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Rael Levitt not found guilty of fraud

The NCC has ruled that he is guilty of contravening certain aspects of its legislation.

THE EDITOR

Email: editor@moneyweb.co.za

MONEYWEB

1. We act for Mr Rael Levitt and Auction Alliance (Pty) Limited.

2. We refer to your article of the 31st March 2012 headed “Auction Alliance boss Rael Levitt found guilty”.

3. Our client has not been found guilty of fraud nor bid rigging. The National Consumer Commission has ruled that our client is guilty of contravening certain aspects of their legislation. No criminal trial has taken place.

4. Our client objects to the line “Levitt now faces a R1 million fine or 12 months in jail” as the National Consumer Commission does not have the right to impose jail sentences upon persons. That is reserved for the Courts in our country. Levitt has not been convicted of any offence, appeared in any Court or in any trial.

5. Our client, as a result of the article, is suffering damages and will continue suffering damages unless and until your article has been retracted.

6. We trust that you will rectify the situation immediately.

7. All our clients’ rights are reserved.

Yours faithfully SMIEDT & ASSOCIATES


MEDIA STATEMENT ON THE APPELBAUM/AUCTION ALLIANCE MATTER HELD ON 30/03/2012

BY: COMMISSIONER, MAMODUPI MOHLALA

1 The National Consumer Commission (NCC) received a complaint from Mrs. Wendy Appelbaum (herein after referred to as the Complainant) about Auction Alliance (herein after referred to as the Respondent) on the 31st January 2012. The complaint was about the conduct of the Respondent namely through its then Chief Executive Officer , Mr. Rael Levitt during the auction held in Stellenbosch on 10 December 2011.

2 The auction involved the auctioning of fixed property or Quoin Rock Estate to be sold as a going concern (herein after referred to as Lot 1) and movable property (herein after to be referred to as Lot2)

3 The complainant alleged that the Mr. Levitt whilst conducting the auction for Lot 1 used a ghost bidder, namely Mr. Gideon Leygonie (Mr. Leygonie) to bid against the Complainant. The complainant alleged that this conduct is contrary to the provisions of section 45 of the Consumer Protection Act (CPA) and the regulations promulgated to regulate auctions in terms of the Act.

4 In line with the procedures and guidelines that the National Consumer Commission is obliged to utilize in the course of resolution of complaints and investigations we the forwarded the compliant to the respondent for their response on  31 January 2012- and requested the initial response on 09 February 2012.The Respondent, requested three postponements namely on 01 February requested extension to 08 March 2012, on 2nd February asked for another extension to 17 February 2012, on the 16th February 2012 requested an extension 22 February 2012 these were granted. We finally received the first written response from the Respondent on 22 February 2012 therein they indicated that they have made a decision to appoint an investigator to investigate and arrive at a decision with respect the conduct that was alleged to have occurred on the 10th December 2012. The NCC viewed this as unacceptable because firstly this was not an investigation in terms of the CPA and secondly it did not address the complaint by the consumer.

5 We then decided that there was a need to have a full blown investigation into the matter, we then invoked the provisions of section 72 of the CPA to initiate its own investigation into this matter. In the course of this process we appointed investigators both internal and external, who were industry experts to assist with the investigation. The external industry experts so appointed were namely Mr. Mabunda and Mr. Hartard from the South African Institute of Auctioneers.

6 In line with the powers to investigate the NCC is empowered in terms of section 102 of the CPA to summons any party to an investigation to provide documents and to present them for an interrogation.

