Surprising twist in former Sharemax auditors’ disciplinary hearing

Surprising twist in former Sharemax auditors’ disciplinary hearing Legal team is to bring an application for the recusal of members of Irba’s disciplinary committee. By Roy Cokayne 15 Feb 2021  00:01 The Independent Regulatory Board for Auditors (Irba) disciplinary hearing against the former auditors of the failed Sharemax property syndication scheme has taken a surprising twist. Advocate Mike Maritz, appearing for the three auditors, indicated on Friday that he will be filing an application for the recusal of one or more of the members of the disciplinary committee on the grounds of an actual bias relevant to these proceedings or a perceived bias. This led to the adjournment of the hearing until Monday for the submission of this application. The former auditors – Jacques Andre van der Merwe, Danie Dreyer and Petrus Johannes Jacobus Bekker – are facing 340, 40 and 33 charges respectively. They were all directors of ACT Audit Solutions Incorporated at the time they allegedly committed the offences while Van der Merwe was also the managing partner of the firm. All three previously pleaded not guilty to all the charges against them. Read: Three former Sharemax auditors, 413 improper conduct charges Sharemax was not a Ponzi or pyramid scheme – attorney The planned filing of the recusal application follows Maritz last week expressing concern about some of the questions and statements that had emanated from the committee members, particularly Sorenzo Sooklal. Maritz said they are under the impression that these proceedings are to be conducted neutrally, fairly and that the committee members will have an open mind, be independent and reserve their judgment until after conclusion of all the evidence and after hearing all the arguments. ‘Bias’ However, Maritz said it seemed to them that they are labouring under a misapprehension as far as this is concerned because Sooklal had made pronouncements which are clearly indicative of wholehearted support of certain opinions expressed by Brian Smith, the expert witness for Irba in the hearing. Maritz earlier in the hearing also questioned Smith’s independence after it emerged that Smith was chair of Irba’s investigation committee from 2004 until 2016 and chairman of this committee from 2011 until 2016. Read: Independence of Irba’s expert witness at Sharemax hearing questioned Smith further admitted that during the time he was chair, this committee concluded the investigations into the conduct of the three audit practitioners, reached an opinion on their conduct and passed this on to Irba’s disciplinary advisory committee with a recommendation. “It seems to me on any objective view of your involvement there, that you are … a cog in the Irba machinery. You are disqualified as an expert because of your obvious lack of objectivity,” Maritz said. In regard to Sooklal, Maritz questioned if the defence team is to be confronted with a situation where mid-stream and long before the conclusion of the evidence, there is a committee member indicating acceptance of a particular witness’s evidence and rejection of any other witness’s opinion in conflict with it. “How can that be? Then the proceedings would become farcical. And it would amount to this ‘going through the motions’ in the form of window dressing. “It would mean that the result is a forgone conclusion and I am wasting my time here,” he said. “This is not how court proceedings or disciplinary proceedings and particular proceedings as important as the present are to be conducted.” Maritz said Sooklal was dismissive of many of the expert opinions expressed by Professor Harvey Wainer, a visiting Professor at the Faculty of Commerce at the University of Witwatersrand. Wainer was appearing as an expert witness for the three auditors. “It is most certainly at this stage our view that Mr Sooklal has disqualified himself completely from further participation in these proceedings,” Maritz said. ‘Full disclosure’ wanted Maritz said on Friday it had now become of vital importance to demand full disclosure by each member of the disciplinary committee of any or all interactions or contact with Smith, at any stage historically, preceding, leading up to or during these proceedings and full disclosure of any committee or committees any of the present committee members in these proceedings ever sat on with Smith. In response, disciplinary committee member Horton Griffiths confirmed that between 2007 and 1995 he was a member of the Irba investigating committee, initially as a member but subsequently as chair, and that Smith succeeded him as chair of this committee. ---------------------------------------------------------------------------------------- Sharemax chronicles continue: ‘Old people die, the fat cats laugh! Phillip De Wet 2 Dec 2016 Empty promises: Glynnis Morris has not seen any return from her investment. Every few months 70-year-old Glynnis Morris receives a letter from Frontier Asset Management. In broad strokes the letter tells her how well everything is going with Frontier’s sibling company, Nova Property, into which her entire R300 000 pension was forcibly invested. She no longer reads the letters. She goes straight back to figuring out how to get by on her R1 500-a-month government old-age grant. “It’s always the same letter, only the dates change,” she says. She has not seen a single cent from her investment for many years now, Morris says, no hint of the R3 125 monthly income — plus maybe some capital growth if the property market did well — she thought she was buying when she invested in the ill-fated Sharemax property syndication scheme in 2009. Instead she has seen many promises from the directors of Nova, which stepped in as the rescuers when Sharemax collapsed and took over Sharemax’s assets. In return for delivering that service to Morris and others, the directors of Nova each paid themselves an average of R4.9‑million in the past financial year. Morris has it better than most. She lives in a granny flat attached to the home of one of her daughters, and her two other daughters help her out with food “when I run out, which is often”. When the Mail & Guardian this week traced two other former Sharemax and now Nova investors, we found that one had died in March and the other had recently slipped into a coma. “This is what happens all the time,” said a relative of the latter. “These old people had their money taken. Now they don’t eat properly, then they get ill and they die, while the fat cats are laughing all the way.” The Nova directors — Dominique Haese, Rudi Badenhorst, Dirk Koekemoer and Connie Myburgh — deny they are anything other than businesspeople who work hard to manage the assets in which Sharemax participants had invested. But the difference between their rewards and those of the original investors is stark. This week, specialist financial website Moneyweb calculated that the four Nova directors’ combined R15.1‑million cash salaries in the past financial year were more than double the average earned by executives at most property management companies. Those cash salaries, Moneyweb said, represented 17% of Nova’s total cash receipts for the financial year. The four directors have near total control over how the company spends its money. After a legal battle stretching over several years to obtain the technically public register of Nova shareholders, Moneyweb last week revealed that the directors own 87.1% of the company, and have even greater voting rights thanks to a structure that reduces debenture holders to recipients of money and information as and when the four directors see fit. The directors value their shareholding, which in effect they received for free, at more than R1‑billion. Nova chief executive Haese played a pivotal role at Sharemax before it collapsed, and fellow director Koekemoer was also a director of Sharemax for several years. It is clear that directors pay themselves first from the company’s proceeds before any payments to the debenture holders they are responsible for, Moneyweb said. As a result, averaged over the past two financial years, Nova directors paid themselves out R3.6‑million each a year. The 31 000 debenture holders whose money they manage were paid an average of just less than R400 each. Average payments to debenture holders are a poor metric, because often the Nova directors do not see fit to provide. In the last communication Morris received, Nova was self-congratulatory about a 2013 decision “to reduce and/or cease projected monthly return payments” to debenture holders in favour of using the cash to refurbish shopping centres. Morris did not get any real say in the decision to pay her no interest, just as she was never really consulted when Sharemax morphed into Nova, or even on how her pension would be invested in the first place. In fact, she did not understand the mechanism of the investment. But then, nor did her investment adviser. Morris thought she was putting her money into The Villa, a large shopping centre to be built east of Pretoria. That sort of bricks-and-mortar investment suited her risk appetite — extremely low — as it did many pensioners, which seems to be the main reason Sharemax drew so many of their ilk. What her savings were actually buying, later perusal of a prospectus would reveal, was “an unsecured subordinated interest rate acknowledgment of debt linked to a share”. In the rush to get her money invested, that went over Morris’s head. Her investment adviser had been “hounding” her about when she would receive her pension lump sum, she recalls. The very morning it landed in her bank account he accompanied her to the bank, explained to the teller what she wanted, took the resulting cheque from the teller and had Morris sign some forms. Interrogation of the mechanism of the investment was limited. “I said to him: ‘Are you absolutely positive that I’m not being conned here?’ and he said: ‘No,’” she recounts of the 20-minute transaction. Investment advisers were notoriously keen on Sharemax, which paid very large upfront commissions: like the current Nova directors, advisers got paid regardless of whether the risk their clients were taking paid off. And some, like Morris’s adviser, had no understanding of that risk, the office of the ombud for financial services providers, known as the FAIS ombud, has consistently ruled. “It is apparent from [Morris’s advisor’s] version that he had no idea just what the investment was about and, as such, could not appreciate that the complainant was lending money to an entity, which entity would in turn lend the funds to a developer, leaving investors with no form of security whatsoever,” ombud Noluntu Bam ruled in Morris’s case this August. There was also the small detail that the shopping centre Morris was supposedly investing in had not yet been built and could therefore not generate rental income to pay her 12.5% interest — the promised payments could only come from the investments of other people. Although Sharemax has never been found by a court to have been one, that is the common structure of all Ponzi schemes. The FAIS ombud ordered Morris’s adviser to repay her investment in full, under rules that make advisers liable for losses incurred because of their negligence. For a short while it looked as if she would get back her savings. Then she was notified that her adviser had appealed against the ruling. That leaves only the chance that the four well-paid directors of Nova will see fit to direct some money her way. But she is not overly optimistic, and she is not alone. “The investors who complain to this office have received no credible information as to the steps that are being taken to repay their investment,” Bam wrote in May about another Sharemax-related complaint. “Most investors see incomplete and ghost buildings all around, with no suggestion that they will ever recover their money.” But in a June letter the Nova board told Morris that the various hurdles to cashing in on her partially built shopping centre were “constantly being addressed by the board” — just as it has been telling her since at least 2014. Nova did not answer detailed questions. Earlier this week, chief executive Haese told Moneyweb she would no longer provide information because it “will be twisted and used out of context for the purpose of further negative reporting”.

