Six years of legal proceedings cost far more than fine imposed
The National Prosecuting Authority (NPA) has been roundly condemned for “stuffing up” its case against Fidentia boss J Arthur Brown.
Forensic auditors, lawyers and investigators City Press spoke to this week expressed shock and incredulity after Brown walked out of court with nothing but a light fine of R150 000 for his role in a scheme that stole R1.4 billion, mostly from the widows and orphans of mine workers.
Some of them requested anonymity because they are involved in the web of ongoing Fidentia-related cases.
Brown’s slap on the wrist came after six years of legal proceedings costing the state far more than the fine imposed, and far stiffer sentences imposed on Brown’s accomplices years ago.
Graham Maddock, Fidentia’s financial director, entered into a plea bargain and got a prison sentence of seven years in 2008. He is out on parole.
Steven Goodwin, also a director, fled the country but was arrested by Interpol in the US in 2009.
He also made a plea bargain for seven years behind bars and got out on parole late last year.
The effect is tantamount to painting a giant pair of crosshairs on South African investors’ foreheads.
One forensic auditor estimates that in the past 10 years, about R50 billion has been lost in South Africa in 46 schemes, and only 25 people have been sentenced.
This despite many cases involving an apparent abundance of damning evidence against the perpetrators, such as the case against Brown.
A lawyer at a major law firm specialising in forensics told City Press the prosecutors plainly “stuffed up”, saying the only reaction has to be “outrage and disappointment”.
The lawyer said: “They (the NPA) thought they had a quick and easy end in sight, but what Brown admitted was actually trivial.”
Dines Gihwala, one of the curators of Fidentia, said he was shocked by the sentence and the shortcomings in the investigation.
He feels that Brown’s sentence should have been at least the same as his accomplices, who played lesser roles in the fraud at Fidentia.
Gihwala expects the case against Brown to go “to Bloemfontein” (the Supreme Court of Appeal) on appeal.
After the “loud protests from all quarters”, the NPA will have no option but to appeal, Gihwala said.
Experts point to a lack of expertise among the investigating officials and public prosecutors
as one of the reasons that so few white-collar criminals are punished.
Graeme Polson, a forensic investigator and curator of CCM (placed under curatorship after an application by one of the curators of Fidentia), said the investigators and prosecuting authority are often not well enough informed about commercial and financial law to form a proper picture of white-collar crime.
“The perpetrators aren’t stupid and can easily outwit investigators,” he said.
Inexperience can mean prosecutors simply do not present the appropriate evidence to court, even if they have it. This seems to have happened in the Brown case.
During sentencing, Judge Anton Veldhuizen said the state’s case had been poorly handled and not all the facts had been presented to the court.
Polson also said that for inexperienced and unskilled prosecutors and investigators, it is often easier to reach a settlement in parts of the case that have been thoroughly investigated.
The problem, however, is that this binds the judge’s hands because he can only impose a sentence on the basis of the
facts before him.
Gerry Anderson of the Financial Services Board, who brought the application in 2007 for Fidentia to be placed under curatorship, said there was damning evidence against Brown, but the case failed because of the way it was presented.
Neels Alant, a lawyer who has investigated several schemes on behalf of the SA Reserve Bank, said the state’s prosecuting capacity is limited. He added that it’s “shocking” what this leads to.
“The sentence imposed on Brown does not show that justice is achieved through the legal system,” he said.
Beyond blaming the prosecutors, the prosecution of white-collar criminals is also hampered by uncoordinated law enforcement and a fragmented regulatory framework.
André Prakke, a forensic auditor, said there are gaps in the application of the law and insufficient participation on the part of citizens, who do not
report corruption and crime.
These include auditors, lawyers, liquidators and curators who are obliged to lay criminal charges as soon as they become aware of certain violations – even if they only have reason for suspecting a violation.
He said liquidators or curators must make the documents they have seized in the execution of their duties available as evidence in criminal cases.
In the case of Fidentia, it’s clear this was not done.
Alex Brooks, an attorney who fought without success for years to get money back for investors in PSC Guaranteed Growth, said the judgment against Brown was an example of the fact that white-collar criminals get away without being punished for their crimes.
He said the number of cases in which the NPA failed raises questions about how white-collar criminals are prosecuted.
NPA spokesperson Bulelwa Makeke said they were “studying the judgment with the intention to appeal”. They will make an announcement this week.
Barry Tannenbaum swindled the rich by getting them to invest in his venture to import pharmaceutical ingredients for generic HIV drugs.
It seems R10 billion to R15 billion disappeared via a Hong Kong bank account. Tannenbaum himself disappeared to Australia when the scheme was exposed in 2009.
He has since been sequestrated, but an investigation by the National Prosecuting Authority (NPA) led to a dead end. The case was being investigated by Advocate Glynnis Breytenbach, the suspended regional head of the NPA’s specialised commercial crime unit.
Businessman Dave King managed to stay ahead of the state for well over a decade after being assessed for unpaid taxes close to R1 billion in 2002.
It took the state until August last year to actually charge him with several cases of fraud related to alleged malfeasance with the 1997 listing of Specialised Outsourcing.
A month ago, Justice Minister Jeff Radebe was nonetheless holding up the long-delayed freezing of R1.5 billion of King’s assets as a major achievement for the Asset Forfeiture Unit.
PSC Guaranteed Growth Fund, formed in 2002, managed to solicit R160 million from 2 500 investors before being liquidated in 2003.
The money was funnelled into related companies. The alleged masterminds, Gary Porritt and Sue Bennett funnelled the money into their other companies.
They faced 3 600 accusations of fraud but successfully delayed their case since 2006. The liquidators of PSC have essentially run out of money to pursue a civil case while the judge withdrew in 2011.
Two accomplices went to jail but were released shortly after.
SA’S BIGGEST CORPORATE SCANDAL
Fidentia is one of the largest corporate scandals in South African history and, unlike many other audacious frauds, the victims cannot even be accused of gullibility or greed.
Fidentia took over management of the Mineworkers’ Provident Fund (controlled by the NUM and the Chamber of Mines) trust for deceased members’ dependants in 2004, renaming it the Living Hands Umbrella Trust.
Soon afterwards, the monthly payments to widows and orphans became erratic and by 2005 the fund stopped making contributions, while investigations ensued.
The Financial Services Board (FSB) ultimately applied for Fidentia to be placed under curatorship in 2007 and the case remains probably the regulator’s most high-profile intervention.
Of the R1.4 billion in claims laid against Fidentia, R1.1 billion comes from Living Hands.
The curators of Fidentia have to date spent R71 million to recover R348 million of the lost funds and have distributed R249 million back to those who were robbed – 18% of what was lost.
Another victim was the Transport Education and Training Authority (Teta), which lost R185 million to Fidentia, but has received back R33.3 million.
Although there is ongoing litigation around some remaining Fidentia assets, there have been hardly any new recoveries of money since late 2011, according to the curators’ latest report to the court early this year.
There is R28.1 million left to distribute – or use in the curatorship.
In January this year, Living Hands finally approached the court for an order allowing it to distribute the money recovered for it by the curators to widows and orphans.
Initially there were 192 charges of fraud, theft, money laundering and corruption against J Arthur Brown. These were later scaled down to nine.
He managed to delay his day in court for several years by having proceedings postponed 16 times altogether. The trial finally started in November last year and in April he was found guilty on two lesser charges, which do not even carry the minimum prison sentence of 15 years for fraud.
This came after the auditor for Fidentia, Graham Maddock, and Steven Goodwin, an intermediary who secured an investment for Fidentia and accepted bribes, were given seven-year prison sentences after entering into plea bargains with the state.
The FSB initially celebrated Brown’s verdict, which came before last week’s sentencing, saying the seven other counts on which Brown was acquitted were “relatively minor”.
An expert in forensic investigations last week told City Press it was actually the other way around, with the crimes Brown ended up admitting to being the “minor” ones.
At the same time he agreed with the FSB that the judge was more lenient than he needed to be. “He could have given him 15 years,” said the lawyer.
There are still several other court cases under way against others who were involved in the swindle.
A case of bribery and corruption against Teta’s former CEO, Piet Bothma, is under way and about eight other individuals are also being prosecuted.
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