The Scorpions have moved with astonishing speed, given that key components of the Fidentia Group were placed under curatorship just over a month ago, on February 2. Brown and Maddock were arrested in respect of criminal allegations relating to a transaction, or series of transactions, totalling R200m. The two men were immediately taken to the Cape Town Magistrates Court.
In the background lies a tangled web of burned cash, running to well over R1bn. The key victims of a massive scam conceived and perpetrated by Brown and his corrupt network are tens of thousands of widows and orphans registered under the Living Hands Umbrella Trust. In October 2004, R1,1bn belonging to the trust was transferred to Fidentia when Fidentia seized control of Living Hands Pty Ltd, the trust's administrator. This cash enabled Brown and his corrupt network to continue with a bizarre business model that appeared to be based on overpaying for acquisitions, in the hope that fresh cash could be seized to fund past peccadilloes. The business model was utterly unsustainable, and maxed out during the second half of last year, when the Financial Services Board started to take various Fidentia whistleblowers seriously.
The first hardcore cases of alleged fraud were outlined late in 2005. Hendrik Roedolf Bam, who worked in and around the Fidentia Group between December 2002 and December 2003, determined to expose the rot in Fidentia, eventually deposed several affidavits at a Cape Town police station, backed up by extensive annexures containing accounts and much other sensitive information. Bam showed how Maddock was not only auditor for Fidentia Holdings (for a certain period of time), he was also an ongoing director, employee and shareholder in the Fidentia Group through Bonus Way (12) (Pty) Ltd. Bam alleges that Maddock and Brown were involved in "so many instances of fraud that it would be impossible to unravel, if one does not start at a point".
Bam forewarns police that "during your investigation" it would be realised that client funds were handled out of Maddock's statutory trust account by Brown and Maddock without client permission and utilised for personal expenses, company expenses (including operating expenses), and "repaying other clients whose money they used" where earlier-dated money had fallen short. "When I asked Brown", Bam states, "why the company did not have its own banking accounts, Brown said for security purpose, safeguarding client funds. It later became clear that it was done to facilitate fraud of client's funds".
Reports filed after a limited inspection of Fidentia by the Financial Services Board (FSB) accused the group of inadequate corporate governance, material conflicts of interest, poor financial management and reporting, deviation from client mandates, misrepresentation to clients, defying the segregation of assets principle and co-mingling funds, misappropriation of client funds, misrepresenting investments, a probable shortfall in trust holding, and non-adherence to licence conditions. Clients, stated the FSB, would, according to allegations, "be paid out of new or existing client funds. The process then carries forward the problem to the next set of clients. In our opinion this modus operandi is akin to a pyramid scheme". It is apparent throughout the FSB report that Brown "is the directing mind and will of the group". The inspectors say emphatically that "Brown controls FAM [Fidentia Asset Management] and the client investment assets single handedly".
FAM's auditors reported certain irregularities in the conduct of the company's affairs to the relevant registrar. An affidavit by the responsible auditor, a CH Beekmans of Greenwoods Chartered Accountants, stated that the audit of FAM for the year ended 2005 was initiated by his firm on August 1 2005. But the auditors were unable to finalise and sign the audit report for the financial 2005 year, never mind 2006.
Source: Money Web
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