There is blood in the water at JSE-listed Oceana where things are going from bad to worse. Chief financial officer Hajra Karrim has been suspended on a precautionary basis pending further investigation. This caught the market by surprise despite the ongoing investigations pertaining to US subsidiary Daybrook, after whistle-blowers raised concerns. Despite Karrim being at the centre of the numbers, she only joined the firm over a year ago, many years after the acquisition of Daybrook (2015) and the controversial ‘related party’ transactions that took place after recently departed CEO Francois Kuttel bought 75% of associate Westbank Fishing for $31.5m. Imraan Soomra, the fishing giant’s current CEO, was CFO during Kuttel’s tenure.
Since the latter end of 2021, Oceana has been updating the market with regard to the publication of its late financials. It made it clear that from a numbers’ perspective, there was no fraud and misappropriation or loss of funds. Any differentials within the financials are supposedly going to be immaterial. ENSafrica was appointed to independently investigate all of the concerns raised by the whistle-blowers. They did flag conflicts of interests within general governance issues relating to management’s financial reporting and managing conflicts within the business. These announcements pointed towards ex-CEO Kuttel’s acquisition of Westbank in 2018, which was flawed.
When Oceana entered the US market in 2015, it acquired Daybrook and a 25% stake in Westbank, which was the exclusive supplier to Daybrook. Westbank owns the fleets and boats that catch the fish, while Daybrook is the processor. The deal was structured in such a way that Oceana could purchase the remaining 75% of Westbank within five years for a consideration of $31.5m. US law prohibits foreign ownership of fishing vessels. However, Kuttel – the very man who structured the deal and conveniently happened to be a US citizen – resigned from Oceana and as a US citizen, took up the option to purchase the 75% stake in Westbank for $31.5m through his investment vehicle Makimry Patronus. Flawed with conflicts, the deal went ahead despite cries from market participants, including activists Benguela Global, which framed the transaction as fraudulent.
But in what way would the recently appointed CFO Karrim – who was not around during any of the aforementioned transactions – be implicated in this saga? A quick look into her career shows lengthy stints at M-Net and TransUnion (Africa Group) as chief financial officer with no apparent red flags.
All the announcements thus far have pointed towards all these concerns being about the accounting treatment and conflicts surrounding Daybrook and Westbank, specifically against ex-CEO Kuttel. Long story short, today’s announcement can only be regarded as a huge shock to the market. If the current troubles were about Kuttel’s dealings, it would be more likely that current CEO – and former CFO during Kuttel’s tenure – Soomra would be implicated. But management and board newbie Karrim is the one under fire.
What does this mean? It can only be seen as bad news by shareholders. Although Oceana has announced the findings will be immaterial to the numbers, if the CFO has been implicated – the person trusted with the responsibility to report the financials – it could spell trouble. The financials are already 10 days late. If the troubles only go so far as its US operations, specifically Daybrook, it still contributes 30% to operating profit, which is material. We have seen enough recent corporate fraud in Steinhoff, EOH and Tongaat to know shareholders’ trust is thin and once lost, is gone forever.
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