Peresec — trusted JSE captain, or feared corporate pirate? - Daily Maverick

How the JSE’s biggest broker captured billion-rand companies ‘on the cheap’.

An alleged clique of “corporate raiders” led by the CEO of the JSE’s foremost brokerage, Peresec, has been accused of orchestrating a series of corporate power grabs – low-cost takeovers of companies using questionable and “unlawful” tactics dating back to at least 2018.

The primary charge is that this clique pulled off a number of sequential takeovers without declaring that they were related or cooperating parties. This omission allowed them to avoid a costly legal obligation at that point to offer to buy out other shareholders. This obligation, set out in the Companies Act, is triggered whenever you and your “concert parties” cross the threshold of owning 35% of a company. This is considered the point at which you effectively take charge.

Peresec and its concert parties have always argued that their breaches of the law were “inadvertent” – and that they were found to have acted in concert merely “because of the deeming provisions” of the legislation, “even in the absence of actual cooperation between the investigated parties”.

The attorneys representing Peresec and others set out their position here.

It is no mere technicality when powerful investors seize control of a company with other owners being none the wiser, especially if the company’s resources are then seemingly used to prop up the new controllers’ other interests. All this while the evaded share buyout costs potentially reach into the hundreds of millions.

The existing shareholders are left with no opportunity to get bought out from an investment that has suddenly potentially completely changed the direction of the company to serve the new controllers’ objectives.

And perhaps most crucially, the rules say that people taking control of a company must have the resources at hand to buy out everyone else – even if not everyone ultimately accepts the offer.

This means that evading the obligation to offer to buy out everyone would come with evading a parallel obligation to have hundreds of millions of rands at hand and not be, for instance, betting on getting your hands on the target’s own resources without actually being able to pay for them.

This, at first sight, seems to be exactly what the Peresec “clique” got away with, based on the record of an investigation by the seemingly timid Takeover Regulation Panel (TRP), which in 2023 reached a belated and contentious settlement with the alleged perpetrators.

This matters because takeovers are inherently vulnerable to insider trading, director capture and asset stripping – which is why market rules and the TRP exist.

If these mechanisms are not doing their job, or are being brushed aside by powerful players, then this raises the risk of more systemic market abuse.

At least one jilted investor, David Brouze, has launched a parallel campaign against Peresec involving a slew of other allegations of everything from insider trading to the cooking of books – all of which have been denied and, in several cases, successfully resisted in a variety of court skirmishes so far.

Peresec boss Warren Chapman has in turn levelled damaging counter-allegations against Brouze.

But that legal feud and war of words are something of a distraction and will not be the focus of this article. 

The fact is that any dominant player on the JSE such as Peresec – which by its nature is also often privy to market-moving information and leverage – creates the risk of market power being abused.  

This two-part series analyses contested allegations that there was abuse (inadvertent or otherwise) during a complex set of transactions – and asks whether the rules and institutions designed to deter such activity were sufficiently robust.

The question arises because there are significant indications of strong-arm tactics by Chapman’s faction, including threats of consequences if target company bosses didn’t bend to the so-called raiders’ will.

The contrary version is that these actions formed part of the cut-and-thrust of business and did not amount to anything unlawful. 

At the heart of the alleged scheme are Chapman and a group of prominent executives and investors, all of whom are in some way or another related to Peresec.

The evidence underpinning all these allegations is contained in the extensive record of a TRP investigation into the takeover of a string of companies – Zarclear, African Phoenix Investments, Extract Group and enX Group.

The TRP investigation was launched in 2022 and concluded – Butter says prematurely – with a no-fault settlement in 2023.

The TRP is a government agency that, as the name suggests, approves takeovers of mainly listed companies.

These approvals are mostly uncontentious, but occasionally become the subject of heated appeals and court cases. A complaint to the TRP was, for instance, key to uncovering the secret hand of Zimbabwean tobacco mogul and alleged money launderer Simon Rudland in a bid to control Tongaat Hulett.

While the complaints around Peresec – and a subsequent settlement – were announced back in 2022 and 2023 respectively, details of the underlying investigation and events have remained largely unknown.

This has changed with an application launched by well-known analyst and investor Craig Butters in the Western Cape high court, which, on the face of it, seems to reveal the extent of a scheme that unfolded and the authorities’ alleged failure to properly investigate and meaningfully punish any improprieties.

