In the Arbitration Proceedings Between

IN THE MATTER OF THE MYBURGH INVESTIGATION AND REPORT (“INSPECTORS REPORT”) INTO ALLEGATIONS OF FRAUD AND IMPROPER CONDUCT BY THE EXECUTIVE DIRECTORS OF CORPCAPITAL LIMITED (CONDUCTED IN TERMS OF SECTION 258 (2) OF THE COMPANIES ACT) AND RELATED MATTERS.

REPORT OF C A STRIDE (“Stride”)

PREPARED FOR THE PURPOSE OF A SUBMISSION BY WWB TO THE MINISTER OF TRADE AND INDUSTRY REGARDING THE SECTION 258(2) INVESTIGATION OF CORPCAPITAL, AND IN CONTEMPLATION OF LITIGATION IN THE REVIEW ON THE MYBURGH REPORT.

A. PROFESSIONAL BACKGROUND

1Details of my professional background are attached as Annexure 1.

BINTRODUCTION AND INSTRUCTION

2I have been requested by Webber Wentzel Bowens, acting for Frangos to evaluate and express an opinion on the Myburgh Investigation of the Corpcapital Group made under or in terms of the instructions contained in the letter from the Minister: Trade and Industry dated 19 May 2003 attached as Annexure2.

3I have also been requested to establish whether in my opinion a proper investigation had been conducted by Judge John Myburgh and Professor Keith Prinsloo in respect of the matters set out in the Ministers letter of Appointment relating inter alia to:

3.1The inception of the original entity in the Corpcapital Group

3.2The manner in which Cytech/Netainmentwas valued and whether such values were unjustifiably inflated to boost profits artificially and possibly fraudulently inflated to boost profits artificially and possibly fraudulently.

3.3Whether profits in turn were used as the basis to pay bonuses and restraint payments.

3.4The appropriateness of the accounting treatment applied to Cytech/Netainment

3.5The adequacy of disclosures made about the investment directors, audit committees and ultimately to shareholders.

3.6The issues relating to the Merger of Corpgro, Old Corpcapital and Corpcapital Bank in relation to the swap ratios and any possible inherent conflicts of interest that might have existed in the merger process

3.7Any possible prejudice to the investing public as a consequence of the Cytech/Netainment overvaluation.

3.8Possible inadequate disclosure to shareholders and the adoption of inappropriate accounting policies.

3.9The Payne Report into the affairs of Corpcapital, produced by Mr. Nigel Payne.

3.10Possibility that the non-executive directors, did not properly discharge of their fiduciary duties and responsibilities

3.11Possibility that the management did not properly discharge their duties and responsibilities.

4I have also been requested to note and comment on areas where, in my opinion, the Inspectors may have been misled or failed to report upon and in particular to:

4.1Whether the Cytech/Netainment investment could have been “held available for sale”?

4.2The revaluations of the Cytech/Netainment investment.

4.3Whether the Cytech/Netainment investment could in fact have been a joint venture?

4.4Whether there had been any breaches of the Exchange Control Regulations?

4.5Whether or not the directors had fulfilled their fiduciary and statutory duties?

5I have been requested to ignore the legal issues relating to the manner in which the investigation was conducted.

6I have been requested to accept the validity of draft minutes, electronic copies and photo static copies of records for the purpose of this report.

7I have interpreted my brief to require me to commence my review of the documentation disclosed to the Investigators, and such other documentation as I have considered necessary, from the initial formation of the overseas structures that acquired Southgo, the initial cash shell, which became Corpgro and to trace the executives shareholdings therein and the benefits that they derived up until and including the dissolution of the Group. This involved inter alia the following

7.1Ascertaining what overseas entities were established and on whose behalf.

7.2Ascertaining the manner in which those entities/ executives acquired the original investment in the cash shell.

7.3Reviewing the circulars and prelisting statements and the disclosures made therein.

7.4Expressing an opinion on the fairness of the presentation of the annual financial results.

7.5Reviewing the effect of acquisitions on earnings and net asset values and the possible need for certain of the acquisitions.

7.6To express an opinion on the legality or otherwise of disclosures, results or conduct of management.

COFFSHORE TRUSTS,HOLDING COMPANIES AND INTENTION

• Commencing in December 1995 various overseas trusts and entities were established illegally by persons who were to become key executives in Corpcapital
• It is clear that the intention of the parties was to:
• Initially enable funds to be illegally remitted overseas
• Acquire shares in listed South Africa cash shell companies.
• Avoid disclosure of the directors shareholdings
• It is clear that the Inspectors did not investigate these entities or report thereon
• As will be seen later, when the various Corpcapital entities failed to perform the executives falsely pumped up profits in a fraudulent manner
• When discovery took place the executives put in place a sophisticated and aggressive cover-up, which later included the dismantling of the company

8The information provided to the Investigators by Peter Moss revealed the following.

