Buying+spree+masked+Fidentia+woes,+Rob+Rose,+Business+Day

Business Day, Johannesburg. 02 February 2007
=Buying spree masked Fidentia’s woes=


 * Rob Rose, Chief Reporter**

THE SCALE of alleged irregularities at asset manager and financial company Fidentia will surprise those who invested more than R1,6bn with the Cape-based company, even though news of an investigation emerged some weeks back.

But the affidavits submitted by the regulator, the Financial Service Board (FSB), to the Cape High Court yesterday provide a startling insight into the way the company did business.

Fidentia is essentially the brainchild of Arthur Brown, who started Brown Brothers in 1999. Brown Brothers is the top company in the structure. It owns 75% of Fidentia Holdings, which in turn owns both Fidentia Asset Management (which it bought in 2003) and Bramber.

In the past two years, Fidentia had gone on a buying and publicity spree, sponsoring the Top Empowerment Awards, buying the Durban-based soccer club Manning Rangers for R1,5m in 2005, committing R4,9m to the Warriors cricket team, and buying 50% of Boland Rugby.

It has also bought Software Futures, loyalty company Infinity and certain assets from multimanager mCubed.

But yesterday’s successful application by the Financial Services Board (FSB) to have Fidentia placed under curatorship exposed just how brittle this facade really was.

The affidavit submitted by the FSB’s deputy executive officer, Gerry Anderson, contained scathing passages from a report by their inspectors into the company.

In their initial report, the inspectors said R689m of funds were “unaccounted for”. After a limited explanation from Fidentia, the inspectors have tailed back their expectations to R406m in “unaccounted for” funds — money that belonged to Fidentia’s clients.

The inspectors said “funds received from clients intended for investment were used to defray business expenses and to acquire property and private equity investments for the Fidentia group”.

There are many other problems that are highlighted by the inspectors.

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”.

In one case, Fidentia claimed it owned a “promissory note” worth R150m, issued by PLJ Namibia.

Yet the FSB found that PLJ Namibia “has no assets whereby the note can be supported”, adding that “the note was being used for the mere purpose of fictitiously inflating the value of client assets, and the consequent returns to clients”.

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.

Although the FSB said the plan was not for the curators to simply sell assets, the position of Fidentia Asset Management’s two largest clients, the Living Hands Umbrella Trust and Teta, the sectoral education and training authority (Seta) for the transport sector, remained uncertain.

Living Hands placed R1,47bn with Fidentia, and Teta R245m.

Living Hands was set up to pay money invested by the Mineworkers Provident Fund to families of people killed in mining accidents.

The inspectors’ report said any losses for this fund “will have far-reaching consequences and impact the interests of a large number of individuals, including minors”.

Attention will soon shift to why the fund trustees did not act sooner to protect beneficiaries’ interests.

The provident fund recently suspended its principal officer, Frans Mahlangu, after he repeatedly raised concerns about the Fidentia investment.

It is understood the fund obtained advice from various independent bodies about terminating the Fidentia investment, yet this never happened.

Yesterday, Mahlangu said he was suspended last month because “I reported critically about Fidentia (as) I sensed something was not right and was scared that the money was being used for silly reasons”.

He said most of the other trustees did not agree, and delayed terminating Fidentia’s mandate.

Yesterday’s court application shows that Fidentia Asset Management had only R14m cash on hand in November, compared to R135m in August.

The FSB says Fidentia has simply put forward a “bare denial of any misconduct”, or of improperly using client money.


 * From: http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A374212**

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