Judge says state mismanaged Fidentia case

SPECIAL INVESTIGATIONS

Author: Sasha Planting
06 May 2013 17:14
Judge says state mismanaged Fidentia case



Judge mightn’t have allowed the plea that saw Brown sentenced.

CAPE TOWN - Evidence provided by a witness on Monday caused Judge Anton Veldhuizen to ponder whether he had erred in allowing the state to accept a plea deal with J Arthur Brown, former Fidentia head. The plea deal saw Brown convicted on two counts of fraud.

The witness is Dawood Seedat, Financial Services Board (FSB) CFO and head of the inspectorate department at the time the FSB investigated Fidentia.

He provided details on Fidentia’s financial service licence and its duties and obligations in that regard, the circumstances that led to the FSB’s investigation into Fidentia and a summary of the findings that were presented in a report to the registrar of the FSB.

In its report, the FSB listed at least 20 transgressions. It found material breaches of accounting and auditing requirements; missing funds to the tune of R406m; an investment structure that failed to protect client interests; transfers to offshore bank accounts that required further investigation and systematic abuse of client investments – assets were treated as one big pool from which management drew regularly to settle whatever needed to be settled.

The problem with this evidence is that it details transgressions that Brown was not found guilty of.

“This should have been the first witness the state brought....so we knew the background. If you had done so I might not have accepted this plea. I may well have forced the state to proceed with prosecution. This is wrong,” said Judge Veldhuizen in a tone of by-now familiar irritation. “You are now leading evidence of something much more serious, which may or may not indicate theft of trust funds. How can I sentence the accused on facts that indicate there has been theft when there has been no conviction for theft?

However, Advocate Jannie van Vuuren, arguing on behalf of the state, insisted that evidence that was already on the record must be taken into account.

“What evidence do you have that the accused stole money?” the judge asked. “Mr Maddock [former Fidentia accountant] testified that the accused instructed him to take R11m and transfer it to a firm of attorneys. This was used to register two properties.”

“Why did you not charge him on this?” asked Veldhuizen.

“Theft is an alternative to fraud. If I prosecute someone on fraud and I prove he took the money ....and show he acted unlawfully ...it must be taken into account,” replied Van Vuuren.

“I think the state has mismanaged this,” fumed Veldhuizen. “You accepted a plea from the accused on the basis that what he did would cause potential prejudice (harm); now you are saying that there was actual prejudice.”

Sitting in the stands Brown appeared to disagree vehemently with most of Seedat’s testimony. He pressed his advocate Braganza Pretorius to request a postponement in order to prepare for a detailed cross-examination. This will take place on Tuesday.

Meanwhile more light was shed on what motivated the shareholders of Mantadia Asset Management Company to sell their company to Fidentia. The company was majority owned by businesswoman Danisa Baloyi (50.1%), Investec and minority shareholders including Ivanka Atcheson, Don Guthrie and Jeoffrey Gover, who led the original management buyout of the company from the Mercantile Asset Trust Company in 2001.

Investec provided the finance for the deal, and acquired an equity stake in the company. The three shareholders were able to repay Investec their loan within 18 months, according to Atcheson, who took the witness stand on Monday. Baloyi bought into the business later when the company’s biggest client, the Mineworkers Provident Fund, insisted it had a BEE partner. Investec provided the finance.

According to Atcheson the minorities did not want to sell their shares to Fidentia, but were pressurised to do the deal by the larger investors. She also testified that the only reason the minority shareholders signed over their shares in the business was because they had already been paid.

The larger shareholders’ payment was delayed. They were paid only after their company and its assets were handed over to Fidentia. Fidentia then accessed the outstanding R68m from a Matco current account. According to Brown this money was legitimately owed to Fidentia as it was ‘fees.’

Testifying earlier, Seedat said that this amount equated to about three years’ worth of fees.

Topics: JUDGE ANTON VELDHUIZEN, PLEA, J ARTHUR BROWN, FIDENTIA, FRAUD, DAWOOD SEEDAT, FSB, MATCO, INVESTEC,


---------------------------------------------------------------------------------------------------------------------------------------------------------


SPECIAL INVESTIGATIONS

Author: Malcolm Rees

18 April 2013 13:30

Right-wing property co-op under fire



Members claim R300m 'town' is illegal, hint at pyramid structure.

JOHANNESBURG - Members of the rightwing Afrikaner-only “town” of Kleinfontein are gearing up for a legal battle with its management as they claim that the entire settlement exists and operates illegally.

Kleinfontein is a "cultural community" development situated 30km South-East of Pretoria. It was established with the intention of creating an exclusive living space “for freedom loving members of the Boere-Afrikaner”.

According to three members of the scheme, who spoke to Moneyweb independently, the town exists in violation of twelve separate pieces of environmental, property and land legislation.
Kleinfontein, in turn, has not denied that it operates in breach of legislation but argues that it has a right to exist according to Section 235 of the Constitution and that it is defined as an informal settlement.

The town, which has been in existence for around 20 years, is currently working with authorities in order to become a formal settlement and to comply with the relevant legislation, according to its chairman, Jan Groenewald.

The town was founded in part by Groenewald who was a founding member of the AWB as well as its general secretary and deputy leader.
However, Groenewald says he resigned from the organisation in 1989, after "trying to reform it and I have had since then no connection with them."

Fraud claims

Members of the “scheme” have also described acts of alleged fraud and have made the claim that Kleinfontein finances itself in a similar fashion to a pyramid scheme.
Members are charged a levy which is used to maintain and upgrade the communal capital assets of the township.
However, according to members, Kleinfontein has by now exhausted its share capital and is thus directing a portion of the levy charges towards operational expenses and in order to finance an R4m Absa bond. They also claim that the co-op is being sustained only through the acquisition of new members and that existing members cannot exit the scheme owing to a lack of available funding at the collective.
These allegations have been strongly rejected as unfounded and “libellous,” by Kleinfontein which maintains that levies are used only for operating expenses.
Groenewald says he assumes that the allegations that have been made are "from a number of disgruntled members who are in arrears with their levies and have consequently been sued by the co-op."
Moneyweb is aware of members at the cooperative which have been withholding levies.
However, these funds are apparently being paid to an attorney trust in lieu of concerns around the legality of the town and the manner in which the levy funds are being allocated.
Kleinfontein
According to its website, the settlement hopes to provide a space where Afrikaners (sic. translated) “can experience all aspects of their distinctive nationality, of which their Christian religion, language and culture is the most important."

It aims to achieve this “freely, without threat and undisturbed in a local, prosperous economy which is based on national identity”.

The town operates as a legally registered cooperative.
In order to gain entry to the cooperative, prospective members must conform to the ideals and identity of the Afrikaner, according to Groenewald.

By purchasing a share in the scheme, members are then afforded the right to live, and construct property on a piece of land allocated to them though an internal property registrar.
Although members are not afforded a deed of ownership for the land, which remains the property of the collective, they do own whichever property they construct on that land according to Groenewald.
However one member who spoke to Moneyweb claims to have had both his land and property expropriated by Kleinfontein following an alleged breach of a maintenance clause in his contract. This member claims to have fully paid for his member share.
There are believed to be around 340 houses on the Kleinfontein property with an average value in the region of around R800 000 according to one of its members, who spoke to Moneyweb on condition of anonymity.
According to him, this brings the value of Kleinfontein to around R300m.

Another member who spoke to Moneyweb believed the settlement to be valued in the region of R200m.

The legal battle
Members of the scheme are concerned that Kleinfontein exists illegally and is thus vulnerable to potential litigation as well as environmental, tax and other regulatory fines which could cause it to collapse.
Out of fear that the scheme may eventually be liquidated, members have filed a high court application in an attempt to order Kleinfontein to comply with the various pieces of legislation which would be necessary to bring it in line with the law.

The application is supported by a legal opinion provided by attorneys Adrian Venter.

In Venter’s opinion, based on prima-facie evidence, Kleinfontein is in breach of 12 separate pieces of legislation and is not “currently a legal town in any language”.
Kleinfontein has in turn defended itself in a 51-page responding affidavit.
According to one of the nine joint applicants, the matter is expected to be heard in the Pretoria High Court sitting in March next year.
Topics: Kleinfontein, property, pyramid scheme, Jan Groenewald