, and with the support of Eric Ellerine. After making his first acquisition in the early 1980s, in 1987 he purchased a controlling interest in W&A, a significant publicly-listed conglomerate into which he injected FSI. The purchase was highly leveraged and W&A faltered under the debt burden and some significant losses of management. Liebesman’s responses to these challenges, according to reports at the time which are shown on this website, were frequent recapitalizations, creative accounting and the presentation of confusing financial statements that became progressively more difficult to interpret and compare. His strategy, it appeared, was to buy time and disguise the real problems in the hope that the tide would turn.

In 1992 Trencor, one of South Africa’s pre-eminent public companies went into partnership with Liebesman as the “white knight” in a R615 million investment in W&A, an investment made on the basis of an unqualified audited net asset value figure for W&A as at the end of December 1992. In 1994 Trencor instituted legal action against Liebesman and the W&A auditors, Kessel Feinstein, for fraud, the basis of the action was that Liebesman had allegedly defrauded shareholders and treated the company as his own private piggy bank.

At the time the magazine Finance Week wrote: “W&A is a man-made disaster which Trencor walked right into just one year ago”. Questions were asked about the poor level of disclosure. Sadly it seems Jeff Liebesman has a cancerous affect on shareholder wealth. He has eroded it to the bone at FSI and W&A and, if Hasson cannot come up with a credible rescue plan for W&A, Trencor shareholders will be considerably the worse off for their exposure to Liebesman. The Hasson referred to was Ray Hasson, the co-chairman of W&A and the Trencor director who had been given the responsibility of sorting out the mess.

Many analysts commenting on the W&A days seemed to have the view that the problem was that “financial engineering”, or “creative accounting”, dominated management strategy and priorities. “Getting rid of the spin twins, Jeff Liebesman and Neville Cohen, should help the rehabilitation process,” said the Finance Week article. But the damage had already been done.

Legal action was initiated by Hasson on behalf of Trencor, and through FSI, against Liebesman and Kessel Feinstein in 1994 for fraud. Soon after Hasson was killed in a car accident and the energy went out of the Trencor efforts. Liebesman left W&A under a cloud, but a significant turn of events occurred, triggered by the untimely death of Liebesman’s nemesis, Ray Hasson, enabling Liebesman to recapture the initiative. Trencor unbundled W&A to get back to its core businesses, a process which was to recur many years later at Corpcapital.

A secret settlement took place in February 1997, arranged by Ellerine according to the testimony of the senior partner of Kessel Feinstein, Kas Herman, who was himself present. Liebesman agreed to a huge settlement payment to Trencor, met on his behalf by close friend Errol Grolman. Liebesman’s lawyer was Benji Liebmann, and his senior counsel Neil Lazarus. All of these players, who by now had a deep insight to the travails at W&A, were to re-appear later on the scene at Corpcapital, with Ellerine as chairman.

The court papers only surfaced in the media in 2003, and were until then a well-kept secret.

A fuller account of the W&A debacle can be found on the website index under Jeff Liebesman, the CEO of Corpcapital.

The players at Corpcapital
The CEO of Corpcapital was Jeff Liebesman. It is notable that Liebesman’s obsession with portraying himself as an astute businessman repeatedly failed because he was unable to deliver real results when the chips were down, neither at W&A nor at Corpcapital. What also differentiated Liebesman’s career was his inability, or refusal, to deal with adversity in a transparent and conventional way, or to play by the rules.

The core executive team consisted of Liebmann, a lawyer formerly in private practice, Grolman, Martin Sacks and Lazarus, a former advocate. These executives were directors of Corpcapital. With the exception of Sacks, each member of the team had been intimately involved with Liebesman in his narrow escape in what became known as the W&A debacle in the early- and mid-1990’s. Liebmann was Liebesman’s longstanding lawyer and Lazarus acted as his senior counsel.

