WARNING: IF THE FIDENTIA SCANDAL BORES YOU, PLEASE SKIP THIS POSTShades of Brown NOSEWEEK Issue 89 - March 2007 No - we don't know where the money is. Nor do we know to what extent the accounting records are deficient. No doubt all will become clear when the matter goes back to court this month. But there is a side to the Fidentia story which hasn’t been told – a side the mainstream press were unlikely to publish, either because they couldn’t get their heads around it, or because they didn’t want to upset the financial establishment (in this case the Financial Services Board (FSB), a major source for their stories, and big advertisers such as Momentum Life and FirstRand). The known story goes like this: An obscure financial services company, Fidentia Asset Management, had suddenly become one of SA’s biggest financial management groups, managing funds for the likes of the Mine Workers Provident Fund (MWPF), and with the big banks happily entrusting hundreds of millions to its care. Then, just as suddenly, it’s under curatorship by the FSB, which says Fidentia’s bookkeeping is up to maggots and hundreds of millions are missing or have been invested in places they oughtn’t to have been. Orphans and widows of mineworkers haven’t been paid their allowances for months and risk losing out entirely. Arthur Brown, a man none of us had heard of until yesterday, is personally responsible. And he drives a Ferrari, which, according to Personal Finance’s Bruce Cameron, clinches the argument.Not quite. For a start, at noseweek we take a less sanguine view of the FSB’s commitment to keeping the financial services industry on the straight and narrow. Their handling/coverup of the Saambou collapse has bordered on the positively shady; Masterbond they turned into a liquidators’ fee extravaganza (their only real concern seems to have been to cover their own dirty tracks); Crusader Life ... the FSB has somehow never got around to telling us what really happened there. All we do know is that one of the more eminent rogues in the Crusader saga who got off scot-free, then FNB boss Basil Hersov, continues in life as a successful broker of secret arms deal “commissions”.The public’s lack of confidence in the FSB is only matched by its growing lack of confidence in banks, insurance companies and the financial services sector in general, where the terms “rip-off” and “mega-buck packages for top executives” come to mind long before “good service” or “fair deal”.So, while there are many reasons for being critical of Fidentia, nothing is to be taken at face value – not even that Ferrari, as it transpires: two years ago Brown bought an old 1972 Ferrari Triple B from a friend for R200 000 – and sold it two months later for a similar amount. He actually drives a luxurious, but much less flamboyant, Lexus 470 – when he’s not driving the family VW Caravelle. When there’s a fallout amongst, no, not thieves, but “financial practitioners”, you’re sure to learn more about all of them. In December 2002 Brown Brothers, the company Brown had formed in 1999 with his two brothers, bought the dormant Fidentia Asset Management for just R100 000. To operate they needed someone the FSB would approve as a “key individual”. Enter ex-JSE employee Rudi Bam who persuaded Brown that he could get the approval in return for a 5% shareholding. (In the end, Bam got 30%.). But a year passed without Bam getting FSB approval. In September they revealed that this was because he had been fired from the JSE for financial impropriety.For this reason, says Brown, Fidentia parted company with Bam. (Although Bam’s resignation letter in November 2006 says: “The lack of transparency in the Brown Brothers Group and its business dealings create risk for me as a director.”) They agreed to pay him a healthy R8.5 million for his shares, plus his R1.25m tax liability – the sort of “pally” deal that’s now standard in the industry, but leaves clients perturbed.) Fidentia found a new partner, who was given FSB approval almost immediately. To kick off, Fidentia bought Software Futures, which provided the know-how to supply administration integration services to various sectors. It bought smart card management company Infinity. It bought Matco, the company charged with paying monies invested by the MWPF to the families of men killed in mining accidents. With this deal, Fidentia became South Africa’s largest administrator of death and disability benefits into trusts, administering around 80 000 trusts.Lest it be accused of being boring, Fidentia bought the acclaimed Sante Winelands Hotel & Wellness Centre, a 50% shareholding of Boland rugby, and 100% of the Manning Rangers soccer team. And it did some warm and fuzzy social stuff too – a cricket sponsorship, a sponsorship of a youth choir and a youth sports academy (Fidentia paid the living and tuition fees of some 160 children), a R4 million bursary fund...Fidentia took empowerment seriously too. No half-measures for Mr Brown, he went straight to the A list and appointed Danisa Baloyi to his board Danisa Baloyi – 2003 Businesswoman of the Year, BEE champion, executive director of the National Black Business Caucus, director with Mrs Mbeki of SA Women Investments Holding, SA Tourism, Denel, the Don Group (the hotels not the mob bosses), AMD, ABSA, Adcorp – we could go on and on.
