'Millions missing' at Fidentia

[Dave A]

A devastating High Court application by the Financial Services Board (FSB) has exposed the "misappropriation" of hundreds of millions of client money by Cape-based asset management company Fidentia.

This may prove to be one of the most damaging investment scandals since the failure of Masterbond in 1992, given that Fidentia was looking after R1,6-billion of other people's money, Business Day reported on Friday.

The application follows a probe of Fidentia by a team mandated by the FSB, and it paints a bleak picture of the way the company carried out business. It included references to "misrepresentation to clients", "misappropriation of client funds", "misrepresenting investments", "inadequate corporate governance" and "material conflicts of interest".

At the last count, the FSB probe concluded that R406-million is the figure of "client funds unaccounted for", which suggests that the Living Hands Trust and the transport Seta may yet lose hundreds of millions of rands.

While it is not yet possible to say how much is missing, the inspectors said "it is now evident that a lengthy disposal process [of Fidentia's assets] will be required ... and the value which will be realised remains uncertain".
full story from M&G here

[Dave A]

Hmmm. Interesting website. Fidentia the .co.za version. As in exceptional gloss and no substance.

Not sure if the offshore sites I found are connected.

[Dave A]

Dines Gihwala, a Cape Town attorney, and George Papadakis, a forensic accountant, have their work cut out for them tracking down R689 million of R2 billion that was allegedly stolen from Fidentia Asset Management and two subsidiary companies.

The men were appointed as curators of the companies by the Cape high court on Thursday, following an urgent application by the executive officer of the Financial Services Board (FSB).

In court papers German Anderson, the deputy executive officer of the FSB, said a formal inspection into the affairs of Fidentia, Bramber Alternative and Fidentia Holdings was undertaken following "disturbing information'' received by the registrar from a former director of Fidentia.

One the largest investors was the Transport Sector Education and Training Authority, which was unlikely to be paid back the funds it had invested, which were part of the misappropriated funds.
full story from Business Report here

[duncan drennan]

Eish, things are looking BAD at Fidentia as all the gory details are starting to come out under curatorship. It seems they've pillaged R1.2bn from the Living Hands trust whose beneficiaries are mainly orphans and widows.

Brown and his cronies - retired cricketers Eric Simons, Dave Callaghan and Merrick Pringle are among the "employees" - have looted the Living Hands trust, previously worth R1,2bn, almost to the point of extinction.

Living Hands is a trust run for around 50 000 widows and orphans whose departed husbands/parents - mostly blue collar mine workers - entrusted their final estates to it. Many of them had been relying on grants of around R200 a month as their major source of income.

While Brown was using the trust to draw his own R400 00 (sic) monthly pay, dispensing equally fancy salaries to his pals and providing free food in a restaurant-like canteen, orphans have been threatened with eviction for not being able to pay their school fees.

Read the full story, "Fidentia: It's our worst nightmare" on MoneyWeb

I think the salary amount should read R400 000. I know it has been quoted at a basic of R3m/year

[Dave A]

The connected:

Danisa Baloyi, one of South Africa's top businesswomen, has been told to repay a massive loan by the curators of beleaguered Fidentia, according to a report carried on the capeargus.co.za website on Monday.
There have been claims that the loan, said by sources close to Fidentia to be R8m, was being written off at the time the curators took over the administration of the company, but this week Fidentia boss J Arthur Brown said while it was true she had an outstanding loan, the curators were demanding it be repaid.

He declined to comment on the amount.

This is the latest twist in the ongoing and unravelling multi-million rand investment scandal that has left thousands of widows and orphans without their monthly payments, the report said.

Baloyi is head of the Road Accident Fund and was named Businesswoman of the Year for 2003.
from Fin 24 here

[Dave A]

The domino effect:

A company, "closely associated" with Fidentia, with R4bn in assets and 15 000 clients has been placed under curatorship.
The Financial Service Board said in a statement on Friday the Cape High Court granted a provisional order whereby the business of Ovation Global Investment Services (Pty) Ltd and Ovation Global Investment Nominees (Pty) Ltd was placed under curatorship in terms of section 5 of the Financial Institutions (Protection of Funds) Act, 2001.