The close relationship between Liebmann and Liebesman from the early days suggests that there should have been no surprise that he would follow Liebesman to Corpcapital. In a real sense Liebmann was Liebesman’s gladiator and the éminence grise of Corpcapital (according to the American Heritage Dictionary an éminence grise is a powerful advisor or decision maker who operates secretly or unofficially, and the power behind the throne). Nor could it have come as a surprise to anyone that Grolman would appear on the scene, given his long-standing relationship with Liebesman. Even though his role at W&A was behind the scenes, it has since been revealed. Kas Herman, senior partner of Kessel Feinstein, reports that it was Grolman who made out the cheque on behalf of Liebesman in the secret settlement of the W&A debacle in 1997. Lazarus’s move from the advocate chambers, Group 621, was more puzzling. In some circles he was held in high esteem and appeared to have a solid career. Lazarus had seen first hand the serious allegations made by Trencor in the W&A debacle. See Court papers, W&A litigation . The situation was also later described by Finance Week when its journalist saw the court papers. See Finance Week -The High Life 260503, an article by Deon Basson on 26 May 2003. Given these insights many today question the wisdom of Lazarus throwing in his lot with Liebesman. Some five years after his entry into Corpcapital, Lazarus resigned as an executive. By then he was an extremely wealthy man. Liebmann has since continued as the sole executive, with Liebmann and Lazarus both as directors of New Corpcapital a company whose purpose no-one can understand and which, by the two men’s own version, should have been liquidated a long time ago. Time has however shown that nothing happened or happens by accident at Corpcapital.

The non-executive directors were Ellerine and Frangos, who were members of the founding consortium, Tom Wixley, formerly a senior partner of Ernst & Young and also a non-executive director of several public companies, was appointed in February 2002, and Wim Trengove, a highly-respected advocate, who joined the merged board of Corpcapital in 2001. Wixley was to take the helm as chairman after Ellerine resigned in 2005.

The chairman of the Corpcapital group after the 2001 merger was Ellerine, a prominent and wealthy businessman. According to the sworn testimony of Kessel Feinstein senior partner, Kas Herman, it was Ellerine who was instrumental and was present at the secret settlement of the W&A litigation in February 1997 which saved Liebesman from a long drawn out and very public court case. The meeting took place at the offices of Liebmann, who was Liebesman’s attorney. See Kas Herman affidavit re W&A secret settlement . Present at the meeting were Ellerine , Grolman , Julius Feinstein (founder of Kessel Feinstein), Kas Herman (senior partner of Kessel Feinstein), Liebmann , Lazarus, Michael Hart of Deneys Reitz Attorneys representing Kessel Feinstein, Liebesman, and Hennie van der Merwe representing FSI (the holding company of W&A), and acting on behalf of Trencor. FSI instituted the legal action against Liebesman. The relationship between Liebesman and Ellerine has been deep and goes back many years. At a critical point when the allegations of Liebesman’s deceptions came to the surface Ellerine backed Liebesman, an act which set the future course of events.

When the executives were confronted by serious allegations made by Frangos in 2002, the two lawyers Liebmann and Lazarus, both executives, were given the task of formulating and implementing the strategy to defend the practices of the executives against serious allegations on impropriety by a board led by Ellerine. This, in itself, was an extraordinary decision by the board, tantamount to putting the fox in charge of the chickens. The proper and transparent approach is obvious -: suspension of the accused executives pending an investigation by independent persons appointed by the board. Any board would know that its actions in such circumstances would come under close scrutiny.

When it became obvious that Liebesman’s continued presence after the exposure would cause problems and give rise to further negative publicity he was promptly shown the door in July 2003 by his colleagues, who appeared quite prepared to abandon him to prevent a further escalation – a telling event. So, for the second time in his career Liebesman exited a company under great controversy. The investing public was faced with the extraordinary situation that in the midst of a crisis the chairman, Ellerine, and the CEO of Corpcapital, Liebesman, were silent while the spokesperson for the board and the company was an executive, Lazarus, who treated the affair like a court room brawl rather than a serious corporate issue. If this was a signal that there were real problems at Corpcapital, it was not missed by the media.

The mechanism of the schemes
The schemes devised by Liebesman, and his small group of hand-picked executives were complex and sophisticated, difficult to detect and even more difficult to expose. Each followed a similar pattern;

An offshore structure was set up in secret so as to conceal true ownership, conceal transactions, and by definition conceal trading in the shares. See the Moss sworn statement to Myburgh , which describes the actual events in 1995 and thereafter. Charles Stride, a respected forensic accountant, comments, “It is apparent from the documentation that the overseas advisors were aware of the risk of an investigation and had suggested that a South African entity be used (as part of the structure) and that hopefully an investigation would end at that level,” as revealing a statement as could be made of the true intent of the structure from the pen of the instigators of the scheme. See Report of C A Stride 071207).