RUDI BAMAt about this time Bam returned to the scene – claiming that he was still a shareholder and demanding to be paid out (at the then current share price). After he threatened Fidentia with exposure of reckless trading if it didn’t pay up, Fidentia sued Bam in the Cape High Court for the return of its shares. Bam defended the case – and in August filed an affidavit at court containing some devastating charges about irregularities at Fidentia. (These charges are clearly the basis of much that had emerged from the FSB and in the press in recent weeks.) In November 2006 Judge Dennis Davis found for Fidentia and ordered Bam to transfer his shares for no more payment. But Fidentia’s most critical acquisition would be companies held by MCubed, a group with three distinct businesses – MCubed Unit Trust Management, Automated Outsourcing (AOS), and a life insurance business called MCubed Life. Fidentia bought MCubed Unit Trust Management and renamed it Ayanda, which resulted in Fidentia being the largest unit trust management company in the country. Fidentia also bought AOS – another smart move, because in May 2006 AOS won the administration contract for Satrix, ahead of Absa. AOS does unit trust administration for all four of the big banks and has some R35 billion under administration.But a due diligence that Fidentia commissioned on MCubed Life revealed some serious problems. For example the company ran two pension preservation funds without FSB or SARS approval. Fund accounting had never been done. Conflicting statements had been submitted to the FSB, and some R100m was owing to SARS (it eventually settled on R80 million). MCubed Life’s business methods clearly breached exchange control regulations. And – one of the responsible MCubed executives had a cocaine problem, claims Brown, who says that the man was a close personal friend of FSB head Rob Barrow.Yet the FSB had queried nothing and had somehow contrived to give the company a clean bill of health. Brown did raise questions with the FSB but it said all was well. Brown wasn’t convinced and decided that he would do things by the book to ensure that Fidentia had the necessary approval. Brown’s attitude worried MCubed, because it saw the possibility of the deal falling through. Then MCubed director Bruce Dunnington phoned one day to say he’d arranged for Brown to meet the FSB’s then head of Collective Investment Schemes (now Deputy Executive Officer, Pensions), one Jurgen Boyd. The meeting would take place the following evening at a restaurant in Mandela Square. Brown found this a bit strange (meetings with senior civil servants normally take place in dreary government buildings), but, as Boyd would tell him on a later occasion, the FSB prefers the “eyeball to eyeball” approach. Brown pitched up with a senior Fidentia employee, and the two watched Boyd drink generous quantities of some very expensive whisky, courtesy of Fidentia. Boyd, says Brown, spoke passionately of his love for deep-sea fishing, and of his children’s new interest in quad bikes – and chatted on about “the price of doing business in Africa”. Now Brown didn’t like the price of doing business in Africa Boyd’s way. But MCubed’s Dunnington apparently did. A few days later, says Brown, Dunnington told him that he had arranged to take Boyd on a deep-sea fishing trip. Days later the FSB licence arrived. (Boyd admits meeting with Brown, admits talking about fishing but can’t remember anything about quad bikes, denies that he was taken fishing in Durban by Dunnington and says Cape Town’s his spot for deep sea fishing. Dunnington didn’t return our call.) Brown was still concerned that Fidentia could be liable for the period that MCubed Life operated without approval, so he asked the FSB to indemnify Fidentia for any claims which might come out of the woodwork. The FSB declined, and launched its own investigation into MCubed Life. According to Brown the FSB’s Phillip Langenhoven told him not to buy the life company because the whole thing was “such a mess”. It seems the FSB was keen to get its hands on the due diligence report done by Fidentia on MCubed, and FSB staffers told Brown that FSB head Rob Barrow was worried that Fidentia would sue the FSB for carelessly giving MCubed a clean bill of health. Brown took the FSB’s advice. The FSB, however, has never seen fit to warn the public about the mess at MCubed Life. And when Fidentia announced that it wasn’t proceeding with the purchase, MCubed Life’s share value dropped some 260%. A real blow to big shareholders like MCubed MD, John Storey? No says, Brown – Storey sold his shares just at the right time. Phew!Besides holding on to MCubed Life, MCubed also kept its 50% shareholding Advantage Asset Management (the other 50% was held by Momentum Life) – Advantage had,in fact, been running MCubed Unit Trust Management’s business for the past four years. Now this was clearly unlawful because Advantage had no licence to do so. MCubed Unit Trust Management had the licence. Advantage was also acting as asset manager and as administrator instructing the trustee. By law, according to Brown, these must be separate entities. Advantage was, in fact, operating as administrator instructing the trustee, in place of Absa – this was illegal, but Absa had taken the precaution of getting an indemnity from Advantage should it get caught. Even when it was told about this, the FSB did absolutely nothing.
