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Opinion: Deon Basson was right about Sharemax

Sharemax is a Ponzi scheme, a Ponzi scheme, a Ponzi scheme, a Ponzi scheme….

There – I’ve said it, and for the first time it can now be said without fear of being threatened with bullying letters from one of the phalanx of lawyers used by Sharemax over many years.

This is the one consequence of the ruling by the Financial Advisory and Intermediary Services (Fais) Ombud Noluntu Bam, who finally had the courage to blow open the festering sore known as the Sharmax Property Syndications with a courageous and honest ruling that sets in motion far- reaching consequences, both legal and financial, for the advisors, directors and other parties associated with this.

The other consequence is that, unless this ruling is somehow overturned by the Financial Services Board (FSB) Appeal Panel or another court, the floodgates are now well and truly open for financially dispossessed investors, particularly in the Zambezi Mall and The Villa, to pursue their claims through the offices of the ombud.

These two schemes in particular had all the characteristics of a Ponzi scheme: investors handing over money in order to get a little bit of their money back. This could only continue as long as there were other investors in the back of the queue to pay the investors in the front of them.

In total about R2.5bn was invested into these two schemes, most of it now simply gone….

For the late Deon Basson this vindication comes too late. His legal battle with Sharemax was a direct cause of his sudden death by heart attack. I was friends with Deon Basson since our days at Beeld in the early 80’s and we often – not often enough now in hindsight – had a beer and a burger, chatting about many things, lately more often than not about his research on Sharemax and his continuing legal battles with it.

For the record: Sharemax was suing him for R20m in damages for alleging that the financial model of Sharemax was unsustainable and in effect…..a Ponzi scheme. I think his estate needs to consider a damages claim against Sharemax and its directors.

His career path in financial journalism took him to the Financial Mail, Finansies en Tegniek and Finance Week amongst others, in the process winning an unprecedented six Sanlam awards for financial journalism. In the end he stopped entering this competition, he told me once, because he was afraid of being labelled a “windgat”.

Along the way he also was made a honorary professor in accounting at the University of Pretoria.

What was worth mentioning was that Sharemax did not sue the publications that carried his articles but Basson in his private capacity, thereby avoiding a long and drawn out legal battle with media giant Naspers. I understand that Naspers abandoned Basson in his financial hour of need. He won most of his Sanlam awards while working for this group and each time he won they would brag about “their” top journo, but when the chips were down they were nowhere to be seen.

The Sharemax lawyers used all the dirty tricks in the legal profession, making the shenanigans of the lawyers in The Good Wife look like the actions of Mother Theresa.

Funded by an endless supply of money they served papers on Basson, often changing their pleadings, requesting postponements etc., all with one objective in mind: to silence Basson and wear him out, both physically, mentally and financially.

In one court appearance the Sharemax lawyers even tried to use Basson’s health (he suffered from a bi-polar condition) in an attempt to discredit his testimony and analysis of their accounting methods.

A week before his death I had lunch with Basson. He gave me some chapters of his unpublished manuscript on Sharemax called “Public Interest Warriors” in order to get my view and to check some facts. There was no need: his facts were meticulously researched.

He also admitted during this lunch that Sharemax was getting to him. Financially destitute, abandoned by his erstwhile employers, most of his friends as well as the regulatory environment, his last words to me were:” Ek is tam, hulle ‘grind’ my nou….”

A week later he was dead, a sudden heart attack.

After his death Sharemax bought the manuscript of Basson’s book from his estate for an amount rumoured to be R400 000. His wife, also suffering financially, had no choice but to sell.

But Sharemax could not stop the tidal wave of exposés now coming at them from many quarters, particularly Moneyweb, the Afrikaans radio station RSG , Finweek and finally at the death, Beeld and Rapport.

The other English newspapers were missing in action in all of this. If you google ‘Sharemax’ on the Business Day website you find only five references to Sharemax, two of them written by the late Ian Fife who wrote about the possibility of Bonatla buying Sharemax. Nothing else about one of the largest financial scams in South African history.

It is my view that Business Day simply ