Ponzi millions huge boost to state coffers

Ponzi millions huge boost to state coffers
SIPHO MASOMBUKA | 04 November, 2013 00:03

Justice Minister Jeff Radebe, leader of the Justice, Crime Prevention and Security cluster, says criminals were hit hard where it hurts when they paid back millions into government coffers this year
Image by: SIBONGILE NGALWA/GCIS
Money from the multibillion-rand Barry Tannenbaum Ponzi scheme made up most of the R82-million deposited in the state's criminal assets recovery account.



Justice Minister Jeff Radebe said in Pretoria yesterday that the R54-million seized by the National Prosecuting Authority's asset forfeiture unit from the huge Ponzi scheme set up by businessman Tannenbaum resulted in the surpassing of the unit's R55-million target.

The scheme left 800 wealthy investors, including former Pick n Pay CEO Sean Summers, out of pocket to the tune of R13-billion when it crashed in 2009.

Tannenbaum fled to Switzerland.

"In the first six months of the 2013-2014 [financial year], the asset forfeiture unit of the NPA had exceptional success in taking the profit out of crime ... in this regard R82-million in cash was paid into the criminal assets recovery account - R17-million more than in any previous full year," Radebe said.

Radebe said the money seized from the Tannenbaum scheme was the most to have been paid into the account.

He said R1.5-million was returned to 5000 Khayelitsha victims of Cape Town businessman Mzwandile Pato's pyramid scheme.

Last year Pato pleaded guilty to 5601 counts of fraud, 999 counts of money-laundering, and to contravening the Financial Advisory and Intermediary Act and the Banks Act. He was fined R200000.

Radebe said R2.7-million was returned to foreign investors defrauded by Pretoria's Jacobus Janse van Vuuren.

Radebe said R6.3-million was seized from three drug dealers, and R6.6-million from rhino poachers and an abalone smuggler.

From tax rebel Dave King the account received R8.75-million. In August, King agreed to pay SARS R706.7-million to settle his tax debt. He was found guilty on 41 counts of contravening the Income Tax Act.

Three KwaZulu-Natal farms valued at R52-million that had been fraudulently transferred were forfeited to the state, he said.

Radebe said that by the end of June 522 allegations of serious corruption had been recorded and 791 people were currently under criminal, financial or forensic investigation.

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Lenasia land-sales fraudsters get their just deserts
KATLEGO MOENG | 04 November, 2013 00:04


The Johannesburg Magistrate's Court has convicted four fraudsters for the illegal sale of government land in Lenasia, south of Johannesburg.



Pensioner and former Johannesburg municipal official Muzwamandla Poto and his wife, Elizabeth Masenya, were found guilty on 13 counts of fraud on Friday. They will be sentenced on December 12.

The couple were also charged with trespassing in that they built their house on state-owned land.

Gauteng housing MEC Ntombi Mekgwe welcomed the verdict.

"They have stolen from the state and the only thing they deserve is to serve time behind bars."

Mekgwe urged residents to come forward with information that could lead to the arrest of others involved in illegal land sales.

Former City of Joburg official Sifiso Litau was found guilty on three counts of fraud in the same court on October 3. He had forged official documents.

He will be sentenced on Friday.

Days before his conviction and during his disciplinary hearing Litau resigned from his position at the municipality.

Litau was part of an application for an interdict that stopped the government from demolishing hundreds of illegally built houses in Lenasia Extension 13.

Joburg city officials tore down about 50 houses in September last year.

Hundreds more houses were to be flattened in Lenasia South.

Surrounding areas, including Ennerdale and Lawley, were also affected by the land grab from 2006 to 2010.

Thousands of plots had been sold for amounts ranging from R2500 to R95000.

Pastor Mandla Dlamini , a bricklayer from Lawley, was sentenced to three years of imprisonment in the same court earlier this year .

He was found guilty of fraud in that he illegally sold stands and promised to build houses.

The trial of Richard Zikhali, described as a kingpin in the illegal land sales, is being held in the Specialised Commercial Crimes Court.