MCUBED - CUT OUR LOSSES & MOVE ONWhich meant that all Fidentia got for its R18 million payment for MCubed Unit Trust Management was the licence – no clients, no business at all. Advantage then applied for its own licence, and, thanks to Momentum’s influence, got it double-quick (six weeks rather than the usual six months plus) – despite the fact that if you’ve traded without a licence there must be a full investigation. To add salt to the wound, Momentum director Frans Truter and Leon Von Moltke of Rand Merchant Bank told two senior Fidentia employees to “play nicely” or face the consequences – which Fidentia understood to mean they should accept the situation. Brown was outraged, and threatened to expose Absa for allowing Advantage to act on Absa’s behalf. The threat worked – Absa made sure that Fidentia got the full unit trust business, including the clients. Because Brown was concerned that Fidentia would face claims for MCubed’s past conduct, Fidentia wrote a very detailed letter to the FSB on 17 May 2006, demanding that it enforce the Collective Investments Schemes Control Act.
FSB HAS IT IN FOR FIDENTIAThat, contends Brown, is what triggered the FSB’s action against Fidentia.Which is not how Advantage and Momentum tell it. According to Advantage Asset Managers’ MD Morris Mthombeni, MCubed Unit Trust Management outsourced the management function to Advantage Asset Managers in terms of a portfolio management agreement; the investment administration it outsourced to AOS. MCubed Unit Trust Management itself retained only the compliance function. This, he says, is perfectly lawful. By the time it heard of Fidentia’s offer to buy MCubed Unit Trust Management, Advantage had already decided to form its own unit trust management company and applied for a licence. This licence took six months, not three weeks, to get. Whilst Fidentia was awaiting regulatory approval for the MCubed Unit Trust purchase, Brown met with Advantage and tried (unsuccessfully) to persuade it not to move into unit trust management. When Fidentia’s purchase of MCubed Unit Trust Management went through Fidentia fired Advantage as the portfolio manager and asset administrator, and instructed it to liquidate the portfolio and transfer the proceeds to Fidentia. Advantage asked the FSB for directions and were instructed to ignore the instruction until such time as the issue could be cleared up at a meeting.Various meetings took place where Fidentia alleged that it had no knowledge of the agreement between MCubed Unit Trust Management and Advantage. Advantage disputes this – it was right there in the Fidentia due diligence files! In any event, Fidentia had previously tried to buy MCubed Holdings’ share of Advantage, which showed that it knew that it needed the company (the share was eventually bought by Momentum for R140 million). Eventually an agreement was reached in terms of which Advantage kept the bulk of the business. Momentum director Frans Truter remembers meeting with Fidentia, but denies making any threats. Brown insists that he has never seen a portfolio management agreement and that Advantage has never been able to present such a document to either Fidentia or the FSB. Besides an agreement like that would be illegal – you can only outsource to a licensed company and Advantage wasn’t licensed. (Brown says there’s still an ongoing FSB investigation into the matter.) As for Advantage’s dream of owning an asset manager company, Brown insists that Advantage’s application was completed in no more than six weeks. And Fidentia has acquired all of the business which it bought.So much for that. The other story hidden away in the “known” story relates to the Mine Workers Pension Fund, and Fidentia’s purchase of Matco.The MWPF employs a company called Lekana to administer the fund, and also employs various asset managers. It also instructs a separate company to act as trustee for paying out benefits – in this case Matco, a section 37(C,2) trustee which pays the beneficiaries’ monthly expenses and preserves the capital, and instructs an asset manger to take care of surplus funds. When Matco had this position it instructed Old Mutual Symmetry as asset manager.To ensure that it received and kept the business, Matco had been paying kickbacks to the MWPF and to Lekana (a R600 000 monthly payment, for example, was disguised as rent). These payments, according to Brown, totalled many millions. Former MWPF executive officer Frans Mahlangu, who has of late been cast in the role of the hero who lost his job when he tried to expose the rot, was a major beneficiary of Matco’s largesse. He drove a car paid for by Matco and his bond payments were met by Matco, as