This case recently suffered a temporary setback after the court ruled that Butters had not joined all the relevant parties. This may yet lead to new submissions to counter Butters’ allegations.

Butters is demanding that the TRP scrap the settlement reached with the Chapman group and then redo its investigation properly.

The fundamental complaint is that masses of evidence of wrongdoing were ignored while the settlement is not only hopelessly lenient, but also, he argues, unlawful in that the TRP isn’t even legally empowered to strike this kind of deal.

The TRP and Chapman (on behalf of various implicated parties) are disputing this.

Butters’s case, however, relies extensively on material gathered by the TRP investigation which had not previously seen the light of day.

Much of it is revelatory, although Chapman has countered that Butters and other jilted investors (especially Brouze) have been waging a self-interested and dishonest campaign against him and his companies for their own benefit – accusing them of defamation, vexatious litigation and ultimately “extortion”.

Chapman’s counter-allegations appear to bounce off Butters, at least, who is publicly known for being one of the earliest to raise the alarm about the rot at Steinhof.

Butters dismisses what he calls “Mr Chapman’s ad hominem attacks on me”, which he says are all made without any evidence.

More important than all of that, Butters’s litigation has brought into the open the TRP’s information about the content and conduct of its investigation.

Those disclosures, on which the court must still rule, do raise serious questions about the basis on which the TRP could reach a settlement deal with the Chapman group “without admission of any contravention” – as well as the competence and commitment of the investigation and the appropriateness of the sanction.

This in turn raises troubling questions about the conduct of some of the most powerful people in South Africa’s financial market – and the authorities’ will to keep them in check.

The saga set out in Butters’s case against the TRP starts in 2018, but before we get into the weeds, it might help to understand where the alleged perpetrator, Peresec Prime Brokers, came from.

It was once part of Peregrine Holdings, a long-lived financial services group. In 2018, the management of its brokerage division organised a buyout, led by Chapman and two colleagues, which was concluded in February 2019.

The essential facts are that this division was already 35% owned by a management consortium called Zolospan in which Chapman was the biggest shareholder. The remaining 65% was being bought out by a BEE consortium called Nkholi Consolidated Investments.

As we will see shortly, Chapman was, to a large extent, the mind behind this new powerhouse stockbroker. The leader of the Nkholi BEE consortium and later chairman of Peresec, Tshepo Maseko, was also a Peregrine executive.

The buyout created Peregrine Securities, which merged with a subsidiary called Legae Securities. This would become Legae Peresec and eventually just Peresec South Africa, which, through a subsidiary Peresec Prime Brokers, is the JSE’s leading broker.

For the sake of simplicity, we will just say “Peresec” when we mean Peresec and its subsidiary Peresec Prime Brokers and their predecessor companies.

Among Peresec’s selling points to clients is that it is 51% black-owned. This claim is also being challenged by Butters, an attack seemingly borne out to some extent by new documents, although Chapman has attacked this “vexatious” claim as being part of what he calls, in court papers, a “shotgun” assault which he states consists of an array of legally irrelevant accusations he claims serve no purpose but to portray him as a thoroughly bad actor.

The crux of the matter is that the Nkholi consortium’s single largest shareholder, a company called Waldotime, was set up as a black-women-owned entity on the eve of the Peresec buyout, with the majority shareholders being two domestic employees of the Chapmans. (Chapman did not contest this characterisation.)

While this does materially benefit two black women as advertised, it also demonstrates that the majority-black-owned Peresec remains linked to the Chapman show, and may even be somewhat beholden to him.

In fact, the black consortium was effectively summoned up with funding from Chapman. And while Chapman may well have been doing that for admirable reasons, it is – again – very much proximate to him.

Chapman has been at pains to demonstrate to us how the setup is completely legitimate.

He provided amaBhungane with a BBBEE certificate from Cardinal Ratings as proof of Peresec’s compliance and, to be fair, the rating agency has raised no qualms.

Maseko, the head of Nkholi, likewise defended the composition of the consortium he had assembled.

The two women involved have not “been held out to be, directors or management of the company. What I can confirm, from my own direct involvement, is that they are genuine shareholders who hold real shares and receive real dividends in their personal capacity,” he said.

But back to the meat of the allegations against Chapman and Peresec.