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Sharemax ‘nothing but a Ponzi scheme’

February 1 2013 at 08:00am

By Roy Cokayne

Independent Newspapers

The Villa mall by developer Capicol was promoted by Sharemax, along with Zambezi Retail Park, which the financial |services ombud says is 'nothing more than a Ponzi scheme'. Photo: Simphiwe Mbokazi.

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Zambezi Retail Park, the property syndication scheme promoted and marketed by Sharemax Investments, was “nothing more than a Ponzi scheme”, with investors being paid interest out of their own funds.

This was the conclusion of Noluntu Bam, the ombud for financial advisory and intermediary services (Fais), in a determination released yesterday in response to a complaint by an investor in the scheme.

Business Report reported in October last year that the Hawks were investigating allegations that Sharemax committed fraud and were probing whether it operated a pyramid or Ponzi scheme.

Bam said an investigation by her office had “pierced the corporate veil” of how Sharemax operated.

This followed a complaint lodged by Gerbrecht Siegrist, a pensioner from Tigerpoort in Pretoria, who invested R580 000 in Zambezi Retail Park but is now destitute and “survives on the charity of her children”.

Bam ordered Siegrist’s financial adviser, Cornelius Johannes Botha, trading as CJ Botha Finansiële Dienste, Sharemax Investments, FSP Network, Sharemax and USSA director Gert Goosen, and Sharemax directors Willem Botha, Dominique Haese and Andre Brand to jointly pay Siegrist R580 000.

She said the directors of FSP Network and Sharemax must be held “personally liable” for Siegrist’s loss and could not “hide behind the corporate veil”.

“The directors of Sharemax and FSP Network were aware of the fact that the scheme was both illegal and not commercially viable and yet they recklessly took investors’ funds.”

FSP Network, trading as Unlisted Securities South Africa (USSA), was set up to market Sharemax products through a network of brokers and was responsible for the conduct of their representatives, who almost without fail “targeted pensioners”.

Goosen, apart from being a director of Sharemax and Zambezi, was also a director and the compliance officer of FSP.

Bam said FSP Network was nothing more than an “extension of Sharemax”.

Bam’s office recommended the Law Society investigate the trust account of Sharemax’s attorneys Weavind & Weavind to establish how and under what circumstances investors’ funds were paid out.

“We believe that it would be prudent to keep the fidelity fund informed. It is clear the attorneys did not comply with the Attorneys Act and the Law Society guidelines. Nor did the attorneys comply with investor protection provisions of the Government Gazette,” she said.

This is a reference to a government notice on property syndications gazetted in 2006 that made it illegal to release investor funds prior to the transfer of the properties into the syndication vehicle.

The Law Society of the Northern Provinces, after a disciplinary hearing in August 2011, dismissed a complaint on the release of funds from Weavind & Weavind’s trust account.

Bam said ACT Audit Solutions, the appointed auditor of Zambezi Holdings, must have known that investors’ funds were being transferred out of trust. “If this was an irregular transaction, then the auditor was under a duty to report the matter to the… regulators.”

Bam said the audit firm, which had since changed its name to Advoca Auditing, and its attorneys failed to respond to her letter seeking an explanation of their handling of the Sharemax account.

“This aspect… will be reported to the Independent Regulatory Board for Auditors for further investigation.”

About 40 000 people invested a total of about R4.5 billion in the various schemes promoted and marketed by Sharemax.

The registrar of banks decided in 2010 that Sharemax’s funding model contravened the Banks Act.

Sharemax defaulted on its monthly payments to investors in August 2010 when the registrar’s decision became public knowledge, resulting in new investments drying up.

The registrar only reported the alleged contravention of the Banks Act to the Hawks in March last year.

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Sharemax property investors misled by 'copy-and-paste error'

Sharemax's directors told their auditors they made a "copy and paste" error in the prospectus of the Zambezi property syndication that misled investors about the security of their investments.

This is revealed in the latest determination by Noluntu Bam, the Ombud for Financial Services Providers, in which she orders an adviser, who is an accredited Certified Financial Planner, as well as Sharemax and four of its directors, to make good the loss suffered by an elderly woman who invested in the scheme.

The Zambezi property is now an empty shopping centre, and millions of rands need to be spent to rectify problems with the roads around the centre, the ruling reports.