Funds were placed in the entity in contravention of South Africa’s exchange control regulations according to direct evidence presented by the offshore partner, Peter Moss. See Moss sworn statement to Myburgh.

The next stage was the purchase of an onshore cash shell on the Johannesburg Stock Exchange, using undisclosed offshore funds, so as to gain access to millions of cheap shares. Charles Stride reports, “It is clear that the intention of the parties was to initially enable funds to be illegally remitted overseas, acquire shares in listed South African cash shell companies, and avoid disclosure of the director’s shareholding.” See Report of C A Stride 071207 . Some of these shares found their way into the hands of wives of the executives and directors and to selected friends. These transactions can be viewed on the website, see Collett – Directors, related parties and shareholding -Bundle E, and Collett report November 2003.

In the third stage the cash shell was injected with cash via a rights offer to a consortium. The cash provided the means to acquire operating companies into the cash shell. Private companies were then targeted with the promise to the former owners of riches beyond their dreams. The name of the cash shell was then changed. First in 1996, it was Southgo which became Corpgro, followed by TPN in 1997 which was turned into Corpcapital, and then ABSEC which changed its name to Aqua Online. See the Collett – Directors, related parties and shareholding -Bundle E, SAB&T Ubuntu forensic report 210807  and the Report of C A Stride 071207 , and Collett SAB&T report February 2004.

The objective was conventional, even if the means was not. Purchase companies of potential. Grow profits. Watch the share price escalate, and transact more acquisitions on the back of issuing paper. As in all corporate scandals, the legitimate system was apparently subverted for personal objectives.

Liebesman had built his career on financial engineering, and revaluing assets to create profits in particular, from the start of his entry into the corporate sector with Formschaff in the early 1980’s according to those closely associated with him. Liebesman’s plans rested on the premise that acquired companies would produce results which would turbo charge the share price. When they did not, as happened many times in his career, Liebesman’s response was to manipulate the results and the information which went out to the market. Fooling the market and buying time was easier than producing real performances, and certainly easier than explaining why promises had not been met. Markets want good news, and Liebesman was intent on providing it. Behind the scenes and away from scrutiny no-one was to know how and when the offshore shares were traded.

A problem arose again when there was no good news to announce in 2000. Faced with this issue Liebesman reverted to a formula used before, manufacturing the good news by creative and confusing accounting, and making it difficult to compare one year’s results with another’s. Liebesman ought to have been aware that this path also contained the danger of discovery. But he had been there before. Any challenge would be met with a well-practiced routine of denial, and aggressively re-directing the pressure to the challenger. The cover-up depended on a compliant board, support from the auditors, and a closing of ranks of the executives. Liebesman had learned well from his W&A experience, see following story, Jeff Liebesman, the CEO of Corpcapital . At W&A he had eventually become isolated, without support on the board of directors, and by some of his fellow executives who had broken ranks. At Corpcapital Liebesman made sure that loyalty would be well-rewarded by a substantial dispensing of the company’s largesse to executives, ensuring that he would have others to defend him, and not repeat the close call at W&A.

The first step: Purchase of Southgo, a Brett Kebble company (which became Corpgro Limited)
In 1995, while the W&A debacle was still brewing, Liebesman and colleague Liebmann secretly purchased a German company, Werner & Pfleiderer (W&P), in partnership with an émigré South African, Peter Moss. See Moss sworn statement to Myburgh . The two men’s shareholding was held in trusts in the British Virgin Islands in violation of South African exchange control regulations. In an extraordinary act, funds from the German company W&P amounting to some R40 million, were diverted into a new holding company set up offshore. Schindlers of Lichtenstein and Gestinor Services AG of Zurich acted for Liebmann. See CBH offshore structure particulars. The structures and funds were now in place for the next phase of the scheme.