The main thrust of the Butters case and the TRP investigation is that Chapman and his associates orchestrated a cascade of corporate takeovers – something akin to knocking over dominoes where one grab paves the way for the next.

It is common cause that some key moves were made without complying with the mandatory offer provisions of the Companies Act.

The rest of the alleged Chapman “team” includes significant corporate figures.

One is Paul Baloyi, a respected banker with years of experience as a director of several major listed companies (including Peresec). Baloyi was also a shareholder and director of the BEE consortium mentioned above – Nkholi.

However, his pre-existing directorships and shareholding in at least one of the “target” companies troubled a number of the directors he shared that boardroom with, because of their concern over a potential conflict of interest.

Another is Sean Katz, a co-founder of Peregrine (from where Peresec originated) who, it is alleged, acquired shares in companies and positioned himself to coordinate with Chapman.

Also involved in the alleged scheme was Andrew Hannington, the former CEO of audit firm Grant Thornton in Johannesburg (and also previously a director of a Peresec subsidiary) who, as we will see, allegedly aided Chapman in the underhanded takeover of a company where he had been the chair of the board.

Also allegedly involved were Kobus Esterhuysen and Nick Sennet – more Peregrine veterans and business partners to Chapman who directed a Peresec fund, Sui Generis, used in the impugned takeovers.

In an affidavit, Butters dealt in turn with how this alleged group, along with others, seized control of the four companies (Zarclear, African Phoenix Investments, Extract Group and enX Group) in a complex set of interrelated manoeuvres.

The implicated parties we could reach all deny wrongdoing and also steer the matter back to Brouze’s messy fight with Chapman rather than the distinct Butters case, which mostly concerns us here.

The first stop in the saga is a company once known as Sandown Capital, which was later renamed Zarclear.

For this, we have to rewind a bit to when Peresec (as it is now) was still part of Peregrine but already part-owned and run by Chapman’s Zolospan.

Like Peresec, Sandown was also once part of Peregrine Holdings. It was spun off in late 2017 and separately listed on the JSE with investment assets of R1.1-billion held under the guidance of its CEO, Sean Melnick, who had an investment management contract with the company.

Then, mere months after the listing, Chapman made his move.

First, in March 2018, Chapman sent a perhaps ominous email to Melnick letting him know he had acquired 10% of the company and intended to buy more shares.

According to his email, Chapman was “interested in board seats in Sandown”.

In a submission made to the TRP and revealed in the Butters case, Melnick claims that Chapman “indicated that he was undecided as to whether he was going to leave those shares in [Peresec’s] name, put those shares in his own name or that of his family vehicle or ‘use’ an empowerment vehicle to house the shares”.

That “empowerment vehicle” was Nkholi, which had then just been created.

The upshot was that the formal lines between Chapman, Peresec and Nkholi were, according to Melnick, “illusory and, in fact, non-existent”.

What Melnick was saying, in the jargon of corporate takeovers, was that they were “concert parties”, with Chapman at the very least being able to speak on behalf of his colleagues at Nkholi.

Chapman told Melnick that Nkholi had by now (in April 2018) acquired 23% of Sandown/Zarclear. In a later affidavit, Chapman added that he had himself underwritten the R174-million this had cost and advised Nkholi in the subsequent events. By June, in further correspondence with Melnick, he said that “my BEE consortium and I” own more or less 30% of Sandown/Zarclear and were making demands “as future owners” – language Chapman now suggests was merely colloquial shorthand and did not imply that he directed Nkholi.

More emails reflect what looks like ruthless corporate strong-arming.

“Securing 400m in preference share capital for Peregrine Securities (Peresec) from Sandown Capital to boost its regulatory capital for a minimum of 5 years ... Securing a combined mandate for Peregrine Capital (also Peresec) by Peregrine Securities and Sandown for a minimum of 5 years ... Ensuring that any new investments made by Sandown are done so with Nkholi’s approval.”

This meant significant control over Sandown and, on the face of it, tapping it for the benefit of his own company Peresec and “his” empowerment consortium. This also implied that Melnick’s investment management contract would have to go. A new investment strategy was on the cards – one that seemingly involved a lot of money heading Peresec and its partner’s way.

And the kicker: “we need your whole board to resign … and we need the management contract renegotiated by next week”.

That’s Melnick’s contract to manage his company’s investments. Chapman was in effect booting out Melnick and his board only months after Sandown was listed on the JSE.