Sharemax was not a Ponzi or pyramid scheme – attorney

Sharemax was not a Ponzi or pyramid scheme – attorney ‘In the way it was constructed, there was always value.’ By Roy Cokayne 11 Feb 2021  00:01 Weavind & Weavind director Eckaard Le Roux, the attorney for Sharemax, has refuted suggestions that the property syndication company was a Ponzi or pyramid scheme. Giving evidence during an Independent Regulatory Board for Auditors (Irba) disciplinary hearing against the former auditors of Sharemax this week, Le Roux said media reports claimed that what Sharemax was doing was in contravention of the Banks Act. “It was unlawful, it was illegal. Some reports even went as far as saying it was a Ponzi scheme. I don’t think [that] is correct. “I don’t think it is a Ponzi scheme. The way in which it was constructed, there was always value. “It was a proper business operation in the sense that a property was bought as a going concern and it was constructed on the basis that the money paid by the PropCo to the developer were advance payments on the purchase price. “At all times, value was created because that money was used to construct the shopping centre,” he said. Read: Three former Sharemax auditors, 413 improper conduct charges Objection to witness evidence delays former Sharemax auditors’ disciplinary hearing Sharemax was the promoter of various property syndication schemes, including The Villa and Zambezi retail parks. Le Roux said Sharemax promoted 49 successful property syndication schemes prior to The Villa and Zambezi. “The Villa imploded but that was because of the intervention of the Reserve Bank. I personally never received any query from any investor as to the validity of the scheme. I never received any complaints from investors that they had not received the monthly interest that they were entitled to,” he said. Le Roux also rejected suggestions there was any dishonesty by the promoters, auditors or himself in The Villa and other syndications. He said each time a syndication was properly researched, and at all times the promoter tried to comply with whatever legislation was applicable at the time, as well as the advice he had given, and that there was compliance. Le Roux said prior to The Villa and Zambezi, Sharemax only syndicated shopping malls or office parks that were already completed, adding that there was a provision in the Companies Act that money that was accepted from investors should remain in trust until the minimum subscription had been achieved. He said Sharemax’s prospectuses from 2003 were drafted on the basis that the money raised would only be released from the trust account when transfer of the property took place. These prospectuses were used as a template for all the syndications that followed. However, Le Roux said The Villa and Zambezi syndications were different in that they were still in the process of being constructed and transfer would only take place once construction was completed, the tenants took occupation and the net rental could be used to determine the purchase price. Provision ‘inadvertently not changed’ Le Roux said the specific provision in the prospectuses indicating that the money raised from investors would be held in a trust account until transfer of the properties “was inadvertently not changed to make it clear that the money that investors invested would be used to fund the construction of the building. “Without those funds the scheme could not work. You could not fund the construction of the building,” he said. The charge sheet of the three auditors refers to the Consumer Affairs (Unfair Business Practices) Act of 1988 and Government Notice 459, which specifically relate to property syndication schemes and, among other provisions, require that money obtained for syndication schemes be kept in trust until the transfer of the property being syndicated into the syndication vehicle. Le Roux confirmed that he considered this notice, but it was his view that the definition of property syndication schemes in this notice was not applicable to Sharemax. He obtained the opinion of a senior advocate, which confirmed that the notice did not apply. Le Roux said three complaints were laid at the Law Society against him and Weavind & Weavind related to the Sharemax syndication schemes, but two of the complaints were subsequently withdrawn. He said he appeared before the investigation committee of the Law Society and explained the prospectuses and the way it worked, the Banks Act, the Harmful Business Practices Notice and compliance with all this legislation. “Subsequent to that, the Law Society decided that we would not be charged. To my knowledge, there was no criminal proceeding commenced against any of the directors [of Sharemax],” he said. Under cross-examination, Le Roux said he included the definition of public property syndications from the government notice in his correspondence with the registrar of banks at the SA Reserve Bank, despite his conclusion that the notice did not apply to Sharemax, because there was no other definition of a public property syndication. Le Roux said that, on a strict interpretation of that definition, it held that an assembly of investors was to invest in a vehicle whose sole assets were commercial or retail property and where the investors share in the profits and losses in these properties. With an investment in a property syndication scheme promoted by Sharemax, the investors invested in HoldCo, but HoldCo did not own the shopping centre and the sale of business agreement stated that the sole asset was not the commercial property, he said. “It was not a property that was purchased, it was a business that was purchased,” he said. “And in the agreement, it was stated [that] you are buying the property and you buy the right, title and interest in the lease agreements and you buy fixtures and fittings. It is more than that [property],” he said. Le Roux admitted there were many other provisions in the government notice he ensured compliance with within the prospectuses. He said he picked those provisions he thought Sharemax could comply with and included them in the prospectuses. Advocate Kate Hofmeyr, appearing for Irba, referred Le Roux to several examples in The Villa 14 prospectus which conveyed to investors that their funds would not be used before registration of transfer of the property. Hofmeyr said they will argue in due course