Johannesburg - Problems keep mounting for one of the country’s biggest retail groups and its CEO Brett Botten, who are now in hot water for allegedly defrauding Black Economic Empowerment (BEE) funding through black retailers.
This was after the BEE retailers opened a criminal and fraud case against Botten and the group. Botten has been accused of manipulating valuations and finance documents to increase the balance sheet and profit through the BEE funds. It has been alleged that this was also a strategy to hide losses and raise bonuses for executives.
Botten allegedly used various methods to inflate assets with little to no value to increase the balance sheets and profits of the distribution centres. It has been alleged that he was rewarded a share incentive of R4.9 million.
In a case that is before the high court in Kwazulu-Natal – opened by Professor Phinda Madi, Botten has been accused of lying that the stores that Madi wanted to purchase had no financial documents because the previous owner did not submit them. Madi said the group had the financial information that they wanted to hide from him.
He said Botten was aware of the losses which were fraudulently misrepresented to him. Another retailer, Amaan Sayed, also opened a criminal case against Botten at Midrand police station. He said the case was also referred to the Hawks in Germiston. Sayed said he realised Botten’s unlawful acts after he purchased the Mega store (comprising Superspar and Tops liquor) in Midrand in 2018.
He said he was made to sign two agreements with different prices. In the first agreement, he signed for R1 000 and in the second agreement, he signed for R8 million. Sayed opened a case after a report by Harris Nupen Molebatsi Attorneys (HNM) found that both agreements constituted fraudulent reporting that was tantamount to a deliberate inflation of the sale.
The report also found that the R8m loan was fictitious, improper and, unlawful. The attorneys added that there was no substance to the loan, and that it was fraudulent. The cases were supported by the retailers in a report to the group on November 14, 2022. The retailers told the group that Botten defrauded the BEE funds through the Spar retail stores (SRS) to raise bonuses for executives and hide losses from the corporate and perfected stores.
“These entities were created to move the losses of the corporate and perfected stores off the distribution centre books. Spar retail stores Klippakkers and other vehicles were created specifically for this purpose.
“The precedent and status quo prior to 2016 was that all distribution centres would make provision for the losses of the corporate and perfected stores. These losses would directly affect KPIs and bonuses, and they were moved to the new entities with the central office now funding these losses via the board,” said the retailers.
They said the losses for these stores accumulated more than R600m in 2016 and more than R700m in 2019. They added that the losses have now exceeded R2 billion.
“More than R1.4 billion has been settled via special resolutions by the board. The latest amount of R155.5 million recently. These resolutions serve two purposes: the money is used to settle losses and the other to purchase inflated assets or a combination of both.”
The retailers said the matter was reported but the group did nothing about it. They said Botten and the Spar group used various methods to inflate assets with little to no value to increase balance sheets and a profit distribution centre. They said the loss-making stores that were historically sold for the nominal amount of R1 to retailers were valued at the approximate outstanding liability to the distribution centres.
“Inflated feasibility reports and/or multiples of turnover are being used to inflate the store value. For example, SuperSpar X owes R20 million to the distribution centre with little to no value would be purchased by Spar retail stores (SRS) for R20 million. It would then remove the liability from the distribution centre’s books and would now be shown as an asset on SRS’s financials,” read the email.
They added: “The number of corporates and perfected stores has almost quadrupled to 56 in the South Rand distribution centre alone. The largest distribution centre was experiencing some of the highest write-offs in its history.”
They said this practice has escalated among other distribution centres in the past few years. They said the total inflation of these assets was estimated at more than R1bn. The retailers said this was done to ensure executives receive bonuses. It has been alleged that this was at the company and shareholder’s expense.
“Once the losses were moved to these entities, the distribution centres no longer made provision for them and that has prevailed since 2016.”
The retailers said Botten’s actions led to continuous and significant losses for Spar retail stores and other entities. They added that as it became clear that this could not be sustained indefinitely, more plans were made to hide losses. They said the BEE retailers became the target, adding that they were exploited due to the BEE fund and an interest rate of prime minus 4%. They said feasibilities, valuations and financial documents were manipulated to make the BEE funds accessible.
“A BEE retailer was sold three stores for R30 million. These stores had little to no value and again an exorbitant sale price was used to remove liability from the distribution centre’s books, and use the BEE funds to inflate profit.”
The group’s secretary Kevin O’Brien did not respond to questions.
On Thursday, the Giannacopolous Group, which owns a few Spar shops filed criminal complaints of fraud and perjury against Botten, managing director Desmond Borregeiro, and chairperson Graham O’Conner over the takeover of 45 stores between 2015 and 2016.
The case was opened at Pretoria police station with the help of AfriForum.
“It has been alleged that the Spar group, through its executives, falsely claimed in affidavits in 2019 that companies in the Giannacopoulos Group owed it money in order to convince the courts to grant the Spar group control over the supermarkets owned by the companies.
“These alleged misrepresentations were confirmed by the very same high courts when the Giannacopoulos Group successfully challenged the unlawful takeover bid,” read the statement.
Botten and Borrageiro filed the affidavits, and O’Conner signed certificates of balance in support of summonses.