8.1Overseas trusts had been established. The IBIT Trust (“IBIT”), was registered in Switzerland and controlled by Moss and Welbake Investment Trust (‘Welbake’) - controlled by Liebesman.and a trust controlled by Liebmann). (F1pages 1-2)

Comments:

1A computer word search of the Myburgh report revealed no reference to Peter Moss. I assume his evidence was thus ignored.

2A computer word search for references to the SARB or Exchange Control in the Myburgh report indicates that consideration was being given to reporting breaches of the Exchange Control regulations in respect of Cytech/Netainment but there is no reference to the breaches arising from the illegal establishment of the overseas trusts set up for Liebmann and Liebesman.

8.2On 11 December 1995 Jeffrey Michael Liebesman, Gustav Benjamin Liebmann andPeter Moss entered into an agreement in terms of which IBIT and Welbake would acquire, (at what would appear to be no cost), all the shareholders interests in Werner & Pfleider Industrielle Backtechnik GmbH, 50% of the shareholders interests in Bakery Equipment Inc and all the interests in Werner & Pfleider SA (Pty) Ltd in the ratio of 60:40%. (F1 pages 3-9).

8.3Combined Bakery Holdings Ltd,(“CBH”)(registered in the BVI) owned by IBIT and Welbake duly acquired the interests referred to above from Krupp Hoesch Industries GmbH (F1 pages 10-16).

8.4On 1 April 1996, the unsigned draft minutes of a CBH board meeting approved the acquisition of Combake SA (formerly WPSA) by WPIB from CBH for an amount of 7,5 million DM, approximately R20 million at the prevailing exchange rate of DM1 to R2.69 on the day. (F1 pages 17-20).

Comment:

If the business had in fact been acquired at no cost, the purchase of the South African operations for R20 million could have been a scheme to illegally remit fund overseas.

8.5Following restructuring and claims the companies acquired comprised of cash resources of some R 42.7 million, mainly arising from funds paid in by Krupp under German Law to cover commitments to employees of the company being sold following the sale of the company to Moss.(F1page 2 para 2.7)

8.6On 19 April 1996 the IBIT and Weldan trusts apparently passed resolutions in terms of which the trusts acquired 47.32 and 52.68% of the equity in CBH I (F1 pages 21-22)

8.7Unsigned draft minutes of the CBHI board meeting held on 19 April 1996 makes it clear that CBHI, would be the vehicle utilized to participate in the Consortium which was to acquire Southgo.(F1 pages 23-24)

8.8On 3 May 1996 there is a memorandum (drafted by GBL- presumably Liebmann) (P1 pages 25-27) which notes the following

8.8.1Presuming that the Southgo acquisition proceeds and is coupled with a rights issue the initial issue share capital will be approximately R32m.

8.8.2CBHI’s investment is R8m i.e. 25%

8.8.3I have arranged with Ariel Kreuter to purchase Rands on a gradual basis for the purpose of the investment.

8.8.4The question arises (para 10)(F1 page 27) should CBHI make its investment in the cash shell through a South African holding company? This means that at the initial stage of an enquiry the investor will be South African. Clearly this does not survive any deeper an enquiry, nor is it hoped or necessary to do so.

Comments:

1. Clearly there was concern about disclosure or an investigation.
2. Why was this attempt to avoid disclosure of an illegal transaction was not investigated?

8.9A memorandum dated 16 July 1996 (F1 pages 28-30)(drafted by GBL) notes:

8.9.1Approximately DM3,000,000 currently held by Republic for CBH, is soon to be used to acquire, directly or indirectly, shares in a listed South African company.

8.9.2The holding will represent approximately 40% of the South African company’s total share capital.

Comment:

Clearly this must relate to the disclosure that CBH was to acquire a 38.5% shareholding.

8.10The CBH Group structure at 16 July 1996 and Particulars to the CBH structure are set out on F1 pages 31-32. Itis clear that the overseas trusts would own both CBHthat controlled a South African company.CBHIwas establishedspecifically to acquire shares in Southgo.

Comments:

1.There is also no reference in the Inspectors report to the Reserve Banks restrictions on South African residents holding South African investments through foreign trusts. The Reserve Bank has confirmed that a “loop” structure is not permissible without prior written approval.

