PIC battles Ayo in court over 'positive misrepresentations' that led to its R4.3bn investment

It was because of fraudulent “positive misrepresentations” by Ayo Technology Solutions the PIC had invested R4.3bn in the company in 2017, the PIC said in court papers.

The PIC is locked in battle with Ayo in the Western Cape High Court in an attempt to claw back the billions, plus interest, on behalf of the Government Employees Pension Fund. The trial began on Tuesday.

Ayo, part of Iqbal Surve’s embattled Sekunjalo group, is resisting the claim, saying the deal was done lawfully and that if it is set aside by the court it will mean “the inevitable and imminent demise of Ayo”.

In its particulars of claim, the PIC said that in conjunction with Ayo’s public listing on the JSE, it undertook a private placement: a private offer to selected potential investors to raise R4.3bn for Ayo. But here, the only real potential investor was the PIC, it said.

“The other subscriptions were only required to create the false impression that there was genuine demand for the private placement of Ayo shares at the issue price of R43 per share,” said the PIC’s particulars of claim.

The PIC said in its court documents that in the course of negotiations, Ayo’s representative, including Surve, made various “misrepresentations”.

These included that it was a “foregone conclusion” that Ayo would soon be the owner of valuable shares in telecom company BT Communication Services (South Africa) and that some of BT SA’s clients would come over to Ayo.

But, said the PIC, the truth was that Ayo’s acquisition of BT SA was uncertain and still subject to approval and BT SA had not agreed to its clients coming over.

Another misrepresentation by Ayo was that it had “genuinely held views” that Ayo could realistically, after its public listing, achieve certain revenue and profit targets. These included revenue forecasts of R4.4bn for the 2018 financial year and R7.7bn for the 2019 financial year and profit before tax forecasts of more than R1m for the 2018 financial year and nearly R1.5m for the 2019 financial year.

The PIC said the forecasts “did not represent the genuinely held views of Ayo ... and did not have a realistic prospect of being achieved”.

As a result of the fraudulent misrepresentations, the PIC was induced into the subscription agreement, said the PIC. If the misrepresentations were not fraudulent, they were negligent, it said.

To support its case, the PIC has put before the court documents and correspondence including a draft prelisting statement as well as the prelisting statement that was ultimately issued.

But in its court papers, Ayo said only the final listing statement “constituted the sole final and binding offer” by Ayo. “To the extent that there was any inconsistency between representations made by and on behalf of [Ayo] prior ... these were superseded and replaced by what was stated in the prelisting statement,” said Ayo in its plea.

On the forecasts, Ayo said the prelisting statement “specifically and expressly said” that these were “forward-looking statements” and cautioned they did not guarantee future performance.

“By their nature, forward-looking statements involve risks and uncertainties because they relate to events, and depend on circumstances, that may or may not occur in the future,” it said.

But the PIC said even these forward-looking statements were not genuinely held views. The statement that these were genuine forecasts “was false”.

On BT SA, Ayo said it never misrepresented that it was a foregone conclusion that it would acquire the shareholding, even though there was a genuine intention to acquire the shares. Ayo had said in its prelisting statement that it was “anticipated” that some of the BT SA customers would come over. “No reasonable person, including the PIC, could have genuinely held the belief that it was a foregone conclusion,” said Ayo.

The PIC said its CEO Dan Matjila and executive Lebogang Molebatsi did not have the authority to enter into the subscription agreement on behalf of the PIC and the agreement was not approved by the subcommittee that did have the authority. The decision to enter the agreement was unlawful, it said.  It breached the PIC’s legal obligations under the constitution and Public Finance Management Act.

But Ayo said the PIC is not an organ of state and so the constitution and legislation are not applicable to it. Its investments must be dealt with like any financial services provider.

It said even if Matjila did not have the authority to represent it, that was the PIC’s internal management issue. He told Ayo he was authorised: “The defendant acted reasonably in having relied on the representation particularly in light of Dr Matjila’s position as CEO of the PIC.”

But the PIC said the transaction was unlawful and once a transaction is unlawful, Ayo “cannot invoke ostensible authority to validate” it.

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