7 We therefore invoked these powers we summoned documents from the respondent to be presented to the NCC on or before Monday, 27 February 2012 the documents summoned were as follows:

  • An advertisement of the Auction in terms of regulations 19 and 20
  • The rules of the Auction in terms of regulation 21
  • Agreement with the owner of the property to put the property on the market  in terms of regulation 22
  • Bidders records as per regulation 26
  • Declaration by the owner of the property in terms of regulation 27
  • A vendor’s roll in terms of regulation 28(4)
  • Auctioneer records in terms of regulation 28(8)
  • All recordings of the bidding process in terms of regulation 31

8 The respondent sent documents to the NCC even though they did not fully meet the requirements of the regulations in the following respects:

  • There were three different sets of rules, one set was with reserve price and the others stated that the sale was subject to confirmation
  • The bidders record was different from the one provided by the complainant
  • The respondent did not provide a vendor’s roll in which the auctioneer make a statement of what happened during the auction was not provided.

9. The NCC also summoned Mr. Levitt to appear before the NCC panel on the 5th March 2012 where he was going to be questioned about the documents listed above as well as the conduct of the auctioneers during the auction in Stellenbosch.

10.  The NCC was concerned with the documents submitted by the respondent and wrote several letters expressing its dissatisfaction. The respondent, through their lawyers requested an urgent meeting with the Commission for the 2nd of March 2012. In the meeting it was agreed that the respondent would furnish the Commission with the outstanding documents and a written response to the Compliant by no later than Wednesday 7 March 2012. The NCC would then consider the contents of written response and make a decision whether or not there would still be s need to summon Mr. Levitt and other representatives of Respondent to appear before the NCC at a later date. This would obviate the need for Mr. Levitt to appear before the NCC on 5 March 2012.

11.  The respondent furnished the NCC with the documents as promised. Together with the documents furnished to the NCC, was the statement made and signed by Mr. Levitt, which plays a crucial role in this investigation. After analyzing the documents, the NCC felt that there was a need to question Mr. Levitt on his statement and other witnesses as well. The NCC therefore summonsed Mr. Levitt to appear the NCC panel on 13 March 2012. The NCC got a response from his lawyers that he was overseas and would only be returning to South Africa during the week commencing 2nd April 2012.

12.  The NCC therefore proceeded to summon other critical witnesses namely Mr. Leygonie, the under bidder or so called “the ghost bidder” to appear before the panel constituted by the NCC to investigate the Auction Alliance v/s Appelbaum matter.  Mr. Leygonie appeared before the NCC on Friday, 16 March 2012,       at such hearing he was accompanied by his legal.  His testimony contradicted the statement made by Mr. Levitt considerably and led the NCC to make the following findings and arrive at the following conclusions.

  • Mr. Levitt had various factual inaccuracies :
  • first glaring inaccuracy in Mr. Levitt statement is that he alleged in his statement that he assumed that Auction Alliance staff had recruited Mr. Leygonie as a vendor bidder when according to Mr. Leygonie’s testimony Mr. Levitt had himself actually instructed Leygonie to bid as a proxy on behalf of an offshore buyer up to R50 million 10 minutes prior to the commencement of the auction.
  • If it was true that Leygonie was recruited to serve as a vendor bidder by Auction Alliance’s staff, why did the same Auction Alliance staff fail to identify Mr. Leygonie as both the vendor bidder and under bidder when Mrs. Appelbaum enquired after the auction? 
  • In fact, the Auction Alliance staff (namely Mr. Berman and Hendricks) apparently referred to Leygonie as a second hand dealer in an effort to justify why he had bid a high price for the movables unique to Quoin Rock.

13.  It is clear from the inaccuracies in Mr. Levitt’s statement that he (Mr. Levitt) gave Mr. Leygonie the wrong impression that he was a proxy bidder for an offshore buyer, but the truth is that he was planted in the audience to serve another purpose altogether, and that purpose can only be to increase the price in a manner described as ‘mock auction’ in regulation 29 (4) of the CPA.

14.  The misrepresentation by Levitt in his statement to the NCC that he took bids from Mr. Leygonie at the auction for Lot 1 under the impression that Leygonie was a vendor bidder is an attempt conceals misrepresenting that this was in fact a mock auction.