In 1996 Ellerine and a business associate negotiated the purchase of Southgo, a cash shell owned by the now late and controversial Brett Kebble, ostensibly to give Liebesman a second chance. Kebble owned Southgo through Consolidated Mining Corporation Limited, shares which were soon to find their way into the hands of a nexus navigated offshore by Liebesman. The business associate’s interests, Global Capital, appear to have been taken over by Grolman at an early stage. The purchase of the controlling shares took place offshore and ownership passed to Moss and a group of trusts in the British Virgin Islands where the beneficiaries were Liebesman and Liebmann. A Jamaican entity owned by Grolman, Frampton, was involved in certain related transactions involving loans, according to Moss. Presumably, this meant that Grolman was owed money by Liebesman and had to be repaid. One wonders whether this had anything to do with the secret settlement paid on behalf of Liebesman by Grolman in 1997 in South Africa, or perhaps other offshore transactions which have yet to surface. Documents which are available have not clarified the origin of the debt, but do link Grolman to the offshore structures.

To the share market Moss was the apparent owner of all of the offshore shares. In fact, according to Moss himself, he secretly held a significant portion of shares for Liebesman and Liebmann. Liebesman and Liebmann, according to Moss, constantly engineered changes to the agreed offshore shareholding which eventually led to a dispute in 1997. Moss was forced out of Corpcapital, and to meet financial obligations in Germany on behalf of CBH (the partnership with Liebesman and Liebmann). He had no choice but to sell his Corpcapital shares at a substantial discount, which then fell into the hands of the Liebesman camp in an offshore safe haven. The long and bitter feud, and the battering that Moss had to endure, is captured in an intense exchange by Liebmann to Moss, see Letter from Liebmann to Moss 171197 . See also 1997 dispute Moss vs Liebesman & Liebmann, Frampton (Grolman) offshore loan .

The JSE and the investing public were not aware of the true ownership of the shares. Had the market known of Liebesman’s true shareholding at inception, coming so soon after the W&A debacle, there is little doubt that Corpcapital and Liebesman’s plans would have been still-born.

A consortium was assembled to participate in a rights issue in Southgo and the name of the company changed from Southgo to Corpgro Ltd in July 1996. A press report proclaimed the return of Liebesman to the corporate arena. Liebesman, later referred to the W&A debacle, and commented to The Sunday Times on 5 December 1999: “It was a lesson expensively learned and I discovered the importance of quality people, of being a team player and of partnerships. Today I am more conservative than the rest of the management team – the lessons have not been forgotten. There is not a day that goes by without doing a checklist to ensure that what happened before does not happen again. My personal setbacks have entirely changed my outlook and my ability to form lasting relationships built on ability, integrity and mutual respect.” These fine words were once again not to be matched by actions, and as Liebesman spoke Cytech was about to be revalued. Time and again Liebesman relied on legerdemain and charm to rescue himself from the consequences of his activities.

Liebesman was being given a second chance, and the checks and balances would be provided by Ellerine and Frangos. That was what the market was told and believed. Liebesman would have no personal shareholding in Corpgro, and a small shareholding was held for his family in an entity known as The Opportunity Trust. Liebesman was to earn a shareholding through the results of the company. No-one knew that the Liebesman/Liebmann nexus already held control offshore, least of all a cautious investing market. See the Moss sworn statement to Myburgh .

These events took place at a time when litigation was pending against Liebesman, and when he personally owed a consortium of banks more than R100 million, a debt largely forgiven subsequently, when influential friends of Liebesman intervened. While Liebesman pleaded poverty, in actual fact the value of his offshore shareholding handsomely exceeded the amount of his debt. That certain directors were at the time aware of these behind-the-scenes machinations and elected to remain silent is a reflection of their values and the nature of personal enrichment and greed. See Offshore documents to set up structure , CBH offshore structure particulars , Agreement between Moss, Liebesman & Liebmann , CBH shareholders affairs eyes only , Diagram_acquisition of Southgo, Diagram _Southgo shareholders before it was bought , and Notes from Moss .

The SAB&T forensic report records, “Based on the above the Corpgro share commenced trading on the JSE on 7 October 1996 and closed that day at 44 cents per share. The executives (Liebesman and Liebmann), at this stage controlled 417.2 million shares valued at R 183.5 million,” See SAB&T Ubuntu forensic report 210807 . For the time being, Moss held the balance of shares. See also Report of C A Stride 071207. The shares rose to more than 700 cents over the next two years, valuing the Liebesman nexus shareholding at some R3 billion at the peak, a spectacular start for Liebesman, with more to follow. How and when these shares were traded is still not yet known. What it does show is that the gains from corporate deception are in a different league compared to those of the more high profile disclosures of corruption in the public sector.

