Stinging charge sheet for Fidelity bosses

STINGING allegations of breaches of exchange control regulations, fraud and financial impropriety have become the core of a possible charge sheet against Fidelity Life Assurance (FLA) directors - Mr Simon Chapereka, the managing director; and finance director Mr German Mushoma - as more details of corporate sleaze continue to emerge.

Fidelity is presently the subject of a forensic audit by KPMG at the instigation of regulator, the Insurance and Pensions Commission (IPEC), following reports of plunder at the company.

Ominously, the audit, which began in April, has since been extended to August.

Details gathered by The Sunday Mail Business last week indicate that Mr Chapereka seemingly consolidated power in his office during his 13-year reign at the helm of the insurance group by sitting on the human resources committee, executive committee and audit committee with voting powers.

Mr Chapereka, who had been Fidelity's finance director, took over as managing director from Mr Solomon Tembo in 2003.

Ironically, Mr Tembo was subsequently appointed board chairman, which is a blatant violation of good corporate governance practice as spelt out in King Code II.

It is also believed that the company operated with an acting company secretary "almost all the time".

Sources claim that such an architecture, which enabled the MD to hold sway over the group, also gave him the carte blanche to dictate how the company was run.

Suspicious transactions in Zambia, Malawi and Angola
Perhaps the most damaging allegations centre on the company's dealings in subsidiaries operating in Zambia and Malawi.

FLA first ventured into the Zambian market in 2008 when it paid 700 million kwacha (about US$200 000) to purchase Cavmont Life and Asset Management of Zambia.

Earlier in 2005, the firm had been given a five-year management contract by Cavmont.

Within the management contract, Fidelity was given an option to buy the company before the contract lapsed.

The acquisition, which culminated in the formation of Fidelity Life Assurance Zambia (FLAZ), was meant to spread the company's risk, especially at a time when the local economy was under siege.

However, matters came to a head in 2009 when FLA clashed with the Pension and Insurance Authority of Zambia (PIA) after it tried to impose Zimbabwean executives to replace the Zambian executives that were running the unit.

FLA claimed that the Zambian staffers had swindled from the company.

Resultantly, PIA suspended the operating licence of FLAZ in December 2009.

It was however reinstated two months later, but FLA opted to pass on the concession and on September 2, 2010; the group voted to exit the Zambian market.

But sources claim that there is a trail of suspicious transactions that happened during the liquidation of the company.

In July 2010, FLAZ is understood to have disposed Zanaco (Zambia National Commercial Bank) shares worth 2,5 billion kwacha through Pangeti Stockbrokers.

Proceeds of the sale, which were paid into BancABC Zambia, were "illegally siphoned" into Fidelity Life's BancABC Zimbabwe account on August 7, 2010 and converted into $450 000.

It is claimed that the final destination of the proceeds remain a mystery as the transaction was not reported in the group's financials for the year ended December 31, 2010.

Statutory bodies such as the Zimbabwe Revenue Authority (Zimra), the Reserve Bank of Zimbabwe and IPEC are understood to be unaware of the transaction.

The RBZ could not respond to questions sent by this paper on Wednesday by the time of going to print.

There is speculation that Mr Chapereka might have used the funds to buy shareholding in FLA through MMG Pension Fund at a rights issue in 2010.

The Fund once appeared on the top 20 shareholders list post the 2010 rights issue.

MMG is a Zambian pension fund.

Investigators believe that MMG couldn't have bought shares in FLA as the relationship between the two entities was not rosy at the time.

Suspiciously, the stake was disposed of under unclear circumstances.

Also, coincidentally, Mr Chapereka is alleged to have splurged on properties by buying houses in Greendale, Borrowdale, a house boat in Kariba and a fleet of top-of-the-range vehicles.

He is also understood to have bought Gulf Drug Company at the time.

There are now calls for a lifestyle audit on the suspended MD.

Last week, Mr Chapereka refused to field questions on the matter, including on claims that he held a substantial shareholding in FLA through Grimston, and referred questions to the group.

In turn, Fidelity said: "Investment by Fidelity Life into Zambia carried all the requisite and approvals from all the appropriate authorities.

"The operations and all results from the Zambian entity were incorporated into the Fidelity Life Group financial statements, up until the company's liquidation."

There are also damaging allegations that Mr Chapereka got rich pickings from Vanguard Life Assurance Malawi, where he was a non-executive director.

Before it was taken over by FLA in 2005, Vanguard used to be a wholly-owned subsidiary of Zimre Holdings Limited.

In what is largely believed to be a departure from the norm, Mr Chapereka declared an annual performance bonus – of the princely sum of $20 000 – for himself, a benefit that was not enjoyed by other non-executive directors.

Also, shareholders were not getting any dividend from the investment.

Some shareholders say such payments were supposed to be paid to FLA, the shareholder, and recognised as income for the company.

Information suggests that the money was not declared by the Reserve Bank of Malawi and the Malawi Revenue Authority as income to be paid to a non-resident.

Similarly, the RBZ is said to be unaware of the bonus.

Last week, Fidelity said the MD was entitled to the windfall.

"It is company policy that all staff and executives are awarded a performance-based bonus which is approved by the board. Any performance bonuses awarded to Mr Chapereka would have incorporated those from Malawi since as MD he had oversight of that unit," explained FLA.

But contacted for comment, Mr Lawrence Tamayi, Fidelity Life's former board chairman, said Mr Chapereka and other directors were "drawing bonuses" not stipulated in their contracts and without board approval.

 

Money disappears from London Account
There are enquiries that are being made relating to proceeds from a management contract that was entered into between Fidelity Life and Mundial Insurance Company of Angola in 2007 and were sitting in a London Account in 2009.

"All the money ever paid into that account was never reported in the accounts and the management fee of about $100 000 disappeared without a trace," said a source.

Stakeholders are also pushing for investigations into more than $80 000 in "seed capital" that had been invested in the New Sudan Insurance Company seemingly without RBZ and IPEC approval.

Shocking management of local subsidiaries
Those that are pushing to nail the suspended executives say local units were also not spared from gross mismanagement.

It is alleged that over the past decade, 16 executives were given the boot on "flimsy grounds" in order to "destroy corporate memory and DNA".

Any possible oversight that could have been provided by the National Social Security Authority (NSSA), which holds a controlling 27,6 percent in Fidelity, is said to have been destroyed through an "incestuous" relationship between Fidelity directors and some key directors at the Authority.

Stakeholders are of the opinion that it is precisely this relationship that was used to force out board chairman Mr Tamayi in December 2015.

Two other non-executive directors – Mr Memory Nguwi and Ms Catherine Chitiyo – controversially resigned after disagreeing with the way the firm was run.

This seemingly opened up the business for abuse, particularly by Mr Chapereka and Mr Mushoma.

Mr Chapereka is alleged to have allocated himself 12 residential stands at Fidelity's Manresa and Southview projects and advanced himself an interest-free housing loan of a staggering $300 000.

The loan had a tenure of 10 years, with monthly repayment installments pegged at $500; implying by the end of the repayment period, Mr Chapereka would have repaid a measly $60 000.

This could potentially prejudice the company of $240 000.

Likewise, Mr Mushoma, who was reportedly renting a house in Msasa when he started working for Fidelity Life in 2007, suddenly has over 40 properties and has been putting final touches onto his Glen Lorne mansion.

Between 2009 and 2010, he obtained a $95 000 loan from POSB that was guaranteed by Fidelity Life.

The money was used to build and complete a house in Goodhope.

An additional $20 000 was sourced from Fidelity Life to roof his Borrowdale house.

In addition, Fidelity Life human resources manager Mrs Sekai Makoni was allocated a $47 000 loan by Mr Mushoma to acquire a house in Mabelreign in May 2010.

While sources suggest that the loans have not been repaid, Fidelity said last week the facilities are being serviced.

"Employees at Fidelity Life qualify for housing loans which are provided either as direct loans or as guarantees on personal borrowings. Mr Mushoma, in line with his contract, accessed a loan which he is fully servicing," said Fidelity.

 

Funeral business scandal
The way Fidelity ran down its funeral assurance business has emerged as another focal point.

The unit was capitalised from money that was sourced from policyholders, including some funds from Nicoz Diamond.

Such an abortive undertaking is blamed for destroying Fidelity Life's investment portfolio as it unnecessarily strained the business.

Actuarial deficits from the venture soared to $5,4 million by the end of 2013.

Eventually, management took the decision to collapse the funeral assurance business into the life assurance business.

Claims suggest that policyholders could also have been prejudiced from the rampant withdrawal of cash from the subsidiary, especially the medical aid business, without formal board resolutions.

Loans from the Society to Fidelity Life were reportedly not reimbursed and, in some cases, never recorded.

"Money has been drawn out on the pretext that these funds were going into a sinking fund to help fund the housing development, without any hope of reimbursement of the money at a later time, nor is it with any form of interest. There has never been evidence that these funds were in fact used for the intended purpose," said sources.

Such blatant disregard for corporate governance practices set management on a collision with the board, and it was the latter that lost the duel.

 

Systematic jettisoning of Mr Tamayi
Mr Tamayi, who became board chairman in June 2014, learnt the hard way.

He is said to have uncovered massive underhand dealings involving top executives.

