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More questions than answers in Fidentia case

The sentencing of J Arthur Brown continues.

CAPE TOWN – After two days of questions in mitigation of the sentencing of J Arthur Brown, former CEO of Fidentia, no one is any clearer as to what happened to the R1.3bn that was apparently misappropriated by Fidentia directors, including Brown.

What was apparent was that the line of questioning adopted by prosecution for the State, Advocate Jannie van Vuuren, tested the patience of Judge Anton Veldhuizen. At one point in the proceedings the judge burst out (translated from Afrikaans): “Mr Van Vuuren! I won’t say this again! This [line of questioning] will not help me!”

On April 19 Arthur Brown was found guilty on two counts of fraud related to dealings with the Transport Education and Training Authority (Teta) and the Mantadia Asset Trust Company.

Current proceedings now before the court allow Brown to testify in mitigation of sentence and for the state to cross-examine him on this testimony. It was this cross examination, and the fact that it seemed to extend beyond the scope of the two counts of fraud that frustrated the judge.

“You are asking questions about events that happened subsequent to the fraud,” a frustrated Judge Veldhuizen said. “Why is it relevant?”

“It is relevant Your Honour. Why can’t the court be enlightened as to what happened to the funds. Why is that not relevant?” replied Van Vuuren.

“What are you saying? That they [Fidentia] stole the money? Or that they invested badly? I think you are wrong. I am going to allow you to continue. But I think you are wrong.”

Spokesman for the National Prosecuting Authority in the Western Cape, Eric Ntabazalila was not perturbed by the judge’s apparent frustration, nor by the fact that the Prosecution’s line of questioning appeared to have fizzled to nothing. “We feel strongly that some points need clarification. It is inevitable that some of these will deal with matters that Brown was not specifically found guilty of.”

One line of questioning dealt with an R11m fee that Brown was paid from the proceeds of the sale of a particular promissory note. The note was an asset belonging to Teta. Its value at maturation was worth R50m, however it was sold several months prior to maturation for R43m. The R11m fee was justified, says Brown, because it was for ‘portfolio work’ that was broader than that related to Teta. How, or if Teta’s remaining R39m was reinvested, was not made clear.

Brown used the R11m to acquire two residential properties at Sunset Beach and three 4×4 vehicles.

Another line of questioning dealt with why Fidentia did not stick to the investment mandate agreed with Teta. The mandate was a conservative one and restricted Fidentia to low risk investments that could be liquidated in 30 days and 90 days. Instead Fidentia invested in Software Futures, a company that was massively overvalued in the IT boom, as well as the half-completed Sante Hotel and Spa, among other investments.

Advocate van Vuuren also dealt with the monies that Fidentia used to pay the shareholders of the Mantadia Asset Trust Company (Matco) when Fidentia bought it. Facing a liquidity crunch, Brown engineered a change of ownership before the balance of funds was paid, and then settled the difference using funds drawn from Matco itself. The funds used to settle the difference, said Brown, were legitimate monies owed to Fidentia by Matco, namely a 2% take-on fee and a 2% asset management fee.

So which account did the monies come from? “What was the nature of that account?” asked Van Vuuren. “Was it servicing the day-to-day needs of the beneficiaries?”

Brown: “I would presume that to be so yes.”

However it was when Van Vuuren began to ask questions about whether Brown and Fidentia would have got as far as they did if the Teta fraud had been discovered earlier that the judge lost patience. “What do you mean discovered? Do you mean accused and then found guilty? Well of course not,” he snapped.

The case was adjourned until Thursday. At this point the advocates and judge will decide a legal point with huge significance: whether or not the parties are bound by the admissions made by Brown – which enabled the sentencing on two counts of fraud.

Judge Veldshuizen believes they are: “I would have it that you [pointing at the defence] shouldn’t come in here and try to water this down; and the state should not try to make it more than it is.”

However, Van Vuuren, acting for the state believes there is case law which sets a precedent allowing one not to be bound by admissions when arguing in aggravation of sentence.

It seems the whereabouts of the missing funds are as elusive as ever.

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