The PwC investigation commissioned in November last year by the Special Subcommittee of the board of directors of Fortress REIT Ltd (JSE: FFA and FFB), has found no conclusive evidence to confirm any of the allegations made against the Company or its Management in respect of market manipulation or insider trading and in respect of undue related party benefits or wrongdoing in historic property transactions.
The review followed an 8th August 2018 letter from ten asset managers calling for a forensic investigation into certain allegations that had been made in various analysts’ reports about Fortress and other companies in which Fortress is or was invested.
“The Board is comforted that PwC as an independent third-party professional firm conducted a thorough review extending over the last six months and that PwC did not find any substantive evidence to support the allegations of illegality and impropriety made against the Company and its current or former Management,” says Chairman of the Special Ad Hoc Subcommittee, Robin Lockhart-Ross.
There are nevertheless a number of “important learnings” that the Fortress Board takes from the review.
“While there is no evidence of any misconduct or malfeasance, there were clearly some governance lapses and technical breaches in certain of the historic transactions, which date back over ten years prior to or at the formation of Fortress in 2009. These should, however, be seen in the context of the market of ten years ago where an entrepreneurial culture and different governance climate were in place,” says Lockhart-Ross.
PwC’s investigation found some evidence of inadequate governance, potential conflicts of interest and poor document management, and identified possible breaches of legislative and regulatory requirements in relation to the historic property transactions that were the subject of the PwC investigation.
“As a consequence of these findings the Board has already taken steps to enhance the Company’s internal policies, processes and practices, particularly those regulating share trading, outside interests and conflict declarations by directors and employees,” says Lockhart-Ross.
Where PwC’s report identified possible technical breaches of statutory and regulatory requirements at the time, these are being dealt with by Fortress’s advisors through the appropriate channels with the relevant authorities, to the extent that this is necessary or even feasible 10 or more years after these transactions took place.
Based on legal advice received, the Board is comfortable that these issues pose no risk to the company of significant regulatory sanction or material financial liability.
The PwC report follows the closure in March by the Financial Sector Conduct Authority (FSCA) of an insider trading investigation in relation to trading in Fortress shares.
The Fortress Board had offered its full co-operation to the FSCA to expedite its finalization of its investigation into the trading of Fortress shares and has facilitated that PwC met with the FSCA’s investigation team to provide an overview of their procedures and findings relating to market abuse and insider trading.
It is noteworthy that during its investigation, PwC invited the authors of and complainants under the various allegations to provide substantive evidence to support their allegations, but certain of those parties declined to meet with PwC or to produce any new evidence that was material or relevant to substantiate their allegations.
Throughout this process, Fortress has made available a whistleblowers’ hotline for any parties in possession of relevant information to submit that directly to PwC, but that channel yielded only two submissions, which were included in and considered by PwC in their investigation.
“We are committed as a Board to achieving and are making significant headway as a Company towards best practice governance standards in our sector and are taking the right steps in the right direction towards improved transparency and engagement,” says Fortress CEO-designate Steve Brown, pointing to the recent announcement on Fortress’s extensive engagement with and response to stakeholders on its remuneration policy.
In addition, Fortress continues to take steps to separate and divorce itself from the historic issues and the parties named in the allegations.
Brown was appointed as CEO-designate in December, with the Company making six new board appointments in recent months to navigate the road ahead. The Company is firmly focused on its strategy of driving its pipeline of exciting logistics properties in the year ahead.
“Most of the parties named in the allegations are no longer involved in the Fortress board and management. The Board is hopeful that the release of the findings of the PwC investigation will clear the cloud that has hung over Fortress, owing to perceptions of past governance, so that the new mnagement team can focus their energy and attention on growing Fortress’ business ,” concludes Brown.
A letter has been sent today by the Subcommittee to the ten asset managers who called for the PwC investigation, offering a further round of consultation with these and other interested stakeholders on matters arising from the Subcommittee’s investigation and PwC’s findings. The Subcommittee will then be disbanded and any remaining issues relating to governance in Fortress will be dealt with through the Board’s Social & Ethics Committee.