Last week, he told The Sunday Mail Business that his efforts to reconfigure the way the business was run were frustrated by management.

He became particularly unpopular after he held a workshop in February 2015 to sensitive employees on the need to observe good corporate governance.

It was later resolved that a skills audit and a review of the terms of reference of the audit and human resources committees be undertaken.

Mr Tamayi said when the board requested for an internal audit to look into issues of loans and stands that had been appropriated by executives, "management became uncomfortable and he (Mr Chapereka) began to work against the board".

"He started doing discussions with one of the principals, NSSA, which is a shareholder. At that time, (Mr) Hashmon Matemera was acting general manager at NSSA.

"I am sure they had their own relations from the past when (Mr) Hashmon (Matemera) was the chief executive at BancABC, and Fidelity does a lot of transactions with BancABC (we had got credit financing from there for some projects) and so there has been some relationship," explained Mr Tamayi.

Mr Matemera, who has worked for BancABC, CBZ and the Reserve Bank of Zimbabwe, was sacked by NSSA in May this year.

He was recently arrested and charged with facilitating the externalisation of over $300 million belonging to diamond miner Jinan to Botswana, Zambia, Sierra Leone, Mozambique, Dubai and China when he was still head of BancABC three years ago.

The relationship between NSSA directors and Fidelity management are thought to have precipitated the downfall of Mr Tamayi.

On November 17, 2015; NSSA wrote a letter to Fidelity's company secretary Mrs Nyaradzo Matindike seeking the appointment of Mr Fungai Ruwende as non-executive director representing the NSSA board on the Fidelity board.

Mr Ruwende was also being nominated by NSSA to become the Fidelity board chairman, supposedly to replace Mr Tamayi, against the dictates of the law.

The normal procedure is that the board chairman is appointed by board members.

More importantly, the Articles of Association say a shareholder can cause the resignation of a board member if they have 75 percent stake but NSSA only has 27,6 percent.

Mr Ruwende, a former partner in Actis, Africa's leading emerging markets private equity firm managing in excess of $7 billion of funds on the continent, has since been appointed an independent investment expert to NSSA's investment committee.

Mr Tamayi later requested to meet NSSA board chairman Mr Robin Vela to iron out the issues.

The meeting took place on November 30, 2015.

But after a meeting that was supposed to mend bridges, Mr Tamayi got a letter from NSSA dated November 30, 2015 signed by Mr Matemera requesting that he steps down.

What is however more curious is the part taken by Grimston Investments, which controls a 14,1 percent stake in Fidelity, to have Mr Tamayi dismissed.

Mr Chapereka is alleged to be shareholder on the firm.

Asked if he has a stake in Grimestone Investments, Mr Chapereka last week retorted: "Which company is this? Is it illegal to have shares in the company like you are asking? What is Grimestone involved in?"

Stakeholders say the current forensic report will help the market to connect the dots of what was really happening at Fidelity.

NSSA reacts to Fidelity saga
NSSA board chair Mr Vela says the board is "deeply concerned" with the issues that took place at Fidelity Life and will battle to recover any assets plundered by suspended bosses once they are implicated so as to restore value to policyholders.

Mr Vela has declared zero tolerance for corporate governance malpractices at both the Authority and investee companies.

However, his only blemish are allegations of inaction when he was appraised of what was happening at Fidelity.

Last week, Mr Vela said once the forensic audit has been completed and a report presented, "we will we be able to determine the extent of the losses" suffered by Fidelity.

"We are deeply concerned about the issues at Fidelity, which date back to before this NSSA board was appointed, and await the findings of the forensic audit underway to take corrective action as soon as possible.

"That will also inform the next course of action. The recovery of assets and funds from the abusers will be the first priority in order to restore as much value to members as possible.

"Any further action will be taken in consultation with other stakeholders," said Mr Vela.

He said they have endorsed the audit and is convinced the audit will give a fuller understanding of the "extent of the corporate abuse" and help the Authority to come up with the "most appropriate steps" to address the issues.

Added Mr Vela: "The NSSA Board I lead has abandoned the previously passive approach with regards to investee companies. As such, expect to see us take a more activist shareholder role at all investee companies, including Fidelity.

"We have said we will call for the reconstitution of failing boards that support 'flat-footed' non-performing managers who are unconscionably well remunerated yet without paying dividend to the shareholder, who is ultimately the pensioner paid a paltry monthly amount.

"There has been resistance from some companies claiming the need for independent board members and yet their performance (with the independent board members) has deteriorated, their share price dived and no dividends being declared supposedly to protect cash resources.

"We are in the process of formulating calls for extraordinary general meetings to call for reconstitution of such boards," said Mr Vela.