Not much left in Fidentia pot

This may be very difficult to quantify, according to the curators tasked with the job of sifting through the almost R2bn Fidentia empire. Forensic accountant George Papadakis revealed in an update on the financial situation this week that only R8.5m of Fidentia’s R2bn funds can be traced. Moneyweb Radio interviewed Papadakis, who confirmed that Fidentia is now probably a ‘R2bn question’. Papadakis said the monthly expenses of the company were in the region of R40m to R50m a month. If the curators had not moved in, the company would have been ‘belly-up in days, if not weeks’. He said January payments, varying from about R75 to R700 per beneficiary of the widows’ and orphans’ Living Hands fund were not paid and they were scraping together enough money to pay them. Papadakis said Fidentia head J Arthur Brown, meanwhile, had approached the other curator, attorney Dines Gihwala, for a discussion that ‘centred on his proposal to repurchase Fidentia’. Papadakis said the curators would soon like to talk to Brown\'s wife, Susan, in connection with the multi-million rand Facets building at Century City, which is owned by the Fidentia Group and which Mrs Brown ‘occupies’. Full Moneyweb report Moneyweb Radio transcript

Gihwala said the value of assets held in the portfolios remained uncertain as the investment company ‘exclusively’ invested in private equity. Fidentia was recently put under curatorship after R689m in investor funds could not be accounted for. Fidentia managed at least R1.6bn on behalf of its clients, which include the Mineworkers Provident Fund and the Transport Education and Training Authority (Teta), according to Business Report. Gihwala said: ‘I can\'t give the value of portfolio holdings of the company at this stage,’ adding the firm had invested mostly in private equity and the curators had had to ring-fence those firms into which investors funds were directed. In its inspection report on Fidentia, the Financial Services Board (FSB) said R695m of the R1.639bn, or 42%, in the firm\'s consolidated client assets under management as at August 30 2006 was in private equity. FSB inspectors found that the asset manager had not been using acceptable accounting procedures, making it difficult to ascertain the company\'s claims that it had placed some of the investments in the money market. Full report in Business Report

The saga gets stranger by the day and the company\'s tentacles spread far and wide. Not only does it appear to have dishonoured a number of fiduciary duties, but some of its assets – like the Western Cape Wellness Centre – appear incongruous for an asset management company. Latest reports suggest that a portion of an unaccounted-for R689m of Fidentia\'s clients\' assets may be offshore, but on the domestic front, it\'s believed by some that a ‘black hole’ may be unearthed in and around an entity known as Ovation, notes Moneyweb. The link here is the late Angus Cruickshank, who committed suicide, owned Ovation. It was one of the companies brought into Fidentia in an acquisition spree. Fidentia’s links with Ovation can be traced through a company called Common Cents, acquired by Cruickshank in 2005. Cruickshank acquired Common Cents, with the vast majority of its R641m in managed assets running on the platform provided by Ovation Global Investment Services. On October 9 last year, Common Cents was shoved into provisional curatorship by the Financial Services Board. Cruickshank had allegedly plundered some R145m from the Common Cents cash pool. Today, Ovation is housed in the Fidentia building in Cape Town. Beyond the common premises, and Fidentia\'s 25% stake in Ovation, it\'s said that investigators have been unable to establish a formal link between the two entities. Full Moneyweb report See also Financial Mail report

KPMG alerted the Financial Services Board to problems at Common Cents when in August last year the auditors reported an accounting irregularity that might cause financial loss to the entity, its creditors or investors. According to Business Report, an investigation found that R148m was invested on behalf of clients of Ovation, in the Common Cents cash portfolios. This was in contravention of the licence conditions, which enabled the firm to give advice on products confined to collective investment schemes. Full report in Business Report

Two law enforcement agencies are preparing to investigate . The Sunday Tribune reports that both the police and Scorpions are poised to probe the Fidentia debacle and the group\'s business affairs are also to be examined by a host of forensic auditors appointed by alarmed big investors and businesses that were sucked into Brown\'s grandiose operations. A SARS probe is also likely, because investigators have tracked how transactions were allegedly backdated to duck the taxman. Full Sunday Tribune report

And Teta is considering laying criminal charges. If this happens, says Business Day, it is more likely that Fidentia’s bosses – including founder and chairperson Brown – may have to face the music over the massive irregularities at the firm. Teta spokesperson Merle O’Brien said the organisation was considering criminal action. ‘We have appointed a law firm to advise us, and we remain under their mandate,’ she said. She reiterated that Teta was not to blame: ‘We were fed false information by Fidentia’ – in the form of incorrect monthly statements. One law that appears to have been breached is the Public Finance Management Act, which obliges state institutions to invest surplus money in ‘A-rated banks’ – essentially the big four banks. However, O’Brien said Fidentia had misled Teta by claiming the money was invested in these banks. Teta’s claims are supported by the FSB inspector’s last report, finalised on January 16. That report concluded that ‘the funds entrusted to Fidentia by Teta have been misappropriated’ and that ‘Fidentia would not be able to repay the R245m investment balance’. It Full Business Day report

Corporate SA – and perhaps the authorities – are the only hope for the now destitute beneficiaries of the plundered Living Hands trust. Moneyweb says they can help by stepping in to support the few decent Fidentia subsidiaries that remain. Bruce Cameron writes in a report on the IoL site that although the money used to buy valuable companies such as the technology company Software Futures, which provides services to top SA companies, and AOS, which provides administration services to many unit trust companies, was excessive, they do remain well-managed and valuable, and the curators hope they will achieve high sale prices, which they can use to rescue the widows and orphans. Full Moneyweb report Full report on the IoL site

And the man at the centre of the scandal, Arthur Brown, is a former instant lawn salesman from Port Elizabeth. , The Herald says Brown (36) went from a humble plot in the city to a lifestyle complete with a R3m annual salary, country estates, flashy cars and failed spas – much of it funded by allegedly pilfered trust funds. Brown masterminded the Fidentia group of companies, which controlled about R2bn, of which at least R680m is unaccounted for. According to the companies‘ register, Brown was a director of several other virtually unknown enterprises in the Eastern Cape, including construction, transport and computer companies registered in Mthatha. Brown espoused a philosophy of ‘responsible capitalism’. However, financial investigators say he built a pyramid of companies by allegedly pilfering trust funds. Full report in The Herald

He has finally broken his silence, vowing to fight back and accusing the FSB of ruining the company while claiming it is trying to save it. The Pretoria News says Brown said the money alleged to be missing – between R400m and R680m – was ‘still there in those companies’. On the allegations that he stole money or used trust funds for private spending sprees, he said: ‘It\'s absolute hogwash.’ Brown said ‘neither me, the trustees nor directors have benefited in any way that is unreasonable’. He said he had bought whatever assets he owned with his salary and dividend payouts. Brown said the curators did not have the expertise to run the company as required and he was concerned that in the time it would take the curators to get to understand the company, they would ruin it. Full Pretoria News report

And there’s bad news for employees. It appears the curators are preparing to retrench up to a quarter of the company’s 1 200 staff members. Business Day quotes sources close to Fidentia’s curators as saying about 280 employees are set to be retrenched within days to allow the company to meet its commitments to the Living Hands Umbrella Trust and remaining employees. Full Business Day report