2.It is clear from the above that the establishment of the overseas trusts and their indirect investments in Southgo were illegal.

3.It would appear that certain of the funds to make the acquisition in Southgo came from the use of Employees trust funds retained in the company. The original Krupp cash injection into a German operating company was now in the process of being applied to a purpose different to what Krupp intended.

4.It could never have been the true intention that the employees’ trust funds could be available to make an investment.This is probably a fraudulent misuse of Employees Trust Funds.

8.11On 14 August Liebmann addresses a letter to Moss regarding the Frampton loan.(F1 page 33)

Comments:

1. It is not clear why Glen Ulterhalter (of Gestinor) would be calculating whether there would be 71,000,000 or 66,186,072 shares and how the quantity would vary based on a R2.60 price.
2. The involvement of Gestinor should have been investigated as well as ascertaining how many shares were in fact held by directors in offshore structures.

8.12A Memorandum dated 26 August 1997 records for the sake of clarity(F1 pages 34-37)

8.12.1For the purpose of agreement it has been assumed that the number of shares held is 78,000,000.

8.12.2On 1 September an amount of R8m will be paid

Comments:

1.It would appear thatthe reference to 78,000,000 shares must refer to the shares held by G Rubenstein/CMC.

2.It is clear that Gestinor administered the affairs of IBIT, CBH and CBHI.

3.No references to these documents have been found in the Myburgh report

D.ACQUISITION OF LISTED CASH SHELL COMPANIES

• The first cash shell targeted was South East Rand Gold Holdings Ltd (“Southgo”)
• Neither the Southgo Circular nor the Pre-listing Statement dated 9 September 1996 disclose any of these shares being acquired by any of the directors
• The shares acquired by the executives were significant
• It is clear that the Inspectors did not investigate these entities or report thereon
• It is apparent from the documentation that the overseas advisors were aware of the risk of an investigation and had suggested that a South African entity be used and that hopefully an investigation would end at that level

9Having established the overseas trusts and holding companies the structure to acquire the first cash shell was as follows:

10From the documentation prepared by SABT(F1 pages 38-39)the original consortium members were:

11The first cash shell targeted was South East Rand Gold Holdings Ltd (“Southgo”) and it had an issued share capital of 132,318,000 shares (para 2.5.2(page 47) of the Circularto Shareholders)(F1 pages 40-66).

11.1Of the issued share capital 75,762,050 shares were controlled by Consolidated Mining Corporation Ltd (“CMC”)(para 2.4.3)(F1 page46).Of the remaining 56,555,950 shares no less than 64,051,000 shares were traded(at prices ranging from a low of 6 cents to a high of 50 cents per share) during the period Apr-June 1996 (F1page118).

Comments:

1. Neither the Southgo Circular nor the Pre-listing Statement dated 9 September 1996 disclose any of these shares being acquired by any of the directors.
2. Given the stated intention of Liebesman and Liebmann on 3 May 1996 (F1 pages 25-27)-to acquire shares in Southgo it is inconceivable that they acquired no shares. This lack of disclosure should have been investigated.It is unlikely that unrelated parties would buy 64m shares at prices of up to50 cents when the cash shell had a net asset value of only 2.8 cents per share. See also F1 pages 34-37 where reference is made to 78,000,000 old shares being acquired, presumably from abroad.
3. It is apparent that the overseas advisors were aware of the risk of an investigation and had suggested that a South African entity be used and that hopefully an investigation would end at that level (F1page 27 para 10)
4. There is no indication that the Inspectors considered any of the information contained in the pre-listing statement. Had they reviewed this document it is inconceivable that they would have failed to ascertain who acquired the 76,572,000 shares from Rubenstein/CMC or the majority of the 64 million shares traded in the three months prior to the change of control.

ECIRCULAR TO SHAREHOLDERS OF SOUTH EAST RAND GOLD HOLDINGS LIMITED (“SOUTHGO”)(F1 pages40-66)

• The circular to shareholder contained a number of false declarations, relating particularly to hiding the executive’s involvement
• There is no reference to the circular to shareholders in the Inspectors report

12The extracts from circular reflected the following disclosures:

12.1It was announced in the press on 3 July 1996 that:

12.1.1Southgo would acquire the entire issued share capitals of and claims on loan account against CorpBuild and IS (para 1.2.1)(F1 page40).

