Cape Town -Ex-Fidentia CEO J Arthur Brown got legal advice on whether asset managers were prohibited from putting clients' investments into their own name, the Western Cape High Court heard on Wednesday.
Braganza Pretorius, for Brown, asked Fidentia's former broker, Steven Goodwin, to read out the legal advice from Bowman Gilfillan in court.
The law firm's Shahid Sulaiman wrote that according to a code of conduct, discretionary asset managers were required to obtain a signed mandate from their clients specifying in whose name the investments should be registered.
Brown e-mailed this advice to Goodwin in July 2006, asking that he give opinion on how it applied to Fidentia Asset Management (Fam).
The opinion was sought before the Financial Services Board began probing the business.
Goodwin replied to Brown's e-mail with his opinion, which Pretorius asked him to explain in court.
“To cut to the chase, you must follow the mandate or, in the absence thereof, be an agent and hold assets in custody on behalf of the client. In our instance, the general mandate refers to Fidentia Asset Management holding assets,” Goodwin said.
He described in the e-mail at the time that it would be potentially problematic if a clause dictated that all investments be made in the name of the client, unless otherwise agreed to in writing.
Brown faces nine charges of fraud, theft, corruption and money-laundering, related to Fidentia and several affected companies.
The court was earlier shown a copy of Fidentia's financial services provider licence, with the licence number 569, and certification date of September 2004.
It listed Fidentia as a discretionary financial services provider.
Pretorius and Goodwin agreed this meant an investment manager could decide what to do with a company's funds without contacting it for approval every time.
The lawyer said the licence gave the Fidentia broad authority in dealing with money market instruments, which were linked to a fixed capital or yield.
He asked Goodwin for examples of these instruments.
“A promissory note would be one,” he replied.
A bond or secure deposit were other such instruments.
Pretorius asked if it was acceptable to put these instruments in the name of a nominee or leave it blank, rather than put it in the name of the original investor.
“That's common practice,” Goodwin replied.
Brown sold the Transport, Education, and Training Authority's (Teta) promissory notes worth R100.3 million, allegedly without its approval, and the money was placed in his accountant Graham Maddock's account.
The State alleges that instead of re-investing this money for Teta, he used some of the proceeds for other purposes, including buying vehicles and properties.
According to the indictment, initial investments from Teta and others were allegedly deposited into Maddock's account because none of the Fidentia companies operated a bank account at the time.
Pretorius said on Wednesday that Brown planned to testify on why money was placed in Maddock's account.
“His testimony will be that Mr Maddock's account was used because Fam wasn't in the stable yet.”
Goodwin was asked for his opinion.
“The reason why Mr Maddock's account, from my perspective, was used was because he was fulfilling the job of nominee.”
The trial would resume on Thursday. - Sapa