MTN’s R4bn share scheme squabble reaches Public Protector

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Former and current MTN employees who are feuding with the telco over empowerment shares have upped the stakes by reporting Africa’s biggest mobile operator to the Public Protector.

The employees, who call themselves the Tsunami Group, accuse MTN’s senior executives of swindling 200 million shares worth over R4 billion from an empowerment scheme, saying their portion of shares was misappropriated in a trust.

The trust, Alpine, was set up by MTN as an investment vehicle for the employees.

Tsunami Group says because of the involvement of public companies in the transaction, there are grounds for the Public Protector to investigate the alleged misconduct in Alpine Trust.

According to the employees, the Public Investment Corporation and Transnet “played a major role” in financing the transaction.

The group says the request to the Public Protector is in terms of sections six and seven of the Public Protector’s Act 23/1994.

According to law firm Schindlers Attorneys, the Act provides for matters in the Public Protector’s jurisdiction, which include any instance of unlawful enrichment, or receipt of an improper advantage, or a promise of the improper advantage through an act or omission by a person in public administration, or in connection with governmental affairs, at any level of government, or people carrying out public functions.

In an affidavit seen by the ITWeb, the Tsunami Group also wants the Public Protector to investigate the benefits which “the Public Investment Corporation, as funder; the other funders such as Transnet; the executives of MTN; and possibly the trustees derived from the scheme”.

“The Public Protector has the power in terms of sections 7(4) (a) and (b) of the Act to direct the trustees to produce the documents under their control which have a bearing on this matter under investigation and to obtain an explanation,” reads the affidavit.

“The nature of the matter in question is the conduct of the trustees of the Alpine Trust towards the beneficiaries of the trust in the BEE share incentive scheme for some previous and existing employees of MTN Group Limited and its SA subsidiaries.

“The primary ground on which the Tsunami Group relies is the breach of the common law fiduciary duty of the trustees to account in detail to the beneficiaries of the scheme and the refusal to provide the documents sought to establish if the share transactions with the Public Investment Corporation, the trustees themselves and MTN as employer were conducted in the best interests of the beneficiaries.”

Further, it says: “The secondary ground is that their duty of impartiality and avoidance of conflicts of interests remains questionable pending the provision of the necessary documents to which they are entitled by law as capital beneficiaries.

“The benefits received by some of the trustees, such as Mr [Phuthuma] Nhleko [ex-group president and CEO of MTN Group], who was both a trustee and beneficiary of the trust, should be disclosed due to his duty of impartiality to the members of the Tsunami Group. The private interests of the trustees should not conflict with those of the trust beneficiaries.”

At the core of the dispute is the allocation of more than 200 million shares from an initial 309 million shares that had been set aside for the employees.

Three-layered deal

The Tsunami Group alleges the Alpine Trust sold 243 million MTN shares held by its subsidiary, Newshelf, back to MTN in May 2009, in a three-way transaction involving the Public Investment Corporation.

Further, it claims, the trust has failed to properly account to the employees by demonstrating why the proceeds of the sale of those shares were not distributed to the beneficiaries, and what became of those proceeds of sale.

The Tsunami Group is questioning the allocation of the dividends derived from the unbundling of the scheme, worth more than R4 billion.

The Alpine Trust – which was headed by five MTN executives, including Nhleko and former CEO Sifiso Dabengwa – held Newshelf’s shares on behalf of the scheme’s 3 260 beneficiaries.

The Alpine Trust aimed to allocate 75% of the benefits to black MTN employees, but Tsunami claims the trust reduced the amount originally allocated to them without explaining its process.

It says the capital distribution to them remains incomplete and suspect.

In response, MTN says: “Given that the matter is still subject to ongoing dispute, we are not in a position to comment.”

The office of the Public Protector has confirmed the investigation, with spokesperson Oupa Segalwe telling ITWeb: “Yes, the complaint was received and registered in April 2022. The file has since been allocated to an investigator for the investigation.

“The Public Protector South Africa (PPSA) is not in a position to say in certain terms how long the investigation will take. However, in terms of the institution’s service standards, conduct failure investigations can take up to 24 months, depending on a number of factors, including but not limited to, the complexity of the issues under investigation and the level of cooperation from the respondents.

“The investigation is still in its early stages. It is at the point where the investigator needs to consult with the complainants to ascertain the issues for investigation. Communication to that effect has been made to the complainants. Only after this will the office reach out to the respondents.”

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