“If we have not made progress on this by Monday evening, my BEE consortium and I will motivate, as new future owners, that Peregrine Equities [again, Peresec] will give you formal notice to close your accounts and your funding facilities within 30 days”.

In other words, Chapman and Co, who were making moves to take full control of Peresec, would seemingly use their leverage with Peresec to sabotage Sandown if they did not get their way.

Chapman signed off this email: “As always, my intentions are honourable and without malice. I have only the best wishes for you, even when we disagree.”

Chapman’s version, in response to our questions, is that the emails simply reflect the rough and tumble of the business he and Melnick are in.

“[The emails] are the record of a hard commercial negotiation between two experienced counterparties, each with leverage, each using it.”

Chapman told us that the “proposals” for Sandown’s future were essentially just him spitballing and that not all of them were eventually implemented. Perhaps most importantly, “a broker is entitled to terminate a client’s facilities on notice, and telling a counterparty in a negotiation that the commercial relationship will be reviewed if terms cannot be agreed … is the ordinary language of commerce, not extortion”.

In his affidavit in the Butters case, Chapman dismissed these emails to Melnick as merely “broad and imprecise confidential discussions about my thinking at the time. And I deny that they show any evidence of concert party arrangements as set out in the Act and the Takeover Regulations”.

Things moved apace and in late July, Nkholi demanded a special shareholder meeting at Sandown/Zarclear. The meeting was meant to vote on changing the Sandown board and getting rid of Melnick’s investment management contract.

The Sandown board, however, decided to renegotiate the contract, and Chapman’s group backed off briefly.

But in the background, the supposed coalition was seemingly marshalling votes. During August, Chapman’s family investment company, Hampden, Peresec and Nkholi increased their collective shareholding to 37%.

As Melnick points out in a submission he made to the TRP, this crossed the 35% threshold at which these “concert parties” should have made a mandatory offer to buy out all other shareholders.

But they did not, and Chapman instead seems to have been preparing a coup de grâce.

On 20 August, Melnick’s board at Sandown received seven identical letters from shareholders which, he pointed out, even contained the same spelling mistakes. They demanded that Melnick’s contract be scrapped and that the Sandown board be changed with Chapman appointed as CEO and Baloyi (as we said, a shareholder in the Nkholi consortium) as chair.

Among the shareholders sending these letters were the three alleged “concert parties” controlled to varying extents by Chapman himself, making up 37% of shareholders. The other four were from Sean Katz, the founder of Peregrine, a company called Brozin Investments, the Peresec fund Sui Generis run by Chapman’s business partner Kobus Esterhuysen and Nick Sennett, and Kevin Ellerine (of the furniture empire). These smaller shareholders controlled between 6% and 7%, judging by public records.

Katz, who has long been based abroad, told us that he was aware of “court matters”, but added that these “are none of my business, frankly”.

Sennett of the Sui Generis fund rejected any suggestion there was collusion with Chapman or any other party to circumvent the mandatory-offer provisions.

At face value, the identical letters gave an impression that shareholders with something in the region of 45% of Sandown’s shares were cooperating, meaning that a mandatory offer may have been due.

Chapman told us that the fact that all these separate entities sent identical letters didn’t prove anything. According to him, the letters just reflected that “shareholders are entitled to requisition the removal of a board in which they have lost confidence, and identical wording reflects nothing more sinister than a shared attorney and a shared view. Whether coordinated shareholder action of that kind falls within the concert-party definition is a technical question.”

Whatever the case, faced with this pressure, Melnick and his board capitulated. His contract was bought out, and Chapman seized control of Sandown and its R1.1-billion balance sheet. Sandown was soon renamed Zarclear.

And here is the important part: had the Chapman group made the offer to minorities they were seemingly statutorily obliged to, it could have cost them in the region of R500-million – half of the financial muscle they had just acquired “on the cheap”.

Remember that the rules would have obliged the Peresec group to have the R500-million at hand just in case all the minority shareholders actually accepted the offer, a marshalling of significant resources and commitment.

As it turned out, none of that potential R500-milllion expense was risked while the group instead gained relatively cheap control of Sandown/Zarclear’s R1.1-billion in assets to essentially do with as they pleased.

Chapman has rubbished the claims of a conspiracy of shareholders. In an affidavit provided to the TRP, he said, “I deny that the impugned parties ‘took over’ companies by buying shares and then making demands.

