Joe Modise, while still Defence Minister, and key executives of State defence parastatals received shares worth millions of rand in partnership with other businessmen at the helm of a company they hoped would benefit from the R52,7bn strategic arms package.

Delays in the arms deal prevented the group from realising its aim of cashing in on lucrative offset contracts. But it did sign government work while Modise held 10,5% of the company. He had been gifted 3,78m shares worth nearly R19m at the time if issue, and cashed in about R2,5m of the equity over the succeeding year, without declaring it to Cabinet. It was previously believed Modise joined the company, Conlog Holdings, only after leaving politics in June 1999.

Late that year, he emerged as chairman of Conlog, and continued to help steer the company while its fortunes, and his health, declined. He died last November. To his credit, Modise didn't cash in all his shares, and the amount he did take in covert earnings appears modest compared with those of some partners more adroit at financial manoeuvring.

The defence chiefs' obscure dealings emerged this month after a little-known Cape technology company, Dynamic Cables, asked the JSE Securities Exchange to suspend all trading in the company's shares, citing "potential irregularities" in share issues between 1997 and 1999 - a time when the company was known first as Log-Tek Holdings and then as Conlog Holdings. Among the key players - apart from Modise - are Ian Deetlefs, then chairman of State-owned defence manufacturer Denel, and Ron Haywood, chairman of the State defence procurement agency Armscor.

It is a story that opens a new avenue in the saga of failed corporate governance in SA, coming after the collapse of Absa Bank's micro lending subsidiary, Unifer, the disgraceful failure of Regal Treasury Bank and years of corporate skulduggery. It also spotlights a clear case where public officials - of both the old and new regimes - made money out of private schemes while serving in government.

Dynamic Cables now has a completely new board and ownership, and CEO and acting chairman Shaun Rai says the suspension of its shares "is in no way related to the current trading situation of the company, which remains very positive". Dynamic's majority shareholder, Cape Empowerment Trust, issued a cautionary on March 4, waring that some Dynamic Cable shares dating from the Log-Tek and Conlog era might be tainted and, if so, might be cancelled to reverse a substantial dilution of its share capital.

The JSE's listings department has details of the allegations and is awaiting a more definite submission from Rai. JSE surveillance chief Peter Redman says his department investigated a separate complaint of insider trading against Log-Tek/Conlog in mid-1999 but concluded there was insufficient evidence to prove wrongdoing.

Rai distances the Dynamic Cables board from the activities under review.

"It appears that once again prominent black people have been used by unscrupulous businessmen to enrich themselves," he says.

The log-Tek/Conlog saga begins in mid-1997, when a consortium of five men formed a company called Charleston Marketing to buy a small, unlisted manufacturer of prepayment utility meters and car security systems, Conlog, then a subsidiary of Anglo American's industrial holding company, Amic. The Charleston partners were represented by trusts, notably Modise (Letaba trust); Deetlefs (Khangela trust); Haywood (Ad Astra trust); and Seshi Chonco, then-MD and future CEO of Denel (Sethaba trust).

Charleston bought Conlog for R34m, through a loan from New Republic Bank (NRB), and within weeks resold it to Log-Tek for R124m - turning a quick R90m profit, which it received in the form of 22,5m Log-Tek shares at R5,50 each. Just over 4,5m of these shares were issued to NRB to write off the loan and the remaining 18m were distributed among the Charleston partners.

The deal, effected on September 1 1997, brought some Charleston members into the restructured Log-Tek for the first time. Deetlefs, though, had already been chairman of Log-Tek for four months. Log-Tek had been trading under that name for six years, specialising in applied information technology - computerised systems, databases, inventory support and technical documentation. Deetlefs remained chairman.

Neither Modise nor Haywood appeared on the board at that stage, though their interests in the trusts made them majority shareholders - Modise's Letaba held 10,5%, worth R20,8m at time of issue, and Haywood's Ad Astra held 6%, worth R11,9m. Modise was well represented, though, by non-executive director Keith Mokoape, a former Umkhonto we Sizwe comrade and confidant.

Modise appeared on the board only in late 1999, after he had retired from the Cabinet, at about the same time that Haywood became a director. By that time, Conlog had lost its technical capacity to gain from the arms deal, or the defence offsets, and it no longer mattered that the two directors had past or present connections to the defence sector. While both men made a few million by selling shares - the share register shows Ad Astra sold at least R1m worth of shares between September 1998 and March 1999, and Letaba sold R2,5m worth in the same period - they held on to most of their shares even as their value declined. It is unclear whether Chonco sold his shares.