The second step: Purchase of TPN (which became Corpcapital Limited)
The acquisition of TPN followed in 1997 and took the same pattern as that of Southgo. First TPN, a former Liebesman W&A affiliate company, was converted to a cash shell by unbundling its assets. There was no disclosure to the Corpgro board of directors of Liebesman’s previous involvement with TPN. The shell, or significant portions of it, was then purchased offshore through the third-party agency of Schindlers acting on behalf of Liebesman and Liebmann. See SAB&T Ubuntu forensic report 210807 and the Report of Report of C A Stride 071207 . A rights issue then placed control in the hands of Corpgro, but by then the executives had secured a significant offshore shareholding. The apparently unlawful and undisclosed shareholding of the executives in Corpgro and Corpcapital represented by far the most substantial block of shares. The name of TPN was changed to Corpcapital.

At the time Frangos raised a question as to why it was necessary to have a second investment company but the arguments of Liebesman found favour with Ellerine and the board. In hindsight, there seems little doubt that creating space away from the non-executive directors at Corpgro would be advantageous to Liebesman, especially with the imminent purchase of a bank by Corpcapital, and the manoeuvres soon to take place in an offshore destination with the formation of Cytech.

A comparatively trifling initial personal investment by Liebesman rose to an estimated R700 million at the peak of the share price in 1999. When the merger of Corpgro, Corpcapital, and Corpcapital Bank took place in 2001 the undisclosed executive shareholding in various entities was converted into group shares on the back of false valuations of Corpcapital, because of the contrived Cytech situation in 2000.

Corpcapital (old) was a company which led a charmed existence. In fact, on real numbers it probably would not have survived for long. Instead, it became the driving force in the merger which was to follow in 2001, and the executives, who were significant shareholders, reaped the benefits.

The third step: Purchase of Fulcrum Science and Technology Bank (which became Corpcapital Bank Limited)
The problem with notional profits is that there is no cash flow to match the profits. This creates a problem as to how to finance operations. Simultaneously with the Corpcapital formation, 49% of a bank, Fulcrum Science and Technology Bank, containing some R1.9 billion in cash and near cash was acquired, and it immediately changed its name to Corpcapital Bank. Ellerine had been a founding 10% shareholder in the bank and was a director of Fulcrum.

It did not take long for Liebesman to oust a key Fulcrum founder, Barry Swart, an experienced banker. Corpcapital was then able to conduct related-party transactions with Corpcapital Bank which resulted in cash moving from one entity to the other. The same core of executives operated seamlessly between the different entities, determining what information to share with their respective boards of directors. Liebesman was the executive head of Corpcapital and Grolman appointed the chairman of the Bank after the transaction. Corpcapital was cash strapped because the notional profits arising from Cytech were not backed by cash flow. Corpcapital Bank, however, was flush with cash (R1.6 billion in cash and near cash) and regulated by the Banks Act, a setting demanding the best of governance practices. It is moot whether the Reserve Bank would have blessed the change in ownership of Fulcrum had the secret lives of the various individuals been known.

Inevitably when Liebesman could no longer produce rabbits from the book-keeping hat to prop up results, the three major entities (Corpgro, Corpcapital, and Corpcapital Bank) were merged in 2001, and a set of merged financial statements produced where any investor would be hard pressed to compare results from one year to another, a constant theme throughout the lives of Corpgro and Corpcapital, and indeed with Liebesman’s former modus operandi as the CEO of W & A. The cash from the bank, formerly under the ownership of Corpcapital Bank shareholders got lost in the wash and became an asset of the merged unit under the leadership of Liebesman.

The swap ratios for the merger were influenced in a major way by the sleight of hand over Cytech, to the benefit of some lucky shareholders, who included the privileged executives, and to the detriment of other minorities, such as Kensani, a women’s empowerment group that had invested some R50 million in Fulcrum. A public dispute with Kensani, headed by CEO Kelley Starke, during the 2001 merger convinced the market that Liebesman, whose reputation had been suspect since his W&A debacle, was not to be trusted again and the share went into free fall in 2002, crashing from 240 cents to 88 cents.

While trust was a major factor in the share price tumbles it was also due in no small measure to the inability of Liebesman and his hand picked team to deliver real results, as they had promised the market. Time and again when the chips were down, companies headed by Liebesman failed to deliver real results. See Collett Corpcapital Structure Annexures A1-B2.