“The demands were only to make changes to the boards of companies … to appoint directors who were competent and qualified in the roles at the Targeted Companies and to remove directors or make other demands with only the intention of changing the direction of the Targeted Companies for the betterment of all shareholders.”

To some, this might strain the meaning of not taking control.

This claim more pointedly seems to be contradicted by Chapman’s own emails, quoted above, where significant control over resources to be used for very explicit ends was presented as very much the point.

According to Melnick, Chapman’s actions at Sandown/Zarclear were a “roadmap or blueprint” for other takeovers that were to follow while also providing him with the necessary ammunition in the form of Zarclear’s balance sheet.

And what was done with this new war chest?

One thing was a major R250-million investment to take over another company (which we will get to next). Another was a R429-million capital reduction (basically a dividend) in December 2020 when the largest bloc of Zarclear’s shareholders essentially consisted of companies tied to Chapman, even though he points out everybody else got their share in proportion to their shareholding. Still, the already bargain acquisition of Zarclear had now essentially paid for itself.

With Zarclear in the bag, the Chapman group, in Butters’s account, set about knocking over the rest of the dominoes.

When the failed microlender African Bank was restructured and resurrected in 2017, it was, aspirationally, renamed African Phoenix Investments.

In August 2019, Zarclear (formerly Sandown), now under the control of Chapman and Co, bought 22% of the company for roughly R250-million.

If we believe the plot set out by Butters and Brouze (we’ll get to that soon), this amounts to the use of money from the company that had earlier been taken over on the cheap to facilitate the next step of a larger scheme.

After the Zarclear investment in African Phoenix, Chapman was immediately appointed to its board.

Once again, a takeover was launched with Baloyi (now installed as the chairman of Zarclear) soon demanding a special meeting of shareholders, this time of African Phoenix.

In a letter to the African Phoenix board, more or less the same demands were made as at Zarclear – new board appointments and firing the investment manager (or technically buying out the general partner managing half the company’s assets sitting in the API Capital Fund Partnership) – so that African Phoenix’s financial muscle – a balance sheet of R1.4-billion – could be redirected.

As may be expected, a large number of new shareholders appeared on the company’s register right before this demanded meeting in November 2019. These included some of the parties that had previously sent the same letter to Melnick.

In addition to Zarclear’s 22%, Peresec itself held 8.4%, while the aforementioned Peresec fund, Sui Genesis Fund, bought 3% and Sean Katz bought 2.1% through a company called Sunwood.

That’s slightly more than 35%, but no offer to minorities was made.

Chapman’s essential line of defence has been that just because investors are related doesn’t mean they are working in concert. Butters and the TRP, as we will see in part 2, had taken a different view.

In any case, here an important part of the mandatory offer rule again comes into play. When investors cross the 35% threshold obliging them to make a mandatory offer, this offer has to be equal to the highest price the investor or their concert parties had paid for shares in the six preceding months.

In this instance, this meant 80 cents per African Phoenix share or something in the region of R660-million if all shareholders took it up – an expense that was allegedly in part or whole effectively dodged in a deal aimed at gaining control of African Phoenix’s R1.4-billion investment muscle.

Things quickly changed after the takeover of African Phoenix, which over time essentially became one-part Peresec asset and one-part vehicle for further takeovers.

First, it bought R100-million in preference shares from Nkholi, which is essentially a loan on generous terms (Chapman calls it “an investment by Phoenix on commercial terms that earns Phoenix a return – an empowerment-funding asset of exactly the kind institutional balance sheets hold across this market”).

Then African Phoenix liquidated its investments in the API fund in order to pay out R600-million to its shareholders – now to a large extent members of Chapman’s alleged grouping (and again, everyone else also got their share even though this now left behind a much reduced company that had arguably funded its own takeover).

Over time, the company also spent over R200-million on “equity linked notes” from Peresec – indirect investments managed by Chapman’s brokerage.

Then African Phoenix also spent more than R215-million buying shares in the Chapman-controlled Zarclear, setting the scene for a proposed merger of the two companies.

Other shareholders nixed this plan, but soon afterwards Peresec made offers to buy out all the shareholders of Zarclear at R4.40 per share. As a listed company, an independent expert was roped in to evaluate the offer and found “R4.40 would be below the bottom end of its fair value range”.

