Brown used investor money - accountant

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IOL nov 26 J Arthur Brown_3338 DONE INLSA Multi-million-rand fraud accused J Arthur W Brown outside the Western Cape High Court. File photo: Tracey Adams

Cape Town - Former Fidentia boss J Arthur Brown bought property and vehicles with investor funds, the Western Cape High Court heard on Monday.

He also used money meant for investment to pay the salaries of his employees, chartered accountant Graham Maddock testified.

Earlier in the day, Brown pleaded not guilty to all the charges against him.

He has been charged with four counts of fraud, two counts of corruption, one count of money-laundering and two counts of theft.

He was arrested in 2007 in one of the biggest financial scandals South Africa has seen.

The State alleges that Brown ran a pyramid scheme and used investors' funds for his own personal gain.

On Monday, Maddock testified about his involvement in the scheme.

He has already served time in prison after entering into a plea bargain with the State. He was sentenced to in effect seven years in 2008 for his role in the Fidentia matter, but served only two years.

Judge Anton Veldhuisen told Maddock that he was “compelled to testify in an open and honest manner”.

“Then, at the end of the trial, the court will give you an indemnity so you can't be prosecuted in future.”

Maddock told the court he was first introduced to Brown in 2002. He said Brown wanted a number of companies set up “to formalise his business” and he assisted with that.

He said he was asked to look after the administration of Brown's companies and received “10 percent of the shares of the group at the time”.

Maddock testified that he had a trust account which was used by Brown to hold investor funds.

Fundi was one such company which invested with Fidentia.

Maddock said director Leon Grobbelaar made a R8 million payment into his trust account.

He said he “believed Grobbelaar's money was to be invested by Mr Brown and Grobbelaar was to get returns”.

Instead, two properties were bought with some of this money. Maddock said the properties were in Sunset Beach, Milnerton, and were held in trusts operated by Brown.

Maddock said “at some stage Grobbelaar requested a cancellation of the investment” and about R3m was paid back. He said investments from another company, Teta, were used to pay back Grobbelaar as his original funds were no longer available.

The former chartered accountant also testified about the purchase of four SUVs. He said the cars were bought for R3.2m using investor funds.

He was given the use of one, Brown drove one, and so did two other Fidentia directors.

Maddock testified about negotiations to acquire a company called Matco.

The company controlled R1.13 billion of beneficiaries funds. The beneficiaries were the orphans and widows of mineworkers.

Maddock said the purchase price was R93m, but he was “not aware that Fidentia had those funds at that time”.

He said Old Mutual, which was handling the money for Matco, was reluctant to hand over the money to Fidentia and asked for “proper mandates before they transferred the funds”.

The State alleges that Fidentia used inflated administration fees to come up with the money.

Maddock told the court that once Fidentia had control of the R1.13bn it used some of it to buy a company called Infinity, and a number of properties.

In 2005, Maddock said the salaries of Fidentia employees totalled about R12m a month, and the money was “paid out of investor funds”.

He said the administration fees for Matco were ramped up to R67m, which were “excessive fees, but a lot of work had to go into the take on of Matco”.

Maddock admitted that he, Brown, and another Fidentia director received R6m in restraint of trade fees, but he admitted “we didn't have anything restrainable”.

He also told the court about properties invested in the Sante Hotel and Spa “was meant to be revenue generating, but ran at a loss”.

He said R12m was paid for farms in the Eastern Cape and that a water bottling plant was supposed to be set up, but never was.

Maddock said he received an instruction from Brown in January 2007 to transfer R5m from Infinity to Fidentia as the company was short of that amount and could not foot its bill for employees' salaries.

Brown often shook his head, sighing loudly.

He is defending himself.

He claims to have run out of money for legal fees, and has been accused of delaying the trial because of frequent changes in his legal representation. - Sapa

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