15.  Mr. Levitt’s further assertion that he altered the bidder’s record after the Quoin Rock auction and even forged Mr. Leygonie’s signature to give the impression that Mr. Leygonie was a proxy bidder representing Ariel Gerbi (Gerbi) is a smokescreen to cover-up the initial misrepresentation of the mock auction.  The only plausible explanation for the second misrepresentation could be that, after being exposed by Mrs. Appelbaum, Mr. Levitt considered the transgression of falsifying the bidders’ record to be less severe than that of conducting a mock auction.

16.  Also, the fact that Mrs. Appelbaum specifically raised allegations of a mock auction whereby she was either bidding against herself or bidding against a ‘ghost’ at the Quoin Rock auction prompted Mr. Levitt to defend and disprove her claims by alluding to a different transgression instead.

17.  Not only did Mr. Levitt fail at the commencement of the auction to highlight the fact that vendor bidding would be practiced as is industry practice and that a vendor bidder was present during the Quoin Rock auction, but he was at pains to coax Leygonie to retract his R60 million bid after Mrs. Appelbaum declined to place further bids beyond R60 million.  Had Leygonie been a legitimate vendor bidder, Mrs. Appelbaum’s decision to stop bidding beyond R60 million should not have placed Mr. Levitt in the predicament he visibly found himself in.  Mr. Levitt should simply have announced that reserve had not been reached and that the R60 million bids was actually the vendor’s bid.  Under the circumstances, Mr. Levitt would have options to correct the situation, namely:

  • Conclude the auction by declaring a ‘no sale’ due to the failure to meet reserve.
  • Revert to Mrs. Appelbaum’s last ‘good faith’ highest bid of R55 million, provided she accepted. 
  • Mrs. Appelbaum’s acceptance is important due to the fact that according to contract law, by accepting the higher bid of R60 million, the auctioneer had nullified Mrs. Appelbaum’s earlier R55 million bid, hence the retraction of the higher R60 million bid does not automatically resuscitate Mrs. Appelbaum’s earlier R55 million bid. 
  • Also, Appelbaum had the right to retract her R55 million bid until the fall of the hammer in terms of section 45 (3) of the CPA. 
  • Provided Mrs. Appelbaum confirmed that her R55 million bid was still valid, Levitt could have concluded the auction by knocking Quoin Rock down to her ‘subject to confirmation’ by the seller. 
  • As contained in Mr. Levitt’s statement, even though the R55 million offers was far less than the reserved price, knocking the property down to Mrs. Appelbaum subject to confirmation would have opened the door for negotiations between the seller and Mrs. Appelbaum to close the gap between the R55 million offer and the reserved price.

18.  However, the fact that Mr. Leygonie was a somewhat secret vendor bidder visibly placed Mr. Levitt in his predicament. The manner in which Levitt retracted the R60 million bid and his eagerness thereafter to knock the property to Mrs. Appelbaum is questionable.  In his haste, Mr. Levitt even forgot to mention that the property was sold subject to confirmation by the seller as reserved price had not been met.

19.  If Mr. Levitt’s intentions were noble, why did he take a R60 million bid from Leygonie when it was R10 million above the limit he himself had set for Mr. Leygonie?  No wonder, as Mr. Leygonie testified to the NCC commission on Friday 16 March 2012, Levitt’s action was both unprecedented and shocking even to Mr. Leygonie, who claims to have reacted by ‘freezing’

20.  According to the CPA and Regulations, the use of either a proxy bidder or a vendor bidder must be disclosed beforehand and there are necessary documents that need to be filled by both the proxy and the principal on behalf of whom he/she is bidding. In this case, neither of the two was done and hence it is a contravention of both the Regulations and the CPA.