Attorney John Levin and forensic accountant Barend Petersen were appointed joint curators to the business of the companies.

The order was granted following an application by the executive officer of the FSB in his capacity as the Registrar of Financial Services Providers.

The latest twist in the Fidentia scandal comes several weeks after a devastating High Court application by the FSB had exposed the "misappropriation" of hundreds of millions of client money by the Cape-based asset management firm.

Fidentia was looking after R1.6bn in client funds.
Full story from Fin24 here

[Dave A]

Fidentia boss J Arthur Brown, the man at the centre of what could be South Africa's biggest-ever corporate-investment scandal, is behind bars.

He and group accountant Graham Maddock were arrested by the Scorpions at their luxurious Cape Town homes shortly after 8am on Tuesday.

Within hours they appeared in the Cape Town Magistrate's Court on a string of charges, including fraud of R200,3-million.

Denied bail despite the efforts of their lawyers, they will be detained at Goodwood prison, ironically not far from Brown's Sunset Beach mansion, until a bail hearing on March 15.

The men face charges of fraud, theft and contraventions of the Companies Act, the Financial Advisory and Intermediary Services Act, the Reserve Bank Act and exchange-control regulations, as well as of income-tax laws.
full story from M&G here

[Dave A]

Fidentia's interim curators failed to arrive at a meeting with about 50 former Fidentia employees at the Commission for Conciliation, Mediation, and Arbitration (CCMA) on Monday.

In a statement on behalf of the employees, Fidentia's former spokesperson, Ross Edwards, said the curators -- Dines Gihwala and George Papadakis -- were informed of the meeting, but failed to appear.

The CCMA commissioner appointed to the case, Leon Levy, had contacted Gavin Stansfield, a director of Gihwala's law firm.

Edwards said former Fidentia employees claimed Stansfield had "been frantically fast-tracking" the retrenchments of between 450 and 600 employees without following the most basic conditions of employment.

"Stansfield claims that official notice of Monday's Fidentia CCMA hearing, which was faxed to the address given by the interim curators, must simply have gone astray."

The group of retrenched Cape Town employees was being represented by the Professional Trade Union of South Africa.

Many of the applicants in Monday's "mass-action appeal" were dismissed with no pay for two weeks' work in February and received no benefits and no severance pay, Edwards said.

In Johannesburg, some Fidentia employees were dismissed as late as February 23, with no pay or retrenchment packages after working for the curators for one month.

"The interim curators' timing in their case was especially harsh, coming just before pay day."

Half the staff had been fired with nothing, and the remainder paid their full February salary, he said.
from M&G here

[duncan drennan]

One of the things which popped into my head while reading this article was that the Fidentia case may have a knock on effect on the rules governing trusts. This paragraph stood out in particular,

Admittedly, it’s not all your fault. Currently, umbrella trust funds, which by their very nature are for widows and orphans and which manage billions of rands, have virtually no supervision and are not required to submit audited reports. If audited reports aren’t submitted, it’s very difficult to remove the trustees. SABMiller may have wanted to, but they needed to have a case they could prove against the trustees.

Read the full article, "Dear Danisa…" on M&G Online

There is going to be lots of dust, and it will be a while before it settles - one thing I am sure about, the governance rules for this type of setup are going to change.

[duncan drennan]

It looks like an Absa employee helped to facilitate the movement and laundering of money through various Absa bank accounts.

For those thousands of rands, the Absa employee (Booysens Road branch) effectively facilitated the movement of about R219m through three Absa accounts in the second half of 2005.

This money is believed to have come from investors funds’ in a cash pool in the Common Cents fund. These funds were held in a cash account and invested in a cash portfolio on behalf of various brokers and investors.

But Cruickshank got authorisation from the board of directors of Ovation Global Investment Nominees to “manage� the Common Cents money “on a sole proprietor basis�, say the court papers.

“Cruickshank assured those present that he held the necessary licence and was duly registered with the FSB.�

Cruickshank was authorised by directors Eugene Yazbek and Christopher McCallum to open a bank account in the name of Ovation Global Investment Nominees, at Absa, subject to certain conditions. He was an unrehabilitated insolvent, though the curators say Yazbek and McCallum could not have known this.

Full article on Moneyweb