Curators unravelling Fidentia mess

Noting that the Fidentia group has an estimated 70 entities, a Moneyweb report says company heads are also compiling cash-flow reports as the curators build a financial picture of the group and size up whether all entities are solvent. Forensic accountant George Papadakis said that Fidentia company heads had been asked to provide cash-flow information as the curators assess \'how much cash there is available\' to keep Fidentia companies \'going\'. Some subsidiaries have been funded by their own operations and some not, he said. In addition, the whole payroll was being reviewed. Already there are reports that the axe is about to fall on employees. Between 150 and 200 employees are facing immediate retrenchment, with no package, according to a second Moneyweb report. Last week the curators assured staff their jobs would be preserved and it would be ‘business as usual’, but yesterday one of the curators, attorney Dines Gihwala, confirmed many employees would be retrenched. He said these people would be informed between now and the middle of next week. There were no retrenchment packages, said Gihwala, because he doesn\'t even ‘have money to pay salaries’. First Moneyweb report Second Moneyweb report

An estimated R680m of client funds appears to have been \'misappropriated\'. According to Business Day this came to light in a High Court application by the Financial Services Board (FSB). Fidentia manages about R1.6bn in total. Of these funds, R1.7bn came from the Living Hands Umbrella Trust, which pays out money invested with Fidentia by the Mineworkers’ Provident Fund to orphans and widows of people killed in mining accidents. Another R245m came from Teta, the education and training authority for the transport sector. The application follows a probe of Fidentia by a team mandated by the FSB, and it paints a bleak picture of the way the company carried out business, including references to \'misrepresentation to clients\', \'misappropriation of client funds\', \'misrepresenting investments\', \'inadequate corporate governance\' and \'material conflicts of interest\'. The court has placed Fidentia Holdings and its two subsidiaries, Fidentia Asset Management and Bramber, under curatorship. Full Business Day report

In its application for curatorship, the FSB told the court that its inspectors could not trace R680m of almost R2bn taken in from various investors by its asset management subsidiary, Fidentia Asset Management, notes Business Report. Within hours of the successful application, curators Dines Gihwala – a top attorney – and forensic accountant George Papadakis took control of Fidentia. They also have a report of an FSB inspection team which has been trying to unravel the mess for the past six months. Brown is accused in the report of using millions invested with Fidentia Asset Management for himself, channelling the money through various family trusts. Over the past two years the company has bought up a diverse group of companies, ranging from the Sante Winelands Health Centre to parts of the imploded financial services company MCubed, paying amounts which, at the time of the purchases, were considered to be excessive. The purchases raised suspicions because the source of the money used by the company, which was operating out of a rented garage at the upmarket Sunset Beach development as recently as four years ago, was not apparent. Full report in Business Report

The High Court application was made to conserve the business, if possible. However, Moneyweb points out that there are fears people will not be able to cash in their investments when they need them, because of past corporate scandals – like Masterbond – where individuals could not touch their money for many years while the curators did their work. One senior investment company executive said it was inevitable the curators would have to freeze certain operations in Fidentia as this would be necessary to assess the situation. But Gihwala said he was on a ‘campaign to restore, recover and preserve’. Full Moneyweb report

Investors will be surprised by the scale of alleged irregularities, according to Business Day, which points out the affidavits submitted by the FSB provide a startling insight into the way Fidentia did business. These include the finding that ‘the nature of the assets held by (Fidentia Asset Management) on behalf of clients has been artificially disguised to misrepresent the nature of the investments held on behalf of clients’. Also that Graham Maddock, who heads auditing firm Maddock Incorporated, is alleged to have signed off Fidentia Asset Management’s audit report in 2004, shortly after he was appointed a director of Fidentia Holdings, the asset manager’s parent company. In addition, the inspectors said ‘Fidentia Asset Managers has not fulfilled any of the duties imposed on it with regard to the maintenance of proper accounting records and auditing requirements’, failing to file audited financials for its past two financial years. Full Business Day report

However, some investors have been assured their money is safe. JSE CE Russell Loubser says Satrix investments, which are administered by a Fidentia subsidiary, are safe. A Moneyweb report quotes him as saying Automated Outsourcing Services (AOS) Ltd is \'the administration part\' of Fidentia \'and that part is not in trouble\'. Investors’ money is \'safe\'. \'People’s shares are in a trust that has nothing to do with Fidentia. Fidentia can’t even get close to it. It is totally removed from Fidentia,\' he said of Satrix investments. Loubser said he believed AOS was doing a very good job and, despite the latest news, there were no plans to change Satrix’s administrator. More light is cast on Fidentia in the article. It says Fidentia attracted the attention of the FSB and others after it embarked on a buying spree, offering well above market-related prices for certain entities. Full Moneyweb report

The issue has resulted in the Labour Department being urged to investigate the investment strategies of all sectoral training authorities. Teta CE Piet Bothma was grilled at a hearing by the National Assembly Standing Committee on Public Accounts yesterday before chairperson Themba Godi who said the department should investigate the matter as ‘someone should be responsible for this mess’. He was referring to the report by the FSB that the Teta was unlikely to get its investment back from Fidentia, notes I-Net Bridge. The affair was described as ‘a seriously deficient investment strategy’ on the part of Teta, bordering on ‘reckless’. Full I-Net Bridge report

And latest reports say financial services company Momentum has been drawn into the matter. Momentum has launched an investigation because a company in which it is the majority shareholder has been embroiled in the scandal. Questions were raised when it was revealed that Lekana Employee Benefit Solutions, controlled by a 65% Momentum-owned shareholding, had a secret agreement with Living Hands, the umbrella trust company owned by Fidentia, says a Cape Argus report. According to the secret agreement, Lekana Employee Benefit Solutions would be paid a 0.35% introductory fee by Living Hands for any new business introduced in a year, up to R250m. Lekana administers the Mineworkers Provident Fund, which had invested R1.47bn of its members’ money in Fidentia Asset Management through the Living Hands Investment Trust. Full Cape Argus report