Curators win more money for Fidentia victims
Almost 30 months since the Fidentia scandal made headlines (in February 2007) the court appointed curators are hard at work recovering misappropriated funds. Apart from recent media coverage of plea bargains entered into by Fidentia financial director Graham Maddock (who agreed to repay the curators R6.8m) and Steve Goodwin, little has been said about the progress in recovering said funds.
But that changed on Friday, 19 June 2009, when the Cape High Court tabled the curators’ latest update, dated 10 March 2009. The report submitted by curators Dines Ginwala and George Papadakis documents the proceeds received from the sale of Fidentia assets and companies, as well as agreements with individuals and trusts to return the proceeds of questionable Fidentia-linked transactions. It also lists a number of Fidentia assets that have yet to be sold.
Taking the low road
As we paged through the 22-page (excluding appendices) document we were struck by the sheer scale of financial impropriety left in Fidentia’s wake. There are dozens of individuals who benefited from questionable business transactions, seldom amounting to less than R1m. In some cases the alleged beneficiaries have returned their ill-gotten windfalls, with the result the curators can report recoveries from ‘firm agreements’ and asset sales at around R160m. But more than a handful of individuals, trusts and companies are resisting the curators’ efforts, forcing them to take the legal route.
Those who refuse to repay amounts questioned by the curators have been issued summonses. The curators are seeking redress from, among others, Johan de Jongh, Hjalmar Mulder and Zacharias Brown for payments received from Fidentia. They are also involved in court action to recover R24.7m from Arthur Brown and his wife Susan, and R77m from businesses linked to Steve Goodwin. The curators are also working on achieving top prices for remaining Fidentia assets, including the Sante Winelands Hotel and Spa at Franschoek and Fidentia’s former headquarters in Century City, Cape Town. This building was placed on auction earlier this year, but curators held on to the asset after the best bid came in more than R20m below their ‘fair’ valuation of R53m.
More questions than answers
Whenever we write about the Fidentia debacle we’re left with more questions than answers. Many of these questions demand immediate attention from the financial regulators. For example: “How are the proceeds of illegitimate financial transactions so easily transferred out of South Africa? The Reserve Bank has onerous exchange control regulations that are supposed to prevent such transactions while individuals are under close scrutiny to ensure they don’t move more than their R2m offshore allowance overseas.
The Financial Intelligence Centres Act 28 of 2001 was implemented to combat money laundering, defined as the abuse of financial systems to hide the proceeds of crime. In terms of this legislation institutions (such as banks) have to enforce a range of checks and balances, most notably the “know your customer” programme, to prevent dodgy transactions from taking place. Despite this law, every financial scandal that breaks involves millions of rand moving between local institutions and individuals, and inevitably offshore. These transactions are almost always by electronic transfer by one of the country’s major banks.
Another question relates to the transparency of accounts when a company is placed in the control of curators. We welcome the detailed account of steps taken by the curators to recover monies, but would have liked to see a reconciliation of misappropriated scheme funds. Why should the media still be quoting the initial curators’ estimate of R1bn in missing funds? If they’ve recovered approximately R160m since must we assume the total loss to investors was R840m? The regulators also need to investigate the duration (and cost) of the curator’s appointment. In the FAM case the court appointed curators on a provisional basis on 1 February 2007. The appointment was made official on 11 March 2007 and remains in force more than two years down the line. With the next court report due end-October 2009, and plenty of litigation in process, the curators could be on the account for another year or two at the least.
Editor’s thoughts:
Without a modern transaction-based financial system the majority of modern day investment scandals would be dead in the water. Do you think the regulators are doing enough to enforce the money laundering provisions contained in the FICA act and other legislation? Add your comments below, or send them to [email protected]
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