that the inclusion of a provision in the prospectus about investor funds remaining in a trust account until the transfer of the property was not simply an error that crept in from previous prospectuses. “It is a provision of the prospectus that is consistent with other parts of the prospectus,” she said. “It is consistent with the indication that was given to investors in their income plan attached to each 10 prospectuses that the funds would be retained in your trust account until transfer of the property. “It is consistent with the way in which the cash flow forecast was put together, with no cash flow movements being shown in the first two years. “And it is consistent with the statement in the pro forma financial information that explained that no income statement could be provided because funds would only be advanced to Villa Investments from March 1, 2011. “That degree of commonality in various parts of the prospectus, we will say, means that this was not just an error,” she said. Le Roux disagreed, stressing it was an error by him. He said Hofmeyr was ignoring the other parts of the prospectus where it was stated how the monies would be used. “Anyone that read through the prospectus would have understood that the development could not take place without the monies being used to finance the construction of the building, otherwise it could not work. “The deed of sale that was attached to the prospectus clearly showed how the payments would have been made. So no, I do not agree with you,” he said. The three audit practitioners – Jacques Andre van der Merwe, Danie Dreyer and Petrus Johannes Jacobus Bekker – are collectively facing a total of 413 improper conduct charges related to Sharemax. They were all directors of ACT Audit Solutions Incorporated at the time when they allegedly committed the offences. All three of them previously pleaded not guilty to all the charges against them. The hearing is continuing. ----------------------------------------------------------------------------- Sharemax and directors schemed to defraud public, says Fais ombud By Roy Cokayne - Time of article published May 24, 2013 Roy Cokayne SHAREMAX Investments, its network of financial advisers and four of its directors – Gert Goosen, Willie Botha, Dominique Haese and André Brand – were involved “in a scheme calculated to defraud members of the public”, financial advisory and intermediary services (Fais) ombud Noluntu Bam said yesterday. Bam reached this conclusion in her latest determination on a complaint lodged by a 73-year-old female pensioner from Heidelberg in the Western Cape against financial adviser Edward Carter-Smith after investing R490 000 in the Zambezi Retail Park on Carter-Smith’s advice. Sharemax promoted and marketed the Zambezi Retail Park property syndication. Bam ordered Carter-Smith, Sharemax Investments, FSP Network (a network of brokers set up to market Sharemax schemes), Goosen, Botha, Haese and Brand jointly and severally to repay the complainant. Carter-Smith complained that he had been misled by the directors of Sharemax and called them “liars”. In an earlier determination Bam said Sharemax was “nothing more than a Ponzi scheme” in which investors were paid interest out of their own funds. Business Report confirmed in October last year that the Hawks were investigating allegations that Sharemax committed fraud and operated a pyramid or Ponzi scheme. About 40 000 people invested about R4.5 billion in the various schemes promoted and marketed by Sharemax. It defaulted on monthly payments to investors in August 2010 when a decision by the registrar of banks that Sharemax’s funding model contravened the Banks Act became public knowledge. ACT Audit Solution told the ombud that it had concluded after seeking a legal opinion that the transfer of investor funds from the trust account of Sharemax attorneys Weavind & Weavind to the investment property companies in The Villa and Zambezi schemes, prior to the registration of transfer of the property to investment property companies, “may constitute a reportable irregularity on a proper interpretation of the prospectuses”. However, Sharemax directors claimed no reportable irregularity occurred because a bona fide “copy and paste” mistake had occurred during the drafting of the prospectuses. Bam said this claim by the directors of Sharemax was “disingenuous and against the probabilities”. She said her office was in possession of promotional pamphlets produced and distributed by Sharemax in 2010 that also stated investors’ funds would be paid into the trust account of Weavind & Weavind attorneys until the property was ready for transfer into the investors’ names. Bam said Sharemax, FSP Network and the four Sharemax directors on their own version knew at the time of producing this pamphlet that they were “wilfully and deliberately misleading members of the public” because of the “cut and paste error” and the prospectus was subject to rectification. They failed to explain why this “error” was only discovered after the Reserve Bank intervened in 2010 and after the scheme had already collapsed. They also failed to explain why Weavind & Weavind, which allegedly made the mistake, did not file any papers or correspondence in support of the “cut and paste error” version. Bam said Weavind & Weavind had further failed to explain why it did not inform investors there was an error before it started paying the funds out of its trust account. She said Weavind & Weavind had never supported the notion of an error in the prospectus. The law firm was of the opinion that the government notice on property syndications did not apply to this scheme and it was therefore not illegal to pay the money from the trust. Letters sent to each investor by Sharemax, acknowledging the investment and stating that their investment had been deposited into Weavind & Weavind’s trust account, and kept there until the investment amount was processed and the property was transferred, were “equally untrue and misleading” because on Sharemax’s version this was a mistake. Bam said these letters of confirmation were still being written to investors after the “mistake” was discovered. “The only reasonable conclusion to be drawn… is that the second to seventh respondents [Sharemax, FSP Network and the four Sharemax directors] were involved in a scheme calculated to defraud members of the public,” she said.