Nevertheless, many minority shareholders took the offer and got out.

The ultimate result of the Chapman-Peresec group’s seemingly “on the cheap” takeovers of African Phoenix and Zarclear was that they owned between 91% and 95% of both companies, which were both delisted from the JSE after paying out hundreds of millions of rands. Chapman himself became by far the largest shareholder of both companies.

Responding to questions, Chapman said that “reasonable people can debate any investment decision; what the record does not show is concealment, and what the outcome does not show is prejudice”.

But the real drama, that the TRP would also investigate, was happening elsewhere.

In late 2019, when the takeover of African Phoenix was taking place, another alleged scheme took off. Here is where the facts get particularly contested, and an ugly battle has now raged for several years.

David Brouze has been pilloried by Chapman and Peresec for his multi-pronged litigation against them, claiming he was duped and bullied into giving them his shares in a company called Extract Group, which in turn housed large numbers of shares in another company called enX Group.

In a nutshell, Brouze – as of late 2019 – had a R420-million debt facility from Peresec which was secured by a number of his investments, which were valued at over R850-million.

The bulk of the security consisted of units in an investment fund in Bermuda. The rest was largely in the form of shares in enX Group.

The rules of the debt facility were that the value of the security must always be more than the debt. Since the security was ultimately directly and indirectly made up of publicly traded shares, massive share price collapses could put him in default.

Brouze claims that Chapman and Co wilfully undermined the value of his security to force a default and seize his assets.

First, in March 2020 and in the middle of a market panic caused by the first Covid-19 lockdown, Peresec told Brouze that his local collateral was insufficient. It had already pressured him to refinance the facility, and Brouze was trying to get RMB to take over his debt to Peresec.

Then, in April 2020, Chapman contacted Brouze and claimed that Peresec had met the administrators of the fund in Bermuda and received the startling news that it was horribly overvalued.

This, according to Brouze, is ridiculous given that the fund was regularly audited and that Peresec had happily accepted it as collateral in the past. It’s as though a bank agreed to “lending a buyer R461,000,000 to buy a home, without bothering to find out whether the property actually exists, where it is located and what it is worth”, he said in an affidavit.

In reality, says Brouze, “Peresec facilitated the structure through which the investments were placed into CYF [the Bermuda fund]. It knew that the underlying exposure related to enX. It accepted the instrument as collateral and had access to the relevant account and security information”.

“I reject the suggestion that I deliberately misrepresented the CYF value to deceive Peresec.”

In any case, Brouze was put on terms to get the new funding from RMB secured. He, however, claims that Chapman then actively ensured that this did not happen by refusing to share information requested by RMB staff.

He relies on an email exchange, attached to court papers, where Brouze forwards enquiries from RMB to Chapman, who simply replies that “we do not disclose our funding arrangements to investment and trading banks who are also our competitors”.

This is arguably a strangely unaccommodating stance given that everyone involved supposedly wanted the RMB deal to happen.

Chapman, however, denies undermining Brouze’s efforts and says that there was simply no appetite in the market for what Brouze had to offer, being enX shares.

With RMB funding not materialising, Brouze was, on his version, given two options: cede all the collateral to Peresec or sign a new deal.

Here is where Andrew Hannington, one of the alleged “concert parties” in Chapman’s takeovers, comes in. He was the chair of Extract Group, a company almost entirely owned by Brouze but who, according to Brouze, was “in cahoots” with Chapman.

Brouze says he got a call from Hannington, who told him to sign or else Chapman “would sink [you]”.

Hannington did not respond to our calls and messages.

Brouze went with the new deal, which saw him consolidate all the assets being held as security (mostly enX shares) into one place – MCC Contracts. This was a subsidiary of Extract, of which Brouze owned 80% of the shares.

Now Peresec’s collateral would consist exclusively of Extract shares – the vast majority of them.

Under the new deal, Brouze would get 30 days to make a plan if the value of these shares went below the value of the debt he owed – or give his shares to Peresec.

A big swing in the enX share price could make or break Brouze.

The ink was barely dry when a big swing in enX shares, the asset underpinning the collateral, did materialise. They took a nosedive and left Brouze with those 30 days to come up with more cash, more collateral – or just to wait and see if the enX share price recovered. This is where things become significantly contested.

