Pretoria - The money made by Joe Modise, the former defence minister, from potentially irregular share issues by Log-Tek Holdings, a company hoping to benefit from the multibillion rand arms deal, was "insignificant compared with what the business people gained", said Shaun Rai, the chairman and chief executive of Dynamic Cables.

Log-Tek, a telecommunications hardware reseller, was renamed Dynamic Cables under new ownership and management.

Rai confirmed it appeared prominent people had been used by unscrupulous businessmen to enrich themselves but he was not prepared to name the businessmen.

"If one looks at the volume of tainted shares and the values at which they changed hands, it's quite clear that what people like the [former] minister [Modise] received was insignificant to what the business people gained. The real money was made by trusts."

Rai's comments followed media reports this week that Modise and key executives of defence parastatals, including Ron Haywood, the former chairman of Armscor, the arms procurement agency, and Ian Deetlefs, the former chairman of defence manufacturer Denel, received shares worth millions of rand in partnership with Log-Tek executives.

The reports said Log-Tek hoped to benefit from the R52.7 billion arms procurement package but failed to achieve this because of delays in the arms deal.

Haywood said he had become involved in the consortium that acquired Conlog, a motor vehicle alarms company that was later sold to Log-Tek, because it was "a good business opportunity".

"Conlog seemed, for the long term, to be a very good deal. My investment was made on the basis of Conlog and not a quick sale."

Conlog's seller received the R90 million profit from the sale in the form of Log-Tek shares.

Haywood said there had been no impropriety and Modise and others had been exonerated by the auditor-general's investigation.

He said the transaction was "above board and I've nothing to hide", adding that if there was a tender that he or his family had any interest in, he would have recused himself as chairman but "it never cropped up".

Rai said Dynamic Cables had asked the JSE Securities Exchange to suspend trading in the company's shares this month because of potential irregularities in share issues between 1997 and 1999.

Conlog was acquired by Log-Tek during this period.

Rai said the volumes involved were so substantial, representing "over 50 percent of our capital", that the company felt it could not allow so many shares to trade.

Rai said between 6 million and 28 million shares out of 46 million were "tainted".

However, Rai said he did not have "authority" to talk about why the shares were tainted as this information formed part of a confidential inquiry.

Rai said it was difficult to determine who held the "tainted" stock because the initial issue was up to five years ago and the shares had changed hands many times.

Asked about the prejudice to shareholders who had bought "tainted" shares in good faith if the company decided to cancel these shares, Rai said the duty of the firm's directors was to look after the interests of "valid shareholders" who had suffered dilution because of the irregular share issue.

"It's a two-edged sword. We will do what we can to protect the public," he said.

Doug Doel, the JSE's general manager of listings, described the situation as "a mess".

"We cannot penalise shareholders who bought those shares in good faith," he said.

With acknowledgement to Business Report.