Sharemax and directors schemed to defraud public, says Fais ombud

Sharemax and directors schemed to defraud public, says Fais ombud By Roy Cokayne - Time of article published May 24, 2013 Roy Cokayne SHAREMAX Investments, its network of financial advisers and four of its directors – Gert Goosen, Willie Botha, Dominique Haese and André Brand – were involved “in a scheme calculated to defraud members of the public”, financial advisory and intermediary services (Fais) ombud Noluntu Bam said yesterday. Bam reached this conclusion in her latest determination on a complaint lodged by a 73-year-old female pensioner from Heidelberg in the Western Cape against financial adviser Edward Carter-Smith after investing R490 000 in the Zambezi Retail Park on Carter-Smith’s advice. Sharemax promoted and marketed the Zambezi Retail Park property syndication. Bam ordered Carter-Smith, Sharemax Investments, FSP Network (a network of brokers set up to market Sharemax schemes), Goosen, Botha, Haese and Brand jointly and severally to repay the complainant. Carter-Smith complained that he had been misled by the directors of Sharemax and called them “liars”. In an earlier determination Bam said Sharemax was “nothing more than a Ponzi scheme” in which investors were paid interest out of their own funds. Business Report confirmed in October last year that the Hawks were investigating allegations that Sharemax committed fraud and operated a pyramid or Ponzi scheme. About 40 000 people invested about R4.5 billion in the various schemes promoted and marketed by Sharemax. It defaulted on monthly payments to investors in August 2010 when a decision by the registrar of banks that Sharemax’s funding model contravened the Banks Act became public knowledge. ACT Audit Solution told the ombud that it had concluded after seeking a legal opinion that the transfer of investor funds from the trust account of Sharemax attorneys Weavind & Weavind to the investment property companies in The Villa and Zambezi schemes, prior to the registration of transfer of the property to investment property companies, “may constitute a reportable irregularity on a proper interpretation of the prospectuses”. However, Sharemax directors claimed no reportable irregularity occurred because a bona fide “copy and paste” mistake had occurred during the drafting of the prospectuses. Bam said this claim by the directors of Sharemax was “disingenuous and against the probabilities”. She said her office was in possession of promotional pamphlets produced and distributed by Sharemax in 2010 that also stated investors’ funds would be paid into the trust account of Weavind & Weavind attorneys until the property was ready for transfer into the investors’ names. Bam said Sharemax, FSP Network and the four Sharemax directors on their own version knew at the time of producing this pamphlet that they were “wilfully and deliberately misleading members of the public” because of the “cut and paste error” and the prospectus was subject to rectification. They failed to explain why this “error” was only discovered after the Reserve Bank intervened in 2010 and after the scheme had already collapsed. They also failed to explain why Weavind & Weavind, which allegedly made the mistake, did not file any papers or correspondence in support of the “cut and paste error” version. Bam said Weavind & Weavind had further failed to explain why it did not inform investors there was an error before it started paying the funds out of its trust account. She said Weavind & Weavind had never supported the notion of an error in the prospectus. The law firm was of the opinion that the government notice on property syndications did not apply to this scheme and it was therefore not illegal to pay the money from the trust. Letters sent to each investor by Sharemax, acknowledging the investment and stating that their investment had been deposited into Weavind & Weavind’s trust account, and kept there until the investment amount was processed and the property was transferred, were “equally untrue and misleading” because on Sharemax’s version this was a mistake. Bam said these letters of confirmation were still being written to investors after the “mistake” was discovered. “The only reasonable conclusion to be drawn… is that the second to seventh respondents [Sharemax, FSP Network and the four Sharemax directors] were involved in a scheme calculated to defraud members of the public,” she said. Share this article:

