Trustees could be sued over Fidentia debacle

Not only has she been accused of having a material conflict of interest in the roles she played for Fidentia and a trust fund handled by the company, it has also emerged that Baloyi ‘borrowed’ millions of rands, writes E-Brief News. Baloyi’s involvement has surfaced with the Deputy Pension Funds Adjudicator warning that the trustees of Living Hands Trust could be held personally liable for the losses incurred in the Fidentia debacle. The trustees, including Baloyi, could face claims provided the beneficiaries can prove there was a direct relationship between their actions and the loss of funds, according to Naleen Jeram in a Sunday Times report. As much as R1.47bn was invested with Fidentia Asset Management (FAM) on behalf of the trust, according to the Financial Services Board’s (FSB) inspection report. The FSB’s inspection report fingers Baloyi and Hjalmar Mulder. It says there is a conflict of interest because they are trustees of the Living Hands Trust and, respectively, a director and CE of Fidentia Holdings. According to Jeram, ‘trustees of funds have a fiduciary duty to act in the best interests of the fund and its members and must avoid a conflict of interest at all times’. He adds that although a beneficiary may suffer loss, this does not automatically result in the trustee being held personally liable. The beneficiary would have to show that he suffered loss ‘as a direct result of the negligent actions (or inaction) of the trustee and such loss was directly as a result of the conduct of the trustee’. Andrew Davison, head of Investment Consulting at Glenrand MIB Benefit Services, said that there was ‘a very good possibility’ that the trustees could be sued, ‘especially because they were responsible for investing that money wisely’. However, he said that although it was not an example of good corporate governance, it was not illegal to be both an FAM director and a trustee of an FAM client. Full Sunday Times report

Baloyi has meanwhile been urged by the curators to repay a massive loan. Business Report says there have been claims that the loan, said by sources close to Fidentia to be R8m, was being written off at the time the curators took over the administration of the company. But this week Fidentia head J Arthur Brown said while it was true she had an outstanding loan the curators were demanding it be repaid. Full report on Business Report site

Baloyi has also denied that there was a conflict of interest that prevented her from properly looking after R1.47bn in cash belonging to widows and orphans. Business Day quotes her as saying: ‘I personally do not see a conflict of interest of any sort ... we all need to see the (curators’) report, so I will also be able to defend myself.’ Baloyi also denied claims she acted improperly by taking an R8m loan from Fidentia. The former head of public relations and communication at Fidentia, Ross Edwards, has come out in Baloyi’s defence. He said the loan to Baloyi was a normal loan and there was no intention to write it off. Edwards said the loan had been properly constituted to capitalise Baloyi\'s assets. Full report in Business Report Full Business Day report

Moneyweb has questioned why Baloyi, Businesswoman of the Year in 2003, would feel the need to call on her Fidentia Group connections for a multi-million rand ‘loan’. With her credentials – including a doctorate in education from a US university and directorship of a bank – one would have thought it would be easy for her to secure a loan in the normal manner from a financial institution. She is the chair of many organisations, including the Road Accident Fund, and a ‘management consultant’ and ‘strategist’. She is also a bank director and Chancellor for the University of Fort Hare, and must draw income from many sources. Full Moneyweb report

Brown’s claims that Fidentia has enough assets have been refuted by the FSB. According to the Saturday Star, the FSB said that the decision by the Cape High Court to place Fidentia under curatorship had been taken on the basis of overwhelming evidence of misappropriation and mismanagement, uncovered during a six-month-long FSB investigation. It said Brown had been offered numerous opportunities to challenge this evidence but had not done so successfully. And the curators rejected Brown\'s claims that they were the cause of Fidentia\'s problems, mainly in failed payments to widows and orphans whose money is held in trust by the Living Hands Trust. Personal Finance received more evidence of erratic payments by Living Hands to widows and orphans going back more than six months, while payments of monthly stipends ceased in January. Personal Finance also has evidence of false investment statements being issued to institutions and companies with money invested through Fidentia Asset Management. Most of the funds in the Living Hands trust funds have allegedly illegally been used by Fidentia Asset Management to buy assets that are registered in the names of various Fidentia companies. Full Saturday Star report

Another name that has surfaced in the scandal is that of Fidentia director Graham Maddock. Moneyweb takes an interesting look at how erstwhile Fidentia executive Rudi Bam turned whistle-blower and outlined alleged fraud cases against Brown and Maddock in 2005. Bam, determined to expose the rot in Fidentia, deposed several affidavits at a Cape Town police station, backed up by extensive annexures containing accounts and much other sensitive information. In his affidavits, Bam seeks to illustrate how Brown and Maddock ‘will go to any lengths to falsify records or any other evidence in order to escape prosecution’. Bam shows that Maddock was not only auditor for Fidentia Holdings, he was also a director, employee and shareholder in the Fidentia group through Bonus Way (12) (Pty) Ltd. Maddock signed off the audit report of Fidentia Holdings after he had already been appointed a director of the company. In one instance, Bam alleges that Maddock and Brown defrauded the Fidentia group of R11.2m during 2003 following alleged ‘collusive and other illegal transactions’. Full Moneyweb report