The Fidentia scandal rolls on into 2008
The latest issue of the Financial Mail carries an interesting article titled “Curator’s golden egg”. The article focuses on the ongoing cost of running a company in the control of a curator. The article was prompted by the ongoing curatorship of Fidentia and related companies. Curators Dines Gihwala and George Papadakis have been at the company’s helm since the court appointed them early last year. And since there is no transparency on the fees being charged by the curators we can only guess at the real cost. Estimates are that a three year rolling total could easily top R20 million.
Fidentia was placed under curatorship after an FSB investigation which started as far back as July 2006. Initial findings confirmed that “an estimated R689 million of client funds were unaccounted for.” The FSB ventured that “these funds were utilised for disbursements by the Fidentia Group (Brown) and the purchase of other assets not disclosed as part of the client portfolio. As such the funds were misappropriated.”
Brown finds someone else to blame
On the strength of this report, the FSB approached the High Court to place Fidentia in the hands of curators. Subsequently a number of assets have been seized and sold in an attempt to continue meeting various Fidentia obligations, particularly to beneficiaries of the Living Hands Trust.
Fidentia accused J Arthur Brown has not been resting on his laurels over the December period. He has come out with all guns blazing in the New Year, claiming that the curators are responsible for the company collapse. He alleges that company assets have been flogged for a fraction of their market value and that group revenue was diminishing under Gihwala’s supervision. Brown claims that Fidentia was 100% solvent at the time of the court order and that the company was earning R45 million a month.
These claims come as Brown seeks to oppose a provisional sequestration order obtained by the curators. The curators have applied to the high court for the sequestration order in an attempt to secure Brown’s assets to repay an amount of R24 million they believe Brown owes Fidentia. The order was granted on 4 December last year – and Brown’s legal team has now decided to apply for the right to appeal the ruling. The application will be heard on 21 January.
Brave words from a ‘victim’
Brown and his former financial director Graham Maddock were arrested in March last year. Both are out on bail of R1 million each. A third accused in the case was only arrested in August. Piet Bothma is the suspended chief executive of TETA and will be tried with Brown and Maddock. His crime is slightly different in that he is accused of accepting a substantial commission to place TETA money with Fidentia. His bail was set at R200, 000.
Brown has been more vocal this year than last. He believes “The Financial Services Board has not conducted a proper, honest and accurate investigation” and claims that “there are no funds missing at all.” He also stated that when the FSB investigation was concluded Fidentia was completely solvent.
Brown clearly believes that he is the victim in this saga. “I was portrayed as a fraudster and thief who had misappropriated in excess of R600 million of funds belonging to widows and orphans. My life has been a living hell.” Until he gets his day in court, we will have to take his word for it.
Editor’s thoughts:
Professional fees for lawyers and auditors can run into millions of rand. These costs must be a phenomenal burden to a company that is teetering on the brink of bankruptcy. Is there an argument for the regulation of professional fees on court appointed administrators and professionals? Add your comments below, or send an email to [email protected]
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