Independence of Irba’s expert witness at Sharemax hearing questioned

Investigations Independence of Irba’s expert witness at Sharemax hearing questioned .Witness chaired the committee that previously investigated the case against the three auditors. By Roy Cokayne 8 Feb 2021 00:01 A view of the interior of the half-built Villa Retail Park in Pretoria. Image: MoneywebA view of the interior of the half-built Villa Retail Park in Pretoria. Image: Moneyweb The independence of an expert witness has been brought into question at an Independent Regulatory Board for Auditors (Irba) disciplinary hearing against the former auditors of the failed Sharemax property syndication scheme. This follows Brian Smith, who has 45 years’ experience in the accounting field and is Irba’s expert witness in the case, confirming last week that he was a member of Irba’s investigation committee from 2004 until 2016 and chair of this committee from 2011 until 2016. Smith further admitted that during the time he chaired this committee it concluded the investigations into the conduct of the three audit practitioners, reached an opinion on it, and passed this onto Irba’s disciplinary advisory committee with a recommendation. Read: Three former Sharemax auditors, 413 improper conduct charges Objection to witness evidence delays former Sharemax auditors’ disciplinary hearing Mboweni dissolves entire Irba board after controversial CEO appointment “It seems to me on any objective view of your involvement there, that you are not really in an arm’s length position with Irba,” said Mike Maritz, counsel for the three audit practitioners who are facing a total of 413 improper conduct charges related to Sharemax. “You are a cog in the Irba machinery, if I could borrow that expression from the charge sheet.” This is a reference to Irba’s charge sheet, where the background sketched states that: “The auditors were a crucial cog in the machinery of the Sharemax syndication. But for their conduct, the public would not have been enticed to invest in their schemes.” Irba’s charge sheet further states: “In 2010, the Sharemax investment scheme imploded. At the time, it was the biggest-ever collapse of a property syndication scheme in South Africa, in which 33 000 investors invested an estimated R5 billion.” Jacques Andre van der Merwe is facing a total of 340 charges, Danie Dreyer 40 charges and Petrus Johannes Jacobus Bekker 33 charges. They were all directors of ACT Audit Solutions Incorporated at the time they allegedly committed the offences, while Van der Merwe was also the managing partner of the firm. All three previously pleaded not guilty to all the charges against them. Witness ‘made a recommendation of guilt’ Maritz said the difficulty that arises with Smith’s chair’s hat is that he made a recommendation of guilt with the formulation of some charges to support that and is now “testifying supposedly as an independent expert as a flag bearer of certain viewpoints on behalf of the complainant”. “You [Smith] yourself emphasised the importance ordinarily for an auditor or practitioner to be independent. But it seems you have fallen into that very trap. You are not independent,” he said. Smith said the investigation committee “never had a guilty verdict”. “The investigation committee put forward the recommendation of a hearing because at that level one could not decide. It was never ‘You are guilty. You are not guilty.’ There were charges to answer,” he said. Smith added that his curriculum vitae was part of the documents and disclosed that he was a former chair of the investigating committee. Maritz responded that all that it said is that Smith is a past chair of the investigating committee but does not disclose – and Smith did not disclose in his evidence – that he was a member of the investigating committee that investigated this particular matter that is before the disciplinary committee, which gives rise to serious questions about Smith’s objectivity. “You are disqualified as an expert because of your obvious lack of objectivity precisely because of your intimate involvement in those capacities that we have canvassed before,” he said. In his earlier evidence in chief, Smith gave evidence of what he would have done and expected the auditors to have done in doing assurance work for Sharemax. At issue The charges being faced by the former Sharemax auditors relate to contradictory information contained in the forecasts in Sharemax prospectuses, including incomplete cash flow forecasts and projections, an abrogation of the auditor’s responsibility, the failure to review previous forecasts against actual results, work that was not done, a failure to detect missing disclosures, a failure to detect incorrect unadjusted financial information by Sharemax, a failure to detect a missing pro-forma income statement, and misleading information contained in the pro-forma income statement. The auditors are also facing audited financial statement charges, including charges related to a going concern assessment and a failure to document, plus other charges related to their alleged failure to report reportable irregularities arising from a breach of government notices and a failure to report on missing books of account. Smith said an example of an inconsistency in prospectus 14 for The Villa Retail Park development was that it stated that interest would be paid to the noteholders from inception, but no interest costs were shown in the forecast. He stressed that the auditors were not signing off on the prospectus but needed to read it to make sure there was nothing in it that was in conflict and could cast doubt on the assumptions made in the forecasts. Smith said there were also inconsistencies in the prospectus about how the syndication value of the R75 million raised in terms of the prospectus would be utilised. Caveats He said the projected purchase price of The Villa shopping centre from Capicol, the developer, was R2.9 billion but there were a number of caveats in the purchase and sale agreement. Smith said he also saw a signed lease agreement with Shoprite Checkers, which also contained a lot of caveats, including a cancellation clause that if the centre was not operational by July 2011 the lease would fall away, but the centre was only expected to be completed in August 2011. “That gave me grave doubt it [would] be fully let from the date of occupation. These are factors that need to be considered in the assumptions made,” he said. Smith added that the basic rate of escalation in the lease was 6% per annum compounded, but the rate of escalation in the forecast was 9%. He said the statement in the prospectus that no income statement was presented in the prospectus because the money would only change hands on March 1, 2011 could not possibly be correct because all these monies had been advanced. “I would have expected all of the monies to be sitting in a bank account somewhere but here we have got loans receivable of R778 million, only cash of R28 million and losses of R184 million. That certainly doesn’t accord with what I read under profit history. “I believe you had to have an income statement to be able to bridge the gap as to how R184 million [losses] arose,” he said. Smith said he would have expected the auditors themselves to have performed certain procedures to check the veracity of the information used and the assumptions in the prospectus. However, he said the prospectus states that it was “checked by Sharemax and lawyers Weavind”. “It says to me that they did not do any work. They were reliant on the work done by the client and the client’s legal advisor. I don’t believe they have covered their own procedures. That is what I read into that,” he said. ‘Way off the mark’ Maritz said an analysis of the 340 charges demonstrates that 332 of them are based on alleged non-compliance with the SA Institute of Chartered Accountants (Saica) guide and that the status of the Saica guide is not the same as one of the international standards, is not a binding instrument. “It seems to me to be way off the mark to charge someone on the basis there had been a failure to comply with a Saica guide in this respect or that respect. It must involve far more than that. A deviation from an accepted practice of what ought to be done,” he said. Smith said he could not disagree with that statement. Irba closed its case against the auditors on Friday. Prior to Smith, it called two other witnesses, Irba investigator Freddy Fobian and former deputy registrar of banks at the South African Reserve Bank Michael Blackbeard. The disciplinary hearing is continuing. ------------------------------------------------------------------------- Please consider contributing as little as R20 in appreciation of our quality independent financial journalism.SUPPORT JOURNALISM AUTHOR PROFILE Roy Cokayne MORE ARTICLES Roy Cokayne has been a financial journalist for 34 years, focusing largely on the automotive, construction and property sectors. He is fascinated and passionate about life, living, the truth and justice.

