Why the Fidentia saga shook SA to the core
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Last week, J Arthur Brown walked out of jail on parole, having served seven of the 15 years he was sentenced to for his part in the Fidentia scandal of the mid-2000s. Brown was, according to the officials at the Voorberg Prison in Porterville, a “model prisoner” who served as chairperson of the prison’s rugby club.
South Africa’s history is riddled with financial scandals, but Fidentia was more galling than most because it involved money (about R1.1 billion) in the Living Hands Umbrella Trust that benefited the widows and orphaned children of mineworkers who had died in service. These were the poorest of the poor, who had lost their breadwinners.
Personal Finance covered the saga extensively, with Bruce Cameron, the founding editor of this publication, among the first journalists to suspect that something was not healthy at Fidentia.
When the Financial Services Board (now the Financial Sector Conduct Authority) started investigating the Fidentia Group, its liabilities to its investors amounted to about R1.4 billion. But those “assets under management” had not been “under management” in any fiduciary sense. They had been used to fund the opulent lifestyles not only of Mr Brown and his two main co-accused, Graham Maddock and Steven Irwin (both of whom also served time in jail), but of the various shady individuals including trustees (who have a legal duty to act in the best interests of the trust beneficiaries), whom they “bribed” to “look the other way” during the plunder.
Laughably, Brown’s initial punishment by the Cape High Court in 2013 was a fine of R150 000 and a suspended jail sentence. A public outcry ensued, the case was taken on appeal to the Supreme Court of Appeal and, in 2014, the 15-year sentence was imposed.
Fidentia was placed under curatorship in 2007. The whole affair was wound up just two years ago, in 2019.
In a 2015 report for Personal Finance, “Fidentia victims face bleak future”, Cameron detailed what had been recovered.
“In the eight years since Fidentia was placed under curatorship, the curators had, by November 30, 2014, collected R363 859 040 (26.6%) of the R1.37 billion. At that date, R113 million had accrued to the Living Hands Trust, 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.”
Cameron reported that the money that had been recovered and distributed by February 2015 had to be shared among:
• The Living Hands Trust;
• The Transport Education and Training Authority, which received R33 million of the R185 million it was owed;
• Multi-level marketing company Balltron, which received R6.9 million of the R38 million it was owed; and
• Investors in investment company Antheru, which received R1.7 million of the R9.2 million it was owed.
By 2019 the costs of the curatorship had totalled about R102 million excluding VAT, according to news reports. The three curators (including disgraced lawyer Dines Gihwala, who was replaced halfway through the curatorship) pocketed almost R34 million among them. Forensic accounting services came to R8.6 million, and legal services by DLA Piper and Cliffe Dekker Hofmeyr amounted to more than R49 million.
But the saga is still not over, because Living Hands, the company running the trust, has pursued a prolonged action against Old Mutual, which, the trust believes, let Brown and his cronies access assets without the necessary precautions and diligence. That case is due to be heard in court early next year, according to an update on its website.
One good thing to come out of the Fidentia scandal was the regulation of beneficiary funds, which, up to that point, had not been properly regulated. These were funds typically established by retirement funds to house benefits due to the dependants of deceased members.
The new, far more robust instrument put in place by the legislators in the aftermath of Fidentia is, in effect, a type of retirement fund, falling under the Pension Funds Act and subject to the controls and tax advantages the act provides.
Beneficiary funds as they exist today have a single, well-defined purpose: the safeguarding and administering of retirement fund benefits that have become due to a retirement fund member’s child under the age of 18 (a minor beneficiary) on the death of the member.
The fund uses the money to contribute towards the child’s living and education expenses until the child turns 18, whereupon any remaining capital may, at the discretion of the fund’s trustees, be paid in a lump sum to the child or withheld to further fund the child’s education.