Fidentia victims face bleak future

Published Apr 18, 2015

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The 57 972 widows and orphans who are among the victims of the R1.37-billion Fidentia fraud face a precarious financial future, because eight years after Fidentia collapsed, they have been allocated only about 24.5 cents of every rand to which they are entitled. And the cost of tracing the beneficiaries and distributing the money will reduce the actual payouts.

Although there are Fidentia assets that still have to be sold, their sale is unlikely to improve the widows and orphans’ financial situation significantly.

The final outcome for the Living Hands Umbrella Trust (LHUT) beneficiaries, most of whom are widows and orphans of low-income trade union retirement fund members who died before retirement depends on the outcome of a court case aimed at recovering R1.24 billion, plus interest, from 18 parties, including Old Mutual.

Financial services company Fidentia gained control over the LHUT and misused the assets.

The main villain in the Fidentia matter, J Arthur Brown, is serving two concurrent 15-year prison terms as a convicted fraudster.

In the eight years since Fidentia was placed under curatorship, the curators had, by November, 30, 2014, collected R363 859 040 (26.6 percent) of the R1.37 billion. At that date, R113 million had accrued to the LHUT, but, as a result of further collections, this has increased to R277.8 million.

According to the 13th report by the curators, the cost of recovery has been 23 cents of every rand collected.

The money that had been recovered and distributed by February this year had to be shared among:

* The LHUT;

* The Transport Education and Training Authority, which has received R33 million of the R185 million it is owed;

* Multi-level marketing company Balltron, which has received R6.9 million of the R38 million it is owed; and

* Investors in investment company Antheru, who have received R1.7 million of the R9.2 million they are owed.

The curatorship has been bedevilled by:

* Numerous legal disputes;

* The disappearance of some of Fidentia’s former executives, including former cricketer Louis Koen, who owe money to the companies owned by Fidentia;

* Brown’s attempts to use the courts to finesse his way out of trouble, which has pushed up the legal costs; and

* An attempt by convicted fraudster and Fidentia’s former accountant and financial director Graham Maddock to sidestep fully paying off R6.3 million, which he agreed to pay in order to reach a plea bargain that resulted in him serving two years of a seven-year prison sentence.

According to the curators, Maddock claims to have made the commitment to pay back the R6.3 million to Fidentia’s investors under duress. The agreement to pay the money was not part of the plea agreement document but was taken into consideration when the state agreed to a plea bargain.

The main outstanding issue is the sale of the Santé Hotel & Spa near Paarl in the Western Cape. Fidentia bought into the resort for R86.5 million, and spent R26 million on additions and R40 million on operating expenses.

The property is currently subject to a future-use study and valuation. But the curators do not expect to recover even half of what Brown and his cronies spent on it during a mad spending spree in which they repeatedly overpaid for assets using benefits due to widows and orphans.

Newly-appointed Fidentia co-curator John Levin is trying to reach an amicable agreement with various parties, including two homeowners’ associations involved in the development of Santé, that might result in the sale of the resort.

The curators’ latest report devotes 17 of its 35 pages to a host of legal complications involving the Santé resort. It seems that, while Fidentia was involved in the development, little or no consideration was given to building bylaws, planning restrictions and agreements between Fidentia, the original developers and the current owners of the various properties.

The resort continues to struggle financially and is not viable as a conference centre, because it does not have sufficient accommodation for conference attendees.

The extent to which Brown and his cronies overpaid for assets is highlighted in the report’s documentation of the sale of properties in Blue Horizon Bay, Port Elizabeth. Three erven, which Fidentia bought for R14.6 million, were sold at auction more than seven years later for R3.3 million.

One of the few assets that Brown bought that has made a profit is financial services company Legatus. Fidentia bought the company for R1.9 million, and the curators sold it for R3.8 million in 2014.

Intriguingly, among the Fidentia assets is an uncut tanzanite gemstone. The curators are waiting for the stone to be valued.

Caroline da Silva, the deputy executive in charge of financial advisory and intermediary services at the Financial Services Board (FSB), who is overseeing the curatorship, says the curators have had to work in a hostile environment.

She says they took over the business when Brown had already spent most of the money. With few assets remaining, “and despite a barrage of attacks, they have made a concerted effort to secure the assets, stake legal claims for additional assets and distribute funds”.

Da Silva says the most important thing about the curatorship is that it “prevented Brown from further stripping assets and getting his hands on other pension funds, which he was clearly in the process of negotiating.

“We must not forget that the bad guy here is Brown, and he continued to play an active role for a long time after the FSB became involved, frustrating the efforts of the FSB and the curators, using every legal angle at his disposal, resulting in significant legal costs.” But the cost has been far less than it would have been for both the running of the company and for investors and beneficiaries if Fidentia’s management had remained in charge, Da Silva says.

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