Reserve Bank issued directives against Sharemax in 2010 -Despite being warned of the disastrous consequences for investors.

Reserve Bank issued directives against Sharemax in 2010Despite being warned of the disastrous consequences for investors. By Roy Cokayne 2 Feb 2021 00:01 The abandoned Villa Retail Park development in Pretoria. Its prospectus was issued after the launch of a Sarb investigation into Sharemax in 2007. Image: MoneywebThe abandoned Villa Retail Park development in Pretoria. Its prospectus was issued after the launch of a Sarb investigation into Sharemax in 2007. Image: Moneyweb The South African Reserve Bank (Sarb) issued directives against Sharemax in 2010 despite a warning by a senior advocate about the disastrous financial consequences “an over hasty approach” could have for investors because urgent high court winding-up applications were pending against the failed property syndication company. This was confirmed by former Sarb deputy registrar of banks Michael Blackbeard on Monday during the Independent Regulatory Board for Auditors (Irba) disciplinary hearing against the former auditors of Sharemax. --------------------------------------------------- For more information. Read: Three former Sharemax auditors, 413 improper conduct charges Mboweni dissolves entire Irba board after controversial CEO appointment The three audit practitioners are facing a total of 413 improper conduct charges related to Sharemax. Jacques Andre van der Merwe is facing a total of 340 charges, Danie Dreyer 40 charges and Petrus Johannes Jacobus Bekker 33 charges. All of them were directors of ACT Audit Solutions Incorporated at the time they allegedly committed the offences while Van der Merwe was also the managing partner of the firm. They previously all pleaded not guilty to all the charges against them. Blackbeard said the Reserve Bank launched a desktop investigation into Sharemax in 2007 after it received a query from a large financial institution, which later became a full forensic investigation into the company. Explaining what underpinned the decision to issue the directive that all monies in Sharemax must be repaid, Blackbeard said this was the only remedy available to the Reserve Bank in terms of the Banks Act once it was satisfied that Sharemax’s funding model was illegal. Blackbeard said the Reserve Bank was trying to prevent a wholesale collapse of Sharemax and did an impact study to see what the impact would be and whether there could have been a change of the funding model so the schemes could still be operated. Sharemax fate sealed by Sarb? Mike Maritz, counsel for the three audit practitioners, asked Blackbeard if it was fair to say that as a result of the directives issued and the negative media publicity following the issuing of the directives that it was inevitable that the Sharemax schemes could not continue. “We were obviously hoping for a different result but taking all the facts into consideration, it was one of those difficult decisions,” Blackbeard said. “With these schemes, you are either criticised because you are not acting quick enough or because you are acting too late,” he said. Blackbeard confirmed that the entire Zambezi and The Villa series of prospectuses were only issued after the Reserve Bank had already earlier received the complaint or query from the financial institution. Read: Part 1: ‘Corporate capture’ of Sharemax rescue vehicle (Nov 2016) Part 2: Shareholder structure hides how directors acquired 87.1% of Nova shares (Nov 2016) Is the Sharemax landmark worth R1.6bn or R616m? (Jan 2017) Maritz asked why it had taken the Reserve Bank three years to act, suggesting that had steps been taken timeously by the bank, it would not have ended up in a situation where billions of rands were collected from the public for the The Villa, for example, which to this day 10 years later is uncompleted and for practical purposes is of no use to anyone. “The category of people who invested in the Villa scheme will be [in] an unfortunate situation where money will be lost,” he said. Reserve Bank ‘did not drag its feet’ Blackbeard said putting it that way seems to suggest the Reserve Bank was dragging its feet but stressed the bank did not and it is unfortunate money will be lost. He said actions were taken, there were processes to go through, and the Reserve Bank did not know Sharemax or its companies. Blackbeard added that the Reserve Bank had to get information through other means before it could make a decision and Eckaard Le Roux of Weavind & Weavind, Sharemax’s attorneys, was very assertive in disputing that Sharemax was contravening the Banks Act. “We did have some administrative difficulties upfront but those are processes that have to be done properly and considered responsibility,” he said. “There are a lot of practical, legal [issues] and steps to be taken with responsibility before you tackle a big scheme like this.” ‘Harsh’ judgment Maritz asked Blackbeard if he took issue with a 2018 judgment in the KwaZulu-Natal division of the high court in Pietermaritzburg in litigation between an investor and his broker, where Judge Johan Ploos van Amstel concluded that the cause of Sharemax’s collapse was the unforeseeable intervention of the Reserve Bank – in the absence of which, the scheme on the evidence would probably have succeeded. He added that what went wrong and resulted in the collapse of the Sharemax schemes was the unforeseeable intervention by the Reserve Bank and not some inherent defect in the schemes. Blackbeard said on first reading he thought the judgment was harsh and wrong. “It was a factual finding that between contracting parties he could not find a nexus for the breach but it was an unforeseen external event, the Reserve Bank. “He [Judge Van Amstel] does not make the finding that the Reserve Bank’s actions were wrong. The Reserve Bank was not a party to that case either,” he said. The disciplinary hearing commenced on January 25 2021 and has been mired in frequent technical legal arguments about the admissibility of evidence, particularly evidence that constitutes opinion or interpretation. Read: Objection to witness evidence delays former Sharemax auditors’ disciplinary hearing The hearing is continuing. Please consider contributing as little as R20 in appreciation of our quality independent financial journalism.SUPPORT JOURNALISM AUTHOR PROFILE Roy Cokayne MORE ARTICLES Roy Cokayne has been a financial journalist for 34 years, focusing largely on the automotive, construction and property sectors. He is fascinated and passionate about life, living, the truth and justice.