were his children’s school fees. Not content with getting kickbacks, Mahlangu, says Brown, ran a lucrative fraudulent claims business on the side. (A certain C N Gxebeka was receiving payments as the wife of four mineworkers, the mother of three, the guardian of four and the sister of two – we have a whole file on this). Mahlangu worked out of Lekana’s offices, which clearly already compromised his independence.When Fidentia bought Matco in October 2004, its name was changed to Living Hands. Fidentia then took the asset management function away from Old Mutual Symmetry and appointed Fidentia Asset Management. Brown asserts that in the period that Fidentia performed the trust function, Fidentia achieved what Old Mutual couldn’t – capital growth.Brown says it grew from some R1.028 billion to R1.1 billion, despite some R450 million being paid out to beneficiaries. He rejects the allegation made by Mahlangu that there were ever incomplete or late payments to beneficiaries. Putting a stop to the kickbacks, says Brown, made it much more difficult for Mahlangu to run his fraudulent claim scheme.Frans Truter of Momentum, who is also chairman of Lekana, tells noseweek that there’s an investigation going on into corruption at Lekana and the MWPF, which Lekana administers. Lekana’s shareholders are the Mineworkers’ Investment Company (MIC) and Momentum (which is also a shareholder of Advantage). The sole shareholder of MIC is the Mineworkers Investment Trust, which is controlled by the National Union of Mineworkers (NUM), and it’s basically the vehicle whereby mineworkers became part of the capitalist system in the new South Africa. MIC has a 1% shareholding in Firstrand, and its CEO, Paul Nkuna, is a director of Firstrand. Lekana’s CE is Philip Mjoli and he’s on the board of Momentum. Which is a wholly owned subsidiary of FirstRand. So it’s all quite cosy between the MWPF, Lekana, Momentum and Firstrand.It turns out there’s been a bit of a problem with MWPF’s database. A computer whiz called Suiki Alston who was employed by Lekana, ostensibly to clean up the database, was fired when she expressed concern at the potential for fraud. When she leaked information to the MWPF trustees and the FSB, she was threatened by attorneys Routledge Modise. In 2003, auditors Deloitte did a small (R99 000) audit of the MWPF and noted, without comment, that the funds’ membership had dropped in one year by some 38 000, mainly because of “linked or duplicate records”. In 2004, KPMG did a big (R600 000) audit and, although being quite soft on Lekana, did note that “the lack of segregation of duties” could cause “manipulation of data” and that “from the mine could be changed through human intervention”. It also noted that in 2001 a “syndicate was exposed that was defrauding the Fund by means of fraudulent retrenchment claims”. Brown reckons the FSB is investigating because he’s managed to piss off a lot of people, particularly at Momentum and the FSB. We’re not taking Brown’s word for it – charges against Fidentia have gone way beyond the “complaints” that Brown alleges are all he’s been told about.noseweek notes that one of the FSB appointed curators is none other than George Papadakis. In nose86, in a piece dealing with the Kebble saga and tax fraudster Mauro Sabbatini, we said: “Gobodo Forensic and Investigative Accounting has no qualified accountants on its staff. The office is headed by George Papadakis, as legendary as Sabbatini for his connections in the SARS and his skill in ‘fixing’ things – like getting criminal investigations to ‘disappear’”. Apart from firing staff, the curators are looking for buyers for Fidentia’s assets, including Sante. A few months back it was regarded as Africa’s top spa destination and ranked in the world’s top twenty – worth R600m says Brown. It would be a great pity for the widows and orphans if the value dropped dramatically. On the other hand this wouldn’t be such a pity for a man from Forever Resorts, who, within days of the curatorship, arrived at Sante to examine the property with a view to purchasing it. And let it slip that he’s a close personal friend of Dawood Seedat. Who heads the FSB investigation into Fidentia.
FSB'S BARROW BOYSA former senior FSB inspector (who resigned to take a job at Fidentia), [He never received a cent. The FSB made sure of that] has some interesting things to say about the FSB. His allegations are alarming in the light of Trevor Manuel’s ringing endorsement of the FSB in the Sunday Times of 18 February 2007: “If the public are not confident that we are able to put something away for our children without the money being lost, then we break the link with the future.”
