The bankers, auditors and lawyers who rubber-stamped failed Hillcrest-based investment company Edwafin's prospectuses - which were used to attract a R236 million investment in what was little more than a pyramid scheme - could be held liable for the losses of the 1 600 investors.
Although this is the opinion of retired Judge Pete Combrinck, who has been overseeing an interrogation of the liquidated company, it is of little comfort to those who ploughed their savings into the company.
On Wednesday at a meeting at which Judge Combrinck's "confidential report" was released, investors were told there was no money to pursue a civil claim.
A source who attended the meeting said they were told that the liquidators had not managed to realise any assets and, unless investors were prepared collectively to put up R2.3m for lawyers, litigation was a no-go.
While there is a R20m insurance policy that covers "director fraud" - and the judge has recommended the immediate arrest of Edwafin director Patrick Stapleton - the Hawks are a long way from finalising their investigation because of the complexity of the matter.
Edwafin was placed under liquidation last July and investors were warned then to prepare for no return on their money.
Its directors - named in court papers at the time as Stapleton, his wife, Maria, Donald Hutchinson and Louis Klynsmith - are under investigation by the Hawks.
The Mercury has confirmed that hundreds of investors have been approached to make statements in the investigation, which is likely to be concluded only next year.
In the report released on Wednesday, the judge agreed with many conclusions reached by attorney Andries Geyser, who carried out the initial interrogation.
This included a three-day grilling of Stapleton, described by Geyser as a "Walter Mitty of sorts" who appeared to be "with Alice in Wonderland", continuing to make "wild claims" of expected profits.
The judge concluded:
- That the company was running a Ponzi scheme, "in itself a fraudulent transaction rendering every director who was a party to it liable for the losses suffered".
- That certain non-disclosures by Stapleton rendered him liable to be prosecuted criminally.
- That Stapleton had committed tax fraud in that Edwafin regularly paid into a close corporation in his name more than R100 000 that was not reflected in the company's balance sheet.
- That Hutchinson and former director Myrtle Winchester were liable to repay directors' fees unlawfully paid to a trust and close corporation.
- Attempts to "right size" Edwafin's balance sheet to make it more attractive to investors were fraudulent.
- That the directors had committed a "most serious fraud" by making false statements in the prospectuses, among them that one of its subsidiaries, Rainbow Paints, was in "good health" when it was "hopelessly insolvent".
- That Edwafin's bankers had a "prima facie" case to meet and could be liable for the entire R230m loss.
- That Edwafin's auditors and attorneys, by lending their names to the prospectuses, could also be liable for investors' losses.
Other than criminal and civil action being taken against Stapleton and other directors, the judge says it is "essential" that the inquiry continue and that other directors, bank officials, auditors and attorneys be interrogated.
He has also urged that the liquidators attempt to claim from the company's insurance policy and seize all assets owned by the directors.
So far, however, no assets have been located and a well-placed source has said Stapleton and Hutchinson are under debt review.
"Our only hope is that there are some assets overseas," the source said.
These are alluded to in Geyser's report, in which it is said that Stapleton has overseas bank accounts and owns or has shares in properties in Australia.
Liquidator Eugene Nel could not be reached for comment.