 Man accused of top cop’s murder is back in the dock

Eunice Stoltz

2 Feb 2021

The bail application of the only suspect arrested for the murder of top cop Lieutenant-Colonel Charl Kinnear is expected to recommence in the Bellville regional court in Cape Town on Tuesday.

Zane Kilian was arrested on 23 September 2020, days after assassinating the anti-gang unit detective on 18 September outside his home in Bishop Lavis, Cape Town. Kilian, a former rugby player turned debt collector in Gauteng, was initially charged with murder, conspiracy to commit murder and the unlawful interception of communications. 

After his first appearance in the Bishop Lavis magistrate’s court on 25 September, the case has seen several delays, partially emanating from the ongoing investigation. 

Before Kilian’s bail application was finally heard in mid-December, he appeared in the Bishop Lavis magistrate’s court several times, until the court decided its location posed security threats for the accused, court staff and the community. The case was then moved to the Bellville regional court. 

At Kilian’s first hearing in Bellville, additional charges, spurred by a Hawks investigation, were filed against him. These included fraud and conspiracy to commit murder. The fraud charge relates to Kilian’s certificate confirming he is a private investigator, which was provided to the court by his legal representation team. 

The certificate was proof of evidence that Kilian acted within his rights when he tracked thousands of cellphone numbers, including that of Kinnear. But it appeared the certificate has been forged, leading to the removal of his advocate, Eckhard Rosemann.

Johan van Aswegen replaced him. The conspiracy to commit murder charge links Kilian with the assassination attempt on the Cape Town lawyer William Booth on 9 April 2020. This case is running separately in the Cape Town magistrate’s court.

Covid-19 also had an effect on the case. Kilian’s bail application was postponed three times: twice  after the public prosecutor was in direct contact with someone who tested positive for the virus, and once when Kilian’s fellow inmate showed Covid-19 symptoms. These delays led to Kilian spending Christmas behind bars. 

Meanwhile, an internal police investigation has recently been launched against the Western Cape anti-gang unit head, Major-General André Lincoln. This is the same unit to which Kinnear belonged — and the same team he allegedly informed that his phone was being tracked. The probe against Lincoln relates to the unexpected withdrawal of protection services at Kinnear’s home in December 2019.

The withdrawal occurred shortly after a failed hand-grenade attack outside Kinnear’s home while the investigator, his wife and two sons were inside. This case has been ongoing for two years in the Parow regional court. 

Kinnear’s wife, Nicolette Kinnear, has also requested reports from top police management, which were promised by Police Minister Bheki Cele a day after her husband’s death. 

Cele promised an investigation and  report into why protection was withdrawn from their home. He also admitted that the police “have failed to protect one of their own”. This after the police failed to act when they were informed that Kinnear’s phone was being tracked between 3 and 18 September, the day of his murder. 

“Two weeks ago, I was told an internal investigation [on the withdrawal of protection services] is ongoing. How can they carry out an investigation without a report?” claims Nicolette Kinnear, referring to the probe into the anti-gang unit boss, Lincoln. 

Parliament’s portfolio committee on police is expected to meet on 23 February. Nicolette Kinnear, who will attend the meeting, hopes to receive feedback then. 

MAIL & GUARDIAN NEWS

COMMENTS BY SONNY

Who authorised the illegal telephone tapping of this ex cop?

WAS HE ALSO AN AGENT OF ZUMA'S SSA AS A PROFESSIONAL RUGBY PLAYER?  OR WAS IT A HAWKS PL,ANT.

GOOD COVER FOR AN ASSASSIN.

 

Jacob Zuma and the State Capture Commission: We need to talk about his lawyers

By Pierre De Vos• 1 February 2021

Last week the Constitutional Court held that former President Jacob Zuma acted in a 'reprehensible' manner in his dealings with the Commission of Inquiry into State Capture, and handed down a cost order against him. Mr Zuma’s reprehensible conduct was partly facilitated by his legal team, headed by Adv Muzi Sikhakhane. This raises questions about the ethical and legal obligations of lawyers representing powerful clients whose legal strategy depends on disobeying the law in direct breach of the rule of law.

Last week, advocate Kemp J Kemp, who famously represented Jacob Zuma in his rape trial and executed Zuma’s “Stalingrad strategy” to help him avoid accountability for his alleged involvement in corruption, passed away. Kemp has been widely (and rightly) praised for his brilliant legal mind, but his dubious ethical treatment of Fezekile Kuzwayo, the survivor and complainant in the Zuma rape trial, was generally glossed over. As Redi Tlhabi previously remarked, Kemp J Kemp was “masterful – and I don’t mean that as a compliment – in slut-shaming Fezekile Kuzwayo.” 

 It has long been a strategy of defence counsel in rape trials to exploit deeply entrenched sexism in society by putting the victim on trial, turning the prosecution of the rapist into the prosecution of the survivor. Kemp followed the same strategy. Given permission by the court to interrogate Kuzwayo on her sexual history, including consensual encounters with other men, Kemp repeatedly sought to imply that Kuzwayo had sex with men she did not know well. The implication was that Kuzwayo was, essentially, ‘a slut’ – and therefore “unrape-able”. This strategy – aided and abetted by the presiding judge Willem van der Merwe – worked in the sense that Zuma was acquitted of raping Kuzwayo despite the significant evidence pointing in the other direction.

 What Kemp did was not unlawful. Arguably, his conduct also did not contravene the General Council of the Bar’s Code of Professional Conduct or its Uniform Rules of Professional Ethics. But his conduct does raise serious questions about what type of conduct we have a right to expect from lawyers, and whether it could ever be professionally and personally acceptable for lawyers to aid and abet the reprehensible conduct of their clients. How, for example, would we judge a senior advocate who exploits deeply entrenched racial prejudice in defence of his or her client?