Haywood disputes the assertion that he, Modise or Deetlefs were in conflict of interest through their involvement in Log-Tek as the company didn't benefit from the arms deal. But he admits Log-Teg intended to benefit. Its 1998 annual report states the company "is expecting to receive a number of substantial logistic contracts arising from the recent counter-trade agreements entered into by the SANDF with Italy and Germany for light utility helicopters, submarines and corvettes".

The intent, realised or not, raises the burning issue of corporate governance. For it appears that Log-Tek shareholders were never told of Charleston's turnaround profit at Log-Tek's expense. All they were told, in a December 29 circular, was that Log-Tek had bought Conlog for close on R124m and that Conlog had been "acquired by the existing owners through a management buyout and empowerment transaction earlier this year". No mention is made of the R90m profit from the sale. There is also no explanation about why Log-Tek, some of whose directors must have known about Charleston's payment to Amic, would pay such a high premium for a company with a poor track record.

It is clear Deetlefs' trusts and company interests benefited substantially from the Conlog purchase. FM calculations based on share prices at the time of equity draw-downs in Deetlefs' Khangela and IDT trusts and other holdings suggest he could have cleared more than R35m in cash over the 18 months after the Conlog-Log-Tek deal.

But he denies that he made any meaningful money from the deal. He also says shareholders were properly informed of Charleston's Conlog turnaround through circulars at the time. The FM, though, has been unable to find such disclosure in any of the company's public statements.

"It was a national profit. It wasn't real profit," Deetlefs said this week. He points out that, though the Log-Tek shares did soar briefly to more than R19 in June 1998, over the next 12 months they fell precipitously to well below the price at which they were issued to Charleston members.

So Log-Tek's Charleston directors never reaped the millions they received on paper? "No," chuckles Deetlefs ruefully, "I wish I'd sold; on R18 it would have been a pleasure to sell, But I can tell you that none of us sold our shares at that time."

What, then, happened to the proceeds of share disposals by the Khangela and IDT trusts between June 1998 and March 1999, when the price went from R19 to about R6? The earnings could have been between R4m and R8m, depending on the sale price. Deetlefs says he cannot remember making any sale then.

Questions remain, too, about what happened to 1,8m Log-Tek shares held y an entity called Rubric Investments Inc. These disappear from the register after June 1998, when the shares were at their peak. A sale at that time would have reaped Rubric anything between R20m and R34m. Rubric appears to be an offshore company, so the proceeds may have been expatriated. Deetlefs says Rubric had nothing to do with him and that he knows nothing about it. But who then was behind Rubric?

Rubric was one of seven major shareholders with 5% or more of Log-Tek immediately after the Conlog purchase - all trusts and institutions.

Deetlefs says the Conlog sale price to Log-Tek was based on the relative share value of the two companies, and was determined by auditors. Why was it necessary, though, for Charleston to act as intermediary? Why could Log-Tek not have bought Conlog directly from Amic? Because Charleston, not Log-Tek, had found the deal, says Deetlefs. This sounds odd, given that Deetlefs was central to both Log-Tek and Charleston.

Questions around the Log-Tek management's activities don't end there.

The company rode the IT boom in 1998, expanding its operations and acquiring Satellite Data Network (SDN), a broadband Internet communications operation, along the way. Log-Tek was ranked among the Sunday Times's top-10 performing companies that year. Headline earnings were up 662%, earnings per share 150%. The sky was the limit, it seemed.

Then the IT bubble burst and Log-Tek's bright prospects began to dull. The arms deal was delayed and government suspended a R165m computerised cataloguing contract that the company was working on. Log-Tek's key subsidiary, the core LGI group, which had hoped to benefit from these deals; fell into debt. The SDN start-up costs were higher than expected. The subsidiaries had to be bailed out with loans from the holding company.

In late 1998, with the directors still trumpeting Log-Tek's rich prospects, the company made a rights issue for R55m. Institutions such as Absa Bank, NRB, stockbrokers Independent Securities and financial services group Brait subscribed.

Most of the proceeds appear to have gone towards rescuing LGI group and SDN. Business got worse and these and other subsidiaries were sold off at giveaway prices (though with liabilities) to former directors in 1999.

Many shareholders lost millions, leading to questions about the Log-Tek board's material disclosure. Dynamic Cables, which has inherited this legacy, now has some serious housework to do.

With acknowledgements to Peter Honey and Financial Mail.