Senior Fund Manager Mark Sakai Masterminded K10 million Fraud

Procured by fraud

The case that has landed Sakai in hot water was launched by the Namo’aporo Landowners Association in 2019. The Association consists of 117 incorporated landowner groups (ILGs). They represent land owning clans from the PDL2 Kutubu Oil and LNG Project area in the Southern Highlands. The Association was established to manage royalties and other benefits stemming from the Kutubu petroleum project.

Back in 2001 the Namo’aporo Landowners Association’s members passed a resolution at their Annual General Meeting to create Namo’aporo Investment Limited. All 9,306,311 shares in the company were held by the landowners’ Association. Namo’aporo Investment Limited’s sole purpose was to hold and manage the First Heritage Centre Building and property on behalf of the 117 landowning communities.

Fast forward thirteen years, on 30 May 2014, 58 out of the 117 member incorporated landowner groups attended a general meeting to elect a new Association Management Committee. Mark Sakai was made Chairman.

The election’s legitimacy was contested. The National Court granted an interim injunction restraining the Management Committee from conducting a special Annual General Meeting until the dispute was resolved.

While the special AGM was not held, the disputed Management Committee did convene a series of meetings during 2016. At these meetings they approved the transfer of the First Heritage Centre property to Mark Sakai, along with the shares in Namo’aporo Investment Limited.

Sakai promised to secure a K8 million loan to refurnish the property. Or, failing this, he would sell the property for a minimum of K10 million.

Instead, Sakai incorporated Redskins Estate Limited and became its sole shareholder. He then transferred title over the First Heritage Centre property to this vehicle for K1.

Fresh elections were called for the Namo’aporo Landowners Association’s Management Committee. Mark Sakai was voted out as Chairman. The new association leadership began legal action in 2019.

They claimed Mark Sakai in league with select Association officers and Directors at Namo’aporo Investment Limited, unlawfully transferred company shares and title over the First Heritage Centre to Sakai.

The court found that these meetings where the decision was made to transfer the shares and property lacked a quorum – a minimum number of five elected officials were required under the association’s constitution for a decision to be regarded as lawful. Only three office holders attended these meetings. Accordingly the decision was deemed by the National Court null and void.

Additionally, the Court also concluded that the Management Committee of the landowners’ Association had a duty of trust to the 117 member incorporated landowner groups.

In his defence Mark Sakai argued that his acquisition of the First Heritage Centre property for K1, was legitimate. Sakai claimed, in return for transferring the property and shares, he undertook to use his influence in order to obtains funds which would allow the property to be renovated.

The court was at a loss to understand how this would benefit the 117 ILGs. It deemed this argument to be entirely ‘self-serving’.

Judge Makail remarked ‘in this case it is unreasonable and unfair to offer shares totalling 9,306,311 in return for services to be rendered by one person and for a pathetic sum of K1.00’. He added, ‘there is no justification for the transfer of 9,306,311 worth of shares from one person to an entity where he is the sole shareholder and sole director without any proper documentation on valuation’.

The court concluded that the transfer of the First Heritage Centre office block in Port Moresby was in fact a fraud masterminded by Mark Sakai. Judge Makail observes:

As to the question whether the title of the third defendant [Redskins Estate Limited] was procured by fraud, I am satisfied on the balance of probabilities that the irregularities and breach of procedure in relation to the approval of the share transfer and transfer of title to the third defendant outlined at [44] above is sufficient to find that the title was procured by fraud. The fraud is actual because the evidence from the minutes of the meetings of the plaintiff’s Management Committee of 18^th July and 23^rd and 24^th September 2016 point to Mr Sakai as the person who masterminded and instigated the transfer of shares and title of the FHC property from the second defendant to him. He then transferred the title of the property to the third defendant after he had incorporated it on 13^th February 2017 and put himself as its sole director and sole shareholder.

The court argued this fraudulent scheme involved fundamental breaches of trust and duty of care:

I am further satisfied that the first defendants have failed in their duty to exercise care and diligence and failed to act in the best interest of the second defendant [Namo’aporo Investment Limited] when they resolved and transferred 9,306,311 shares of the plaintiff in the second defendant to Mr Sakai. Secondly, they failed in their duty to exercise care and diligence and failed to act in the best interest of the second defendant and its sole shareholder being the plaintiff when they resolved and transferred the FHC property to Mr Sakai for a grossly undervalued sum of K1.00. Thirdly, they failed in their duty to exercise care and diligence and failed to act in the best interest of the second defendant and its sole shareholder being the plaintiff when they did not stop or prevent Mr Sakai from selling the FHC property to the third defendant [Redkins Estate Limited] for a grossly undervalued sum of K1.00 and have its title transferred to the third defendant.

It is unlikely though this is the end of the story.

Where landowners strike a victory against a wealthy and well-connected foe, appeals almost certainly follow, leaving the case to languish in court for several more years.

Then there is the question of what the RPNGC’s National Fraud & Anti-Corruption Directorate is going to do now that the court has deemed the K10 million transfer a fraud.

And last, but not least, what is the response of Melanesian Trustee Services and its CEO to this court decision?

This is set against a historical backdrop where Melanesian Trustee Services (MTSL) has faced stinging criticism.

Justice Don Sawong, for example, scrutinised MTSL’s administration of the Pacific Balanced Fund in his 2007 report setting out the findings of a Commission of Inquiry.  Judge Sawong observed, ‘since its appointment [as manager of the Pacific Balanced Fund] MTSL has not acted in good faith nor acted in the best interest of the Unit Holders. It has earned huge fees, yet it has committed serious breaches in the discharge of its fiduciary duties’.

One serious breach of fiduciary duty pointed to by Judge Sawong ‘is the pledging of the [Pacific Balanced] Funds assets, in particular the various shares in certain companies as security to obtain a K12 million loan from Westpac Bank for itself [MTSL]‘ (italics added).

He continues, ‘one other example of serious breach of duty is that after the sale of units to the National Superannuation Fund Ltd, MTSL made a huge profit of some K8 million. None of this profit was ever credited to the account of the Fund. All of this profit was deposited in the account of MTSL and subsequently money was withdrawn from that account for the benefit of John Sanday and his associates. Not one toea of this profit was ever given to the Fund’.

The list of breaches continues. Judge Sawong notes, ‘the payment of K1.2 Million in fees to Melanesian Capital Advisors Ltd, a company wholly owned and controlled by John Sanday is also another example of breach of its duties as Trustee. This was clearly unlawful and highly improper’.

MTSL also faced scrutiny by a NASFUND executive, David Brown. According to a 2019 Radio New Zealand report

Mr Brown had requested some information on the previous year’s audited accounts from the trustee [MTSL] of Pacific Balanced Fund and the following week the National Fraud and Anti-Corruption Directorate arrested and charged him. Mr Brown then attended 12 separate committal hearings at the Waigani District Court before the judge ruled the prosecution could not bring a credible case against him. NASFUND said the charges were obviously spurious and brought prolonged distress to Mr Brown, his family and the company itself.

This most recent court decision against MTSL’s Executive Chairman strikes a further body blow against this fund manager. It is difficult to imagine how unit holders can sleep easy knowing the trustee and management company responsible for the Pacific Balanced Fund, is now led by an Executive Chairman found by the National Court to have masterminded a grand fraud.