22 March 2003. Kemp J Kemp, advocate to Jacob Zuma, at his rape trial. Photo: Johann Hattingh/Beeld)

Asking questions about the ethical behaviour of lawyers who defend their clients, must not be confused with unwarranted criticism of lawyers for taking on any client. Every person, no matter how dishonest or reprehensible, has a right to legal representation. It is therefore not appropriate to criticise a lawyer merely on the basis of the clients he or she represents. In fact, in terms of section 80 of the Bar Council’s Code of Professional Conduct, read with section 2.1 of the Uniform Rules of Professional Conduct, advocates have a duty to take on a brief regardless of who the client is. 

This is often referred to as the “taxi cab rule”, and although there are always ways of getting around this rule, advocates often represent clients whom they have little in common with and may even profoundly disagree with or dislike. This is why the same advocate could represent Busisiwe Mkhwebane today and Pravin Gordhan tomorrow, Afriforum today and the EFF tomorrow. 

Moreover, in terms of section 3.1 of the Uniform Rules of Professional Conduct an advocate has a duty — while acting with all due courtesy to the tribunal before which he is appearing – to “fearlessly uphold the interests of his (sic) client without regard to any unpleasant consequences either to himself or to any other person”. 

But an advocate does not only have a duty to her client. She also has a duty to the court and to the justice system as a whole. Thus, in terms of section 3.2 of the Uniform Rules of Professional Conduct an advocate has a duty not to mislead the court. In essence, this means that an advocate is not permitted to make submissions to the court which she knows to be false. This does not mean the advocate has a duty to share information confided to her by her client, but it does mean she cannot tell the court something her client told her was false. 

Moreover, section 3 of the Bar Council’s Code of Professional Conduct prohibits an advocate from engaging in conduct which is: “3.1.1 dishonest or otherwise discreditable to an advocate; 3.1.2 prejudicial to the administration of justice, or 3.1.3 likely to diminish public confidence in the legal profession or the administration of justice or otherwise bring the legal profession into disrepute.”

Given these obligations, the judgment of the Constitutional Court handed down late last year in the case of  Public Protector v Commissioner for the South African Revenue Service and Others must raise eyebrows. The High Court had handed down a personal cost order against Public Protector Busisiwe Mkhwebane, partly because she had falsely claimed that she had not received notice that a personal costs order would be sought against her. The Constitutional Court overturned the personal cost order, pointing out that in oral argument her counsel, Dali Mpofu, had owned up to the fact that:

“It was his idea that the Public Protector must adopt this stance, an idea he wisely abandoned and did not pursue in oral argument as it was legally indefensible. So, outlandish though the Public Protector’s assertion appears to be, it would be ignoring all this reality if we were to take it at face value. What is crucial here is that the assertion was counsel’s, not the Public Protector’s, idea. We may criticise the Public Protector for failing to realise that the legal point she was obviously advised to advance was a non-starter. But can we really go far with that criticism? I think not. She got that advice from senior counsel.” 

The Constitutional Court pointed out that the assertion that the Public Protector did not receive notice that a personal cost order would be sought against her “is astounding and warrants censure and perhaps more”, raising the question of whether it would not be appropriate to censure Adv Mpofu who advised her to embark on this “astounding” course of action that “warrants censure”. I would argue that in this case, the senior counsel went further than merely fearlessly upholding the interests of his client and strayed into the impermissible terrain of misleading the court.

Which brings us to the most recent Constitutional Court judgment in Secretary of the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector including Organs of State v Zuma in which the court censured Zuma for flouting his legal obligations to co-operate with and testify before the State Capture Commission. The Court censured Zuma’s conduct in the most emphatic terms, stating that:

“It is remarkable that the respondent would flout regulations made by him whilst he was still President of the Republic. The respondent’s conduct in defying the process lawfully issued under the authority of the law is antithetical to our constitutional order. We must remember that this is a Republic of laws where the Constitution is supreme. Disobeying its laws amounts to a direct breach of the rule of law, one of the values underlying the Constitution and which forms part of the supreme law.  In our system, no one is above the law.  Even those who had the privilege of making laws are bound to respect and comply with those laws.  For as long as they are in force, laws must be obeyed.”

The court proceeded to describe this conduct by Zuma as “reprehensible”, and noted that by “ignoring process from the Commission, he did not only contravene the Commissions Act but he also breached regulations made by him for the effective operation of the Commission. His conduct seriously undermined the Commission’s investigation”. 

In fact, from the conduct of Zuma and his legal team it is clear that the strategy had always been to try to delegitimise the Commission and its chairperson in a high stakes game, and if that did not work, to try to delegitimise the evidence leaders of the Commission. Zuma’s legal time executed this strategy quite efficiently, consistently but falsely advancing the argument that Zuma was being unfairly treated by the Commission.

This raises the question of whether Zuma’s legal team did not set out to diminish public confidence in the legal profession and the administration of justice in breach of their professional obligations. Is it really acceptable for an advocate to assist your client to disobey the law and act in direct breach of the rule of law? Does one not have a professional duty to steer your client away from such unlawful and reprehensible” conduct?

There is a thin but relatively clear line between fearlessly representing your client’s interest, on the one hand, and misleading the court and undermining the administration of justice, on the other. I would argue that ethical lawyers will always err on the side of caution to ensure that they stay on the right side of this line. But, as the examples above illustrate, unfortunately not all lawyers do. DM

Pierre De Vos teaches Constitutional law at the University of Cape Town Law Faculty, where he serves as deputy dean and as the Claude Leon Foundation Chair in Constitutional Governance. He writes a regular blog, entitled ‘Constitutionally Speaking’, in which he attempts to mix one part righteous anger, one part cold legal reasoning and one part irreverence to help keep South Africans informed about Constitutional and other legal developments related to the democracy.

 

 

 

 

COMMENTS BY SONNY

ZUMA DOES NOT DESERVE ANOTHER DAY IN COURT.

HE MUST BE PLACED IN PRISON FOR TREASON.