12.1.2CorpBuild would acquire the BBS businesses (para 1.2.2)(F-page40)

12.1.3Control of Southgo would change to the consortium pursuant to which the consortium would extend the consortium offer (para 1.2.3)(F1 page 40)

12.2It was announced in the press on 16 August 1996 that (F1 page41)

12.2.1CorpBuild would acquire the business of F&F (para 1.3.1)

12.2.2Southgo would acquire the entire issued share capitals of and claims on loan account against Matador Refrigeration (para 1.3.3)

12.3In terms of an agreement entered into on 15 May 1996 between Southgo, (“CMC”) and the consortium.CMC and Southgo agreed to cast all votes available to it for the purpose of ratifying and implementing the acquisitions and appoint the consortium’s nominees as directors(para 2.2.1)(F1 page44)

Comments:

1The reference to CMC meansConsolidated Mining Corporation Ltd, previously the holding company of Southgo.

2The consortium was defined collectively as the Opportunity Trust (the trustees of which are Messrs Jeff Liebesman, Benjamin Liebmann and Ernest Liebowitz), Citizens Corp (Pty) Ltd controlled by Eric Ellerine, Global Capital Ltd controlled by Saflife Ltd, Global Equities (Pty) Ltd controlled by Nic Frangos and CBH Investments Ltd controlled by Peter Moss.

3As there is no reference to CBH in the Myburgh report I assume that this evidence relating to the shares held by CGH Investments Ltd was thus ignored.

12.4Following the issue to the consortium of the 291 071 429 shares,arising from BBS renouncing their rights, the consortium will hold 38,7% of Southgo’s issued share capital and will accordingly have acquired control of Southgo (para 2.2.3)(F1 page45).

Comment:

This is a false statement as it ignores Consortium members (Liebesman and Liebmann’s) holdings in CBH.

12.5Southgo’s name would be changed to Corpgro Limited (para 2.6).(F1 page 48)

12.6After the clawback offer, assuming that all Southgo shareholders other than CMC and the vendors followtheir rights…,the consortium will hold 970 021 574 Southgo shares, constituting 64,5% of Southgo’s then issued share capital.(para 2.4.4) (F1 page46)

Comment:

This is a false statement as it ignores Consortium members (Liebesman and Liebmann’s) holding in CBH.

12.7At this stage the control structure would have been as follows:

12.8The holdings of securities and declaration of interest disclosed in para5 (F1 page 57) reveals:

12.8.1G.B.Rubenstein (CMC) owned 76,572,000 shares.

12.8.2None of the new directors holds any shares, directly or indirectly, in Southgo.

Comments:

1. Moss has recently confirmed that the CMC shares had been acquired from abroad prior to the Circular and Pre-listing statements being prepared. Leibesman, Liebmann and possibly others thus had control of the cash shell prior to the consortium’s involvement, thus making a sham of the JSE requirements.
2. The statements are thus false. Liebesman and Liebmann thus deliberately signs false statements when making disclosures in the Pre-listing Statements.
3. The lack of truthful disclosure sets a precedent that is repeated on numerous occasions as will be seen later.

12.9The directors of Corpgro will be Liebesman,Ellerine,Frangos,Grolman,Liebmann and Moss (para 5.3.6) (F1 page58)

12.10CMC, who holds approximately 57% of Southgo’s current issued share capital, has irrevocably undertaken to vote all its shares in favour of all the resolutions (para 9.3).(F1 page62)

12.11The CorpgroProposed Pre-listing statement to shareholders dated 9 September 1996, provides information that enables the members of the consortium’s share of the rights issueto be estimated as follows (F1 pages 97-98)

Comment:

Some of these disclosures are false.

12.12The new directorscollectively and individually accept full responsibility for the accuracy of the information given in the circular…and certify that to the best of their knowledge and belief there are no facts omitted from or not revealed… the omission of which would make any statement contained in this circular false or misleading (para 11.2)(F1 page63)

Comment:

These statements are false as offshore holdings have not been disclosed.

FCORPGRO PROPOSEDPRELISTING STATEMENT DATED 9 SEPTEMBER 1996

• The prelisting statement revealed that 64 million shares traded during the period April-June 1996 and Consolidated Mining Corporation Ltd owned 76,572,000 (57.3%) shares out of the total issued share capital of 132,318,000 shares. There is no disclosure as to who bought these shares
• Southgo name change to Corpgro
• No disclosure of executive offshore interests in stock exchange documentation
• The executives, principally Liebesman, Liebmann and Grolman, held 648 302 000 shares, 43.1% of consortium shares (mainly undisclosed)
• There was no investigation of these matters by Myburgh

13The following points are noted.