Investors stopped receiving payments in 2010.

In her latest ruling, Bam relates replies from Advoca Auditors, then known as Act Audit Solutions, to her questions about whether the auditors reported the transfer of investors' funds out of the trust account of Sharemax's attorney, Weavind & Weavind, to the developer of Zambezi as an irregularity to the Independent Regulatory Board for Auditors (Irba).

The transfer was irregular because the Zambezi prospectus stated that investment funds would remain in the trust account of Weavind & Weavind until the property was transferred into investors' names.

Property syndicates are also required to keep investors' funds in an attorney's trust account until the property is transferred to the syndicate. This is in terms of a general notice issued under the Consumer Affairs (Unfair Business Practices) Act by the Department of Trade and Industry (DTI) in 2006.

The promise that funds would be held in a trust gave some peace of mind to investors such as 73-year-old Mrs B, who invested R490 000 in Zambezi on the advice of her financial adviser, Edward Carter-Smith.

Bam says most investors would not have participated in the syndicate had they been informed their funds would not enjoy the protection of an attorney's trust account.

But despite the DTI's notice saying it applied to all property syndications, Advoca told Bam it obtained legal advice that the general notice did not apply to the Zambezi syndication or Sharemax's other troubled scheme, The Villa.

Advoca also told Bam that the Sharemax directors said the transfer of the money from their attorney's trust account was no reportable auditing irregulatory because the reference to the money being held in trust should not have been in the prospectus and was a "bona fide 'copy and paste' mistake" made during the drafting of the prospectuses.

Bam says it is "startling" that the directors are claiming there was a mere mistake in the prospectus, as it was a material clause and the prospectus had been issued repeatedly between 2007 and 2010.

The ombud says the claim is disingenuous and against the probabilities.

She says the auditors do not give any details about when the error was discovered and what action, if any, was taken to inform investors.

Bam says the auditors did not accept the directors' explanation and reported the matter to Irba anyway. However, they did not report the matter timeously, she says, and they ought to have known that investors' money was being lent to the developers of Zambezi, who used the same funds to pay 14 percent interest back to Sharemax.

In an earlier determination, on a complaint by Mrs S, a widow who invested R649 000 in Zambezi, Bam also asked Sharemax's directors to explain the irregularity, and reported Weavind & Weavind to the Law Society.

In her latest ruling she says she found their explanation "unacceptable".

The only reasonable conclusion that can be drawn from the directors' conduct is that they were "involved in a scheme calculated to defraud members of the public", the ombud says.

Bam says Sharemax was a Ponzi scheme and its directors broke the law.

For this reason, as in the earlier matter, Bam found Sharemax and its four directors, Gerhardus Goosen, Johannes Botha, Dominique Haese and Andre Brand, liable together with the adviser who recommended the scheme to the pensioners.

A company trading as Unlisted Securities South Africa, which allowed advisers and brokers who were not qualified to use its licence to sell Sharemax to investors, was also held liable.

Sharemax has appealed the earlier matter.

Bam says Mrs B complained that she and her 71-year-old husband were in poor health and had told Carter-Smith she was a conservative investor and did not want "all her eggs in one basket".

Carter-Smith told Bam that Mrs B had invested in the PIC (Picvest) property syndicate previously and she found the Sharemax syndicate better suited to her needs.

Carter-Smith told Mrs B she could earn a 50-percent return on Zambezi in the first year, and the risks were as remote as that of the banks collapsing

Bam says that, as an adviser with 25 years' experience, CarterSmith should have realised that a return of 50 percent "is ridiculously extravagant" and questioned how it was possible.

She says Carter-Smith failed to comply with the code of conduct under the Financial Advisory and Intermediary Services Act by failing to give advice "honestly, fairly, with due skill, care and diligence".

She says Carter-Smith failed to apply his mind to the fact that Mrs B was a pensioner, unable to tolerate risk, and she had asked for her capital to be guaranteed with some growth and an income. Carter-Smith asked Mrs B to sign a disclosure document that made it clear that Sharemax represented a risk to capital and that income was not guaranteed.

He also failed to offer Mrs B alternative products, Bam says.

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