A group of shareholders in luxury property developer Pinnacle Point have filed a R1.3-billion claim against Nedbank and a group of businesses linked to controversial businessman Jac de Beer in the North Gauteng High Court.

The claim alleges that Nedbank and De Beer, through broker Cortex Securities, worked together to force up the share price of Acc-Ross Holdings, a company that Pinnacle Point acquired in November 2008.Nedbank and the claimants say they are braced for a long legal battle and the merits of the claim are far from clear cut.

The case turns the spotlight onto Nedbank's role in the single stock futures (SSF) debacle that has so far cost competing banking group Absa at least R1.4-billion in losses related to trading in the instruments. Nedbank effectively took one side of the trading while Absa, apparently without realising it, ultimately carried the risks on the other side. Nedbank would quote single stock futures prices in the market and sell them to brokers, who in turn were trading on behalf of clients.

Nedbank would then hedge its risk by buying the underlying shares, earning brokerage in the process. When the futures expired, Nedbank would deliver the shares and collect the price agreed at the time the SSFs were sold. That is if the counterparties had the money.

In the case of Acc-Ross/Pinnacle Point, Cortex's client De Beer, and then Cortex itself, defaulted, so Absa was forced to take delivery of Nedbank's shares at the futures strike price.

In response to Business Times queries, Nedbank published a statement saying it would vigorously defend the claim. "The details of the claim are vague and opportunistic and in the view of Nedbank's legal advisors do not support any sustainable claim against Nedbank. Nedbank strongly denies that there is any merit in the claim."

De Beer, through various companies, some of which included minority shareholders such as former director of public prosecutions Bulelani Ngcuka, was a major shareholder in Acc-Ross.

De Beer used the SSF mechanism to raise cash, selling his shares to Nedbank, and then buying SSFs through Cortex. He only needed to put down 10% of the value of the shares as a margin deposit with Cortex. He then used cash raised from selling the shares to buy additional futures, so leveraging his exposure.

Each time De Beer bought futures, Nedbank would buy the underlying shares to hedge its exposure, either from De Beer or in the market. Through this process, by November 2008, Nedbank owned 89% of Acc-Ross shares, then worth more than R1-billion.

In court papers, the Pinnacle Point shareholders, led by Ivor Stratford, Mervyn Key and Dave Mostert, say: "The apparently solid demand for Pinnacle Point shares on Alt-X, which an outsider would perceive ... existed principally as a result of (Nedbank) continuously acquiring such shares in the context of SSF contracts."

They also allege that Nedbank and De Beer were acting in concert.The substance of the claim, however, is that Nedbank failed to notify the market that it had in effect gained control of Acc-Ross.

Various laws apply to taking majority ownership of a company. The Competition Act requires approval from the Competition Commission for large mergers. The Banks Act requires permission from the registrar of banks before a subsidiary is acquired. And the Securities Regulation Panel (SRP) requires an offer to be made to minority shareholders as soon as the 35% threshold is crossed.

Business Times has established that Nedbank did not do any of these three things in the case of Pinnacle Point. Those authorities are now poised to investigate.

Nedbank Capital managing executive Brian Kennedy said he does not believe legislation was violated. "We don't believe there's been a breach of any of the rules because (the position) was in terms of derivative hedging transactions - we were never the beneficial owners economically or any other way."

Nedbank only explored its legal liabilities after Business Times reported last year that there may be an SRP code violation. Dealers who accumulated the position apparently never considered legal ramifications of the exposure.

The claimants' view is that had Nedbank disclosed its interest in Acc-Ross they would have been dissuaded from going through with their transaction, and thereby avoided losses of R1.3-billion.

Nedbank apparently had an informal agreement with De Beer allowing him to vote the shares Nedbank owned by proxy. De Beer did in fact carry a proxy from Nedbank in certain shareholder meetings. However, there was no formal agreement handing over the voting rights to De Beer.

De Beer was sequestrated in 1997 and was later found by the department of trade and industry to have been running a pyramid scheme.

As part of Pinnacle Point's due diligence process, Nedbank will probably argue that it should have become aware of the SSF position. However, no mention of the position is made in the acquisition circular to shareholders, something the claimants point out Nedbank should have raised concerns over. Nedbank was banker to both Pinnacle and Acc-Ross, but it was Arcay Corporate Finance that had directly advised on the deal.

A Pinnacle Point source said the shareholder group also intends to file claims against Arcay.

On Thursday this week, the Pinnacle shareholders also filed a formal application to the SRP for it to review Nedbank's acquisition of the stake. Following enquiries from Business Times last year, the SRP conducted an informal investigation on the SSF issue. A number of meetings were held with Nedbank before the SRP decided it would not take the matter further.