Trading in Delta Property Fund shares was suspended by the JSE on Tuesday, 15 December, adding more woes for a real estate company that has been hit by a multimillion-rand fraud and accounting scandal implicating former company executives. 

In a Stock Exchange News Service (SENS) statement, the JSE told Delta shareholders that the company’s shares have been suspended with immediate effect, a decision the bourse has taken “in the interest of shareholders”. 

Delta owns a range of office properties that are leased to government departments and entities. Delta listed on the JSE in 2012 with a share price of R9.60 but its shares are now a penny stock, dropping to 35 cents. 

The suspension of Delta shares, the JSE said, follows the company’s recent decision to withdraw its annual financial statements for the year to end-February 2020 because they can no longer be relied on by shareholders.  Delta’s auditor, BDO, also withdrew its audit opinion for the financial statements. 

A forensic investigation into the goings-on at Delta, which was commissioned by the board, uncovered fraud and misappropriation of funds amounting to R46-million. 

Without naming them, the Delta board inferred that former CEO Sandile Nomvete, former CFO Shaneel Maharaj, and former COO Otis Tshabalala were implicated in wrongdoing. Nomvete and Maharaj resigned from Delta with immediate effect in August. Tshabalala also abruptly left the company, electing to not complete his notice period that was initially announced at the beginning of July.

The three have denied being involved in or having knowledge of any wrongdoing at Delta.

Another SA corporate scandal: Fraud and accounting failures at Delta Property Fund

The Delta board informed shareholders that it will not publish the Mazars forensic report, saying it is confidential. In other words, the full extent of wrongdoing at Delta is not known. 

JSE enters the fray 

Delta shares were suspended under paragraph 1.6 and 1.7 of the JSE Listings Requirements and Section 12(2) of the Financial Markets Act – both dealing with the suspension of a company’s shares “in the public interest”. The JSE might be vexed because Delta published incorrect annual financial statements, which shareholders rely on to make investment decisions or assess the company’s financial affairs. To lift the suspension, the Delta board will have to make submissions to the JSE and show demonstrable progress in correcting the financial statements. 

Back to the forensic investigation: The Delta board only published key findings of the forensic report through a SENS notice.  

Among key issues identified in the Mazar report were:

• The company paid commission totalling R43.9-million for the three financial years ended February 2018, 2019, and 2020, resulting from invalid, lapsed, or no-broker mandates. (Commissions are usually paid to estate agents for the sale or purchase of properties);
• Fraud stemming from unethical dealings amounted to R2.1-million; and
• Failure to disclose related or connected-party transactions to the board. 

Delta said the failure to properly recognise commissions and other estate agent expenses will now result in the value of the company’s portfolio of investment properties decreasing from R10.6-billion to about R8.7-billion in the financial statements for the year to February 2020. In other words, the value of Delta’s portfolio was artificially inflated through crafty accounting practices and “other unethical business dealings”. 

This is one of the main reasons Delta withdrew its financial statements. Delta has also decided to not release the interim results to end-August, which were meant to be published on 11 December. DM/BM