Perhaps the most damaging (if hard to prove) claim Brouze has made against Chapman/Peresec is that they allegedly manipulated the price of enX shares for a brief period to trigger a default.

The evidence provided for this in his affidavit relies on patterns of trade in the period. Essentially, according to Brouze, there was an unusual amount of trading which kept the share price at an unusually low level for only two weeks. Brouze cannot, without more information, put that directly at Chapman’s door.

This is why he has been fighting a separate battle with the JSE for access to detailed trading data to identify who traded shares at what time. An initial request through the Promotion of Access to Information Act was initially successful, but the bourse has taken a ruling by the Information Regulator to court [*See disclosure below].

Chapman has, in other court cases involving Brouze (there have been a few), attributed the share price drop to a variety of real-world events including a failed transaction between Extract and Bidvest.

One contentious counter-allegation coming from Chapman is that it was actually Brouze manipulating the enX share price by buying loads of shares with debt and losing his ability to do so – hence the drop.

In this regard, Peresec laid a complaint with the Financial Sector Conduct Authority which contains several more allegations of market manipulation on Brouze’s part, not least that he was the one who failed to make a mandatory offer after he and related parties had earlier acquired over 35% of enX.

Brouze has answered this, somewhat ironically, with an argument similar to one Chapman would later use in his own defence – “A commercial or funding relationship does not, by itself, mean that one party beneficially owns or controls another party’s shares.”

Brouze’s complaint, however, has another element.

He says that Chapman was not letting him wait out the 30 days and instead exerted “extraordinary pressure” to just give up the shares.

Chapman added a sweetener in the form of a short-term R150-million loan to tide Brouze over. But this new deal had, for some reason, to be concluded immediately, with Chapman sending Brouze a WhatsApp message reading, “You sign today. Or we revert to first deal. Those are instructions from this team.”

A week later, he sent another, reading that “you should be left with nothing on every version according to everyone here”. And it only got nastier, with Chapman threatening a “hard close out of David Brouze accounts as [opposed] to a negotiated one, which will be very bad for you and possibly palatable for us … get out of Peresec world make some money and redeem yourself. It cannot be with us”.

Chapman has, in his affidavit, said that there was no gun to anyone’s head and that there was simply “no prospect of Mr. Brouze rectifying his position within the 30 day period”. The short-term loan was stuck on the deal “purely out of goodwill”.

The pressure to have Brouze sign over his shares was necessary because “waiting was not neutral” but rather involved “[Peresec carrying] an unhedged, deteriorating exposure on behalf of its other clients and its regulatory capital, secured by assets whose stated value could no longer be trusted”.

In other words, the exposure to Brouze was toxic and had to go as soon as possible.

And so, all the Extract shares went to Peresec.

The very next day, 20 May, the price of enX shares began going up again and, on Brouze’s version, he would have survived with all his assets intact if he had simply been able to wait out the 30 days.

He also ascribed the sudden recovery of the enX share price to Chapman stopping his alleged share manipulation after his objectives were met. For a savvy investor, Chapman had shown a suspicious level of resignation about enX’s prospects, says Brouze.

Chapman in turn attributes the immediate recovery to market developments and – further down the line – to Peresec’s own intervention.

Chapman also says that while the share price drop may have triggered the default, the terms of the agreement were such that there were additional requirements to reverse the default within the 30 days other than just restoring positive net asset value.

Brouze, in other words, had no chance.

In his response to our questions, Chapman elaborated extensively on what he claims is Brouze’s duplicity and opportunism as someone simply set on recovering his losses by any means possible.

Brouze, in turn, says that his “claims are straightforward…the rescission of the disputed transaction and restoration of the relevant securities and value”.

“My concern is not necessarily that every questionable transaction was undertaken solely for Peresec’s own financial benefit. In many cases, the benefits flowed to other related parties rather than to Peresec directly.

“I have no interest in destroying Peresec or pursuing individuals for the sake of it. I want proper systems and controls put in place, and I want the historical issues corrected.”

But now, with Extract in the bag, the next part of the alleged scheme kicked in. With the control of Extract came control of the 33% of enX this company owned.

Hannington, acting for MCC (the Extract subsidiary holding the enX shares), demanded a special meeting of enX shareholders on 5 June 2020 where they would vote to remove most of the board and install Chapman, Hannington and other associates.

