FIDENTIA: WHAT TOOK SO LONG

So where is the FAIS compliance officers, why did they not see that something was not right? Where is the FBS compliance - why did they not see that something was not right?

We complain and bitch all the time about the 'red tape' that everyone has to be subjected to - where was it here!

Seems like some of the rules only apply to some of the people, some of the time!

Fidentia: what took so long?


Tumi Makgetla: COMMENT


04 March 2007 11:59

You would expect the man at the helm of a company responsible for the disappearance of hundreds of millions of rands of other people’s money at least to be a great fraudster. But in the case of the Mineworkers Provident Fund’s missing millions, J Arthur Brown may have just had a good eye for a weak system.

The experience of South African pension funds has too often been that they are veritable orchards of low-hanging fruit. Unfortunately, someone let Mr Brown through the farm gate. Brown cannot claim all of the credit, because he could not have run Fidentia single-handedly. But he certainly played a leading role as CEO of Fidentia Holdings and a director of Living Hands Trust, where the Mineworkers Pension Fund (MWPF) invested R800-million. According to the Financial Services Board (FSB), about R700-million of the R1,2-billion in the Living Hands Trust has gone missing, and in its report, the FSB accuses “Fidentia Group/Brown” of “misappropriating” this money. Brown, on the other hand, assures us that the money is safely in a private equity portfolio and asserts that the FSB is attacking his business for criticising the regulator. Perhaps Brown’s claims will prove true. Or not. But one thing is certain: Living Hands was secretive about its trust management and raised suspicions among its clients long before the FSB stepped in.

In 2004, the year that Fidentia began to manage the mineworkers’ trust, beneficiaries began complaining that payments had gone awry. In 2005, the frequency and scope of these problems led the MWPF board to halt further payments to Living Hands pending the results of an investigation. To successfully defraud a scheme, it is not enough to cook the books. One also needs a silver tongue. It didn’t work this way at Fidentia. When confronted by a lawyer representing the MWPF, who demanded information about the money, Brown reportedly opted for a goon squad and adopted an arrogant attitude, refusing to reveal what he was up to with their cash.

If the alarm bells about Fidentia had only been tinkling faintly until this point, they should have started to peal loudly. Why didn’t they? Why did the MWPF ignore legal advice and leave about R800-million in the clutches of the opaque Mr Brown? Why did it instead spend a year investigating the fund? Why didn’t the regulator act sooner? In some ways, it is an old story. Pension funds create tremendous potential for corruption and mismanagement. Today, for example, Alexander Forbes and dozens of company executives stand accused of systematically looting pension fund surpluses.

The pension fund trustee system in general is hardly foolproof. Trustees of union funds, few of whom are full time and many of whom work for free, may lack the time and training to monitor funds adequately. In a Deloitte and Touche survey on retirement fund governance, two-fifths of the trustees interviewed spent 10% or less of their time on fund-related matters. But where trustees lack knowledge, experts do not necessarily support better decision-making. The MWPF board wanted to base its decision about moving money from the trust on the outcome of a KPMG investigation. KPMG reported that it could not obtain access to critical information. Yet several MWPF parties who received KPMG’s report believe that it failed to interrogate fully why Living Hands might want to restrict information.

Opportunities for corrupt behaviour exist whether or not they are exploited. In this context, whistle-blowers need better protection. MWPF trustee Collyn Manzana repeatedly called for the board to remove mineworkers’ money from Living Hands. The provident fund’s principal officer, Frans Mahlangu, also tried to blow the whistle. Both have been pushed out of their positions by the board. The most basic lesson emerging from the rubble of Fidentia is that South Africa needs to strengthen financial regulation — particularly when it comes to protecting the public and, in this case, the funds of retirees. As the government gears up for a compulsory pension scheme, there must be better oversight of workers’ money. At the moment, our retirement funds seem to be easy pickings.