FSB: A DEN OF THIEVES & MALCONTENTS The former inspector’s “report” alleges that the FSB is run by an inner circle consisting of head Rob Barrow, deputies Gerry Anderson and Dube Tsedi, head of inspectorate Dawood Seedat, and HR head Jabu Hlelatoa. Seedat, as inspector, should by law act independently of the registrars. Hlelatoa, it is claimed, has a “propensity to accept bribes” and is currently being investigated for taking kickbacks. Dube Tsedi, who is being groomed for the top spot, “is known” to promote female staff for personal favours – there are stories of him fathering a staffer’s child; of a special promotion for one young lady; of getting someone who alleged sexual harassment fired. Seedat apparently tells anyone who will listen that he was a Scorpion (wow!) and that his political connections will get him the role of Auditor General within three years. Jurgen Boyd – the keen fisherman of our main story – though not in the inner circle, is well connected, having been employed at the same accounting firm as Seedat. It came as a surprise when Boyd was promoted to his position in pensions as he has no knowledge of the subject. (“It’s something of a standing joke at the FSB that incompetence is rewarded.”) Boyd is “known for accepting corporate gifts in excess of policy amount”, and it is said that “collegial relationships exist between Boyd and a number of industry players”. The Fidentia inspection, says the ex-inspector, is riddled with impropriety. Rob Barrow, Gerry Anderson and Dawood Seedat are treating this matter as a vendetta and are using their old pal, Bruce Cameron of Personal Finance, to drive public opinion against Fidentia. The vendetta relates to information that Fidentia uncovered in its due diligence at MCubed Life, and the mess at the MWPF. Seedat claims this case will make his career. He alleges the recent Alexander Forbes exposé came about through illegal leaks from FSB officials; that the Fedbond scandal was caused by the FSB giving approval where it shouldn’t have been (Rob Barrow personally overruled recommendations that no approval be given); that Gerry Anderson awarded care of the Ovation and Common Cents financial businesses to an unrehabiliated insolvent; that Vantage Pension Administrators (Leslie Zulberg) was not licensed to accept pension monies into its account, which the FSB overlooked, and only when Zulberg started making noises of improprieties at the FSB, the FSB investigated Vantage (Dube Tsidi at some stage replacing the investigators with someone close to the inner circle and quite happy to alter reports, one Cor Potgieter) and then put it under curatorship. Documents, reports and client’s information are regularly altered to support whatever position best suits the FSB, he says. Rob Barrow personally altered the FSB’s 2006 management report which went to Parliament, despite objections from staff members. The FSB declined to comment on our main report but rose to this one.Says spokesman Russel Michaels:The information that you have received is obviously sourced from a person who was employed by the FSB up until the end of January 2007 when he left to join Fidentia which was placed into curatorship on 1 February 2007 and he found himself without employment. The information, in most cases, is untrue, speculative and uninformed and any person who is responsible for the publication thereof will in due course be held accountable in terms of the confidentiality requirements contained in FSB Legislation.We trust that people reading your journal will appreciate that you publish this type of article purely for sensation and that it is fraught with inaccuracies and untruths.It is also extremely unfortunate that you would be prepared to print something of this nature which is clearly an act of vengeance by parties who seek to detract from the consequences of their actions thus attempting to undermine the integrity of the FSB and the financial services industry in South Africa.The FSB and the people mentioned reserve all of their rights if you proceed to publish this article.
CAMERON AND CAMERON: ARE THEY A COUPLE?Brown believes Personal Finances’ Bruce Cameron has been the driving force behind the FSB’s investigation of Fidentia. In an interview with Bruce Whitfield, when asked whether the FSB was responsible for the fiasco, Cameron declared: “You know it has been a very tough job for the FSB. I do have some sympathy with them because we have been working on it (the Fidentia enquiry) and keeping the FSB informed of what we have been doing and investigating, but Fidentia have been using lawyers at every turn. As soon as somebody walks into my office with a lawyer immediately I get suspicious. I think he arrived in his Ferrari too.” Moneyweb website’s also had plenty to say about Fidentia. In “Fidentia: It’s our worst nightmare” it claims that: “Brown and his cronies – retired cricketers Eric Simons, Dave Callaghan and Merrick Pringle are amongst the ‘employees’ who have looted the Living Hands Trust, previously worth R1,2bn, almost to the point of extinction”. Alec Hogg apparently watered this down after complaints from the sportsmen. And on 12 February, Jackie Cameron, in a Moneyweb piece on Brown’s wife, Susan, owner of the Facets gym says: “Cape Town’s pole-dancing queen, wife of Arthur, does a disappearing trick” – apparently because Cameron couldn’t find Susan Brown at her “four-storey playpen”. (The Facets gym offers pole-dancing exercises at its large premises in Century City.) And in “Brown’s leading ladies,” she dealt with Brown’s alleged affair. Of Fidentia employee Angelique Tostee, she says: “An attractive blonde, Tostee has been named within Fidentia circles as Brown’s ‘blue-eyed girl’”. And, says Cameron, Sandi Dekker, manager of Sante, is “said to enjoy a good relationship with Brown”. The gossip according to Cameron, is that Sante is “playing host to Arthur Brown who has been avoiding the media spotlight”. Whatever are you saying Jackie? Financial journalism at it’s best! Perhaps Brown has reason to refuse to talk to Personal Finance and Moneyweb!
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