As had been the case at Zarclear, the board soon, on 18 June, received undertakings from a group of shareholders with a collective stake of 51% pre-emptively supporting the resolutions, which prompted the old directors to resign without the need for the meeting.

And as at Zarclear, these shareholders joining hands with Peresec were Sean Katz, Kevin Ellerine, the Sui Generis fund and a company belonging to Paul Baloyi.

Baloyi was, as we know, part of Chapman’s Nkholi consortium. He was, however, also a shareholder and director of enX. Other directors of enX would soon fret over this potential conflict of interest.

Minutes from board meetings provide insight into how events transpired.

Very shortly after seizing Brouze’s indirect shareholding in enX (around 19 May), Chapman had reached out separately to various members of the company’s board.

At an evening board meeting on 2 June, enX chairman Steve Booysen said he was approached the previous day and, according to the minutes, Chapman told him that he wanted to take enX “in a slightly different direction” – including making Hannington an executive, himself a director and his associate Baloyi (who was already on the enX board) the new chair.

The plan was ultimately to delist enX and do something similar to what was happening at Zarclear and African Phoenix.

According to the minutes, Booysen told his fellow directors that “it was clear from his interaction with [Chapman] that [his] intention was to populate the Board with his own people who would accede to his will”.

Allan Joffe, another board member Chapman had approached, said that Chapman had been “quite aggressive” and that his stance was “either you’re with me or you’re against me”. Joffe had shares in enX and Chapman allegedly wanted him to vote with him and “implied that those who had invested alongside him in the past had done well, and he made reference to Zarclear and African Phoenix in this regard”.

The board met again the next morning to prepare for a brief to legal counsel. One concern was that Chapman had been plotting his takeover with Baloyi (who was on the enX board, yet said nothing).

Baloyi told us he had nothing to add to Chapman’s response to us. That response was that “Mr Baloyi was not involved in, consulted on, or kept abreast of the Brouze matter, the default, or any acquisition of enX shares. That matter was confined strictly to Peresec’s risk and legal teams, precisely because of the sensitivities involved. No plan concerning control of enX was discussed or formulated with him at any time before my engagement with the enX board.”

Joffe added that members of Chapman’s “bloc” of supporters very possibly had been buying enX shares at prices higher than had been the case at the time of this takeover.

This would be a consideration if a mandatory takeover was triggered, although it has transpired that the new bosses of enX, again, did not make one at any price.

As things turned out, Hannington became CEO, Baloyi became chair and Chapman was appointed to the board as a non-executive director.

The TRP investigation that unearthed many of these facts ended with a settlement that saw belated mandatory offers to buy the shares of minority shareholders of all of Zarclear, African Phoenix, Extract and enX.

The deal was announced in May 2023 and remains the subject of Butters’s legal challenge.

There are many points of attack on, on the one hand, the actual conduct of the investigation and, on the other, the allegedly paltry value of the settlement – despite the TRP calling it “astronomically” more than minority shareholders might otherwise have received.

Another very clear problem with the settlement is that a mandatory offer in 2023 cannot “unscramble the egg” after the shareholdings of the various companies have changed dramatically over time – not least because there had been a very belated general offer to shareholders of Zarclear in 2020 (at a price experts deemed below fair value).

And then it also appears that the TRP more or less arbitrarily set a price at which the offer was to be made, based on an arbitrary reference date for when the concert parties were deemed to have taken control – dates more than a year and a half later than what actually transpired at Zarclear.

Ultimately, a precise calculation of the overall damage done or potentially done is difficult.

“What message is this sending to the world? That it’s ok to come to the JSE in SA and transgress the Act and Takeover Regulations, and IF you get caught (due to some pesky activist investors or whistleblowers), the worst outcome for such a person is just to make a mandatory offer much later, with no other accountability, and life as corporate raiders just goes on as before for them, while being extremely richer as a consequence.”

But a full understanding of how the TRP allegedly failed to police people wielding significant economic power will have to wait for Part Two of this story.

It, however, clearly has consequences for the future more than for the past. DM

*DISCLOSER: David Brouze is involved in court proceedings against the JSE due to his attempt to gain access to trading data that might bolster his allegations of market manipulation. The Information Regulator ruled in his favour that the JSE should disclose the data in terms of the Promotion of Access to Information Act. The JSE is seeking to review this decision. AmaBhungane is potentially joining this case as a friend of the court to argue for greater transparency in financial markets.