21.  The NCC proceeded with its investigation by summonsing the liquidators, Mr. Cloete Murray (Mr. Murray), Mr. Norman Klein (Mr. Klein) and Ms. Elizabeth Margaret Edwards (Ms. Edwards) who came before the Commission on 19 March 2012. The testimony by the liquidators further proved that Mr. Levitt statement was inaccurate and contained further misrepresentations either meant to cover up the truth, or to mislead the NCC.  The liquidators’ testimony contradicted the statement made by Mr. Levitt considerably and led the NCC to make the following findings and arrive at the following conclusions.

  • Contrary to Mr. Murray’s clear process used by the Master of the High Court (theMaster) to appoint liquidators on the strength of requisitions from creditors either based on numbers (the number of creditors supporting a liquidator) or value (the value of claims by the creditor supporting a liquidator), the appointment of liquidators for Quoin Rock followed is questionable but however this is not the focus of the investigation the proceedings today.
  • According to Mr. Murray’s testimony, the attorney of record instructed him to travel to Cape Town on the 30th of June 2011, a day before both the court liquidation order and the certificate of appointment by the Master were issued.
  • Both the court order and the Master’s letter of appointment were issued on the 1st of July 2011 while Mr. Murray waited at the offices of the Sheriff of Cape Town (the Sheriff). 
  • Thereafter, both Mr. Murray and the Sheriff proceeded to Quoin Rock to serve the order and also do the inventory of the assets.

22.  Further Mr. Murray also testified that he called Auction Alliance on the spot whilst at Quoin Rock, and instructed them to secure the estate, i.e., (provide security) and to also do the inventory.

23.  It would seem that no mandate or written agreement was entered into between Auction Alliance and the seller as contemplated in regulations 22 (2) and (3) of the CPA.  If such an agreement, it hasn’t been brought to the attention of the NCC, in spite of numerous requests.

24.  Further according to Mr. Murray, Version 5 of the Rules of Auction was signed off by the liquidators as the rules applicable for the Quoin Rock auction.  Asked if the auction was ‘reserved or with an upset price’, Mr. Murray categorically stated that the auction was ‘without reserve’ but ‘subject to confirmation’ by the liquidators.  It was put to Mr. Murray that the CPA only makes provision for two types of auctions, namely; with ‘reserved or upset price’ in terms of section 45 (4) (a) and ‘without reserve or absolute’ in terms of regulations 20 (18) and (19). It was also put to Mr. Murray that by definition in terms of regulation 18 (1) of the CPA, an ‘absolute auction or without reserve’ means an auction at which:

  • Goods are sold to the highest bidder without reserve;
  • The auction does not require a minimum bid;
  • The auction does not allow competing bids of any type by the seller or an agent of the seller; and
  • The seller of the goods cannot withdraw the goods from the auction after the auction is opened and there is public solicitation or calling for bids.

25.  It was further put to Murray that according to industry practice; an auction ‘subject to confirmation’ is, by implication, a ‘reserved or upset price’ auction.

26.  In terms of Mr. Murray’s testimony, Quoin Rock qualified as a reserved auction where the reserved or upset price was not determined, hence the auction was ‘subject to confirmation’ by the liquidators.  However, this is contrary to Levitt’s statement who claimed that Murray had ‘indicated to him that the joint liquidators would accept no price less than R75 million in a discussion held the morning of the Quoin Rock auction’.

27.  Mr. Murray categorically stated that he had not given Levitt such an instruction.  At any rate, even if Murray had given Levitt such a verbal instruction, it would be in contravention of regulation (24) (i) of the CPA, which provides that ‘an auctioneer may not set a minimum or reserve price without the express written permission of the seller’.

28.  Mr. Murray and the joint liquidators also vehemently denied that they had given Levitt permission to practice vendor bidding during the Quoin Rock auction.  The testimony by Mr. Murray and the joint liquidators irrefutably disprove Levitt’s statement that Mr. Leygonie was a vendor bidder.  Even if the auction was reserved, how could Mr. Levitt take bids from a vendor bidder when no reserved price was determined?  How would both Mr. Levitt and the vendor bidder know where to stop bidding?

29.  It also emerged from Mr. Murray’s testimony that Auction Alliance’s defied the joint liquidators’ instructions to accept all offers for movable lots by rejecting all the offers Mrs. Appelbaum made for movable assets.  By so doing, Auction Alliance acted in contravention of section 68 (1) of the CPA which provides that a consumer should not be penalized of discriminated, directly or indirectly, for exercising, asserting or seeking to uphold any right set out in the CPA.

30.  Apart from allegations of bid rigging and activities that could be construed as fraudulent leveled against Levitt and Auction Alliance, the real axis of evil within the auction industry lies elsewhere.  As the Quoin Rock matter has demonstrated, insolvency practitioners need to also be put under the microscope at a future date with respect to their role with regard to the challenges that bedevil that auction industry.

31.  Mr. Murray confirmed that the joint liquidators declined Mrs. Appelbaum’s offer of R55 million, not only because it was less than the ‘anticipated price’, but also because of the public scrutiny the Quoin Rock estate had attracted subsequent to Appelbaum’s legal challenge.  When asked what such an anticipated price was, Mr. Murray didn’t have a straight answer.  It appears that neither the reserved nor anticipated price was ever discussed between the parties involved on the Quoin Rock matter, not between the liquidators and the creditor, and not between the liquidators and the auctioneer.

CONCLUSION

32.  Therefore based on the above overwhelming evidence the NCC concludes as follows:

  • Mr. Levitt in his capacity as CEO and as agent of Auction Alliance used a ghost bidder, Mr. Leygonie in the capacity of either a vendor or proxy bidder at almost various auctions conducted by the company without announcing Mr. Leygonie’s role to other bidders constitute a contravention of the CPA and its regulations in that it amounted to a ‘mock auction’ as stipulated in regulation 29 (4) of the CPA regulation. 
  • Contrary to the provisions of regulation 29 (4) of the CPA which suggests that a mock auction involves at least two people as conspirators, Mr. Leygonie’s testimony cast doubts that he could have been part of Mr. Levitt’s scheme to deceive other bidders
  • Chances are that Leygonie was used and he genuinely believed that he was rendering a legitimate service and representing ‘bona fide’ buyers and sellers at Auction Alliance auctions.
  • Mr. Leygonie was paid a meager fee of R1, 500-00 per auction by Auction Alliance for his services and this supports our conclusion that he had very little financial gain from the practice.
  • If this was not the case, chances are that Mr. Leygonie’s fee would be variable and commensurate with the value of the property on auction.
  • Also, the fact that Mr. Leygonie’s rate was a daily rate and applied equally to multiple auctions further justifies this conclusion. 
  • Mr. Levitt was not the only perpetrator as it is apparent that Mr. Leygonie’s role was known by several senior and junior AA staff members and auctioneers who maintained contact with him.
  • This is contrary to protestations of innocence by Auction Alliance’s board that they had no knowledge of Mr. Levitt and Auction Alliance’s practices
  • We conclude that there is no way that the Auction Alliance board can absolve itself from Mr. Levitt’s actions considering Mr. Levitt’s position as Auction Alliance’s founder, majority shareholder, CEO and principal auctioneer.
  • Furthermore, Companies Act and the King Code II on good corporate governance states that a company is liable for the acts and omissions of its directors and agents executed in the course and scope of their employment and duties which a third party relies on to their detriment. 
  • Also Section 113 of the CPA states that if an employee or agent of a person is liable in terms of this Act for anything done or omitted in the course of that person’s employment or activities on behalf of their principal, the employer or principal is jointly and severally liable with that person.
  • The current complaint is a typical case in point and as such the protestation by the board of AA that they cannot be held liable for Mr. Levitt’s conduct cannot stand in law.
  • Furthermore, it is also vital to mention at this point that both the chairperson of the AA board Mr. Ntsaluba and the acting CEO Mr. Sneddon were summoned to appear before the NCC for interrogation but they failed to oblige.
  • Based on Mr. Leygonie’s testimony and other circumstantial evidence such as video recordings of the Quoin Rock auction, inconsistencies contained in Mr. Levitt’s statement and discrepancies in the reports of Auction Alliance’s staff, particularly regarding the identity of the under bidder, it is clear that both Mr. Levitt and Auction Alliance contravened the provisions of the Consumer Protection Act and its regulations during Quoin Rock’s auction on 10 December 2011 by orchestrating  a ‘mock auction’ as defined  in regulation 29 (4). 
  • Under normal circumstances, the video footage of two contesting bidders should alternatively zone in on both bidders. 
  • The fact that the video footage of the Quoin Rock auction contains no footage of the under bidder is puzzling to say the least and can only suggest that no such under bidder existed. 
  • Maybe Mr. Leygonie’s confession that he was motionless at the Quoin Rock auction whilst Levitt took bids from him is the reason the video recording of the Quoin Rock auction appears to have been edited.
  • Since the NCC’s hearing is not a court of law, we believe that it is still essential to use a civil law standard (Proving guilt on balance of probability) before ascribing liability.
  • By using this standard, we conclude that the evidence presented before the NCC, including Mrs. Appelbaum’s complaint that Mr. Levitt conducted a mock auction as described in regulation 29 (4) of the CPA at the Quoin Rock auction are both true and have been factually substantiated in both the evidence presented by Mrs. Appelbaum in her initial complaint and in the testimony by Mr. Leygonie and the Liquidators.
  • This being the case, both Mr. Levitt and Auction Alliance are guilty of contravening the provisions of the CPA by conducting a mock auction with the intention to induce Mrs. Appelbaum to participate in a flawed auction process and as such to offer an inflated purchase price for the Quoin Rock estate on 10 December 2011. 
  • Consequently, the NCC is satisfied that Auction Alliance contravened the Regulations and Section 45 of the CPA governing the Auctions.
  • In conclusion, we are therefore issuing a compliance notice to Auction Alliance in terms of the powers bestowed to us by the CPA.
  • In this compliance notice, we pray that Auction Alliance undertake the following:

(i)  that the consumer is put back to the position that she would have been in

had it not been for the misconduct of Mr. Levitt in his capacity as CEO of Auction Alliance.

(ii) We are in discussion with preferential creditor in this case SARS and the Liquidators to ensure that Mrs. Appelbaum does not lose her right of recourse against the subject matter of her compliant in this case Quoin Rock estate. In the interest of expediency this will be brought on an urgent basis.

(iii) We shall order that Auction Alliance pays an administrative fine of 10% of annual turnover

  • As part of finalizing this process, the NCC will do the following:

(i)  Consult with Mr. Levitt on 10 April 2012 in order to canvass whether or not his conduct on the day of the auction and in general amounts to fraud which would facilitate a referral in terms of section 73 of the CPA to the NPA for further prosecution

(ii) The NCC also concludes that Mr. Levitt has knowingly provided false information to the NCC and as such will invoke the provision section 109 read with section 111  which permits the NCC to call for a fine of R 1 million and or a period of imprisonment up to 12 months during the criminal investigation

(iii) We will also approach the ESTATE AGENCY AFFAIRS Board to investigate the prospect of suspending with the intention to fully withdraw AA fidelity fund certificate to practice

  • Finally, we are aware that investigation of the allegations of corruption and kickbacks between attorneys, liquidators and auctioneers fall outside the scope of the current investigation, however the testimony given the liquidator, Mr. Murray at the NCC’s hearing on Monday 19 March 2012 will convince any relevant organ of state to launch a separate investigation to probe the relationship between attorneys, liquidators and auctioneers.
  • The conclusions from this investigation will help the NCC in putting in place an industry code of conduct.
  • Such process will commence shortly.

I THANK YOU FOR YOUR ATTENTION AND INVITE ANY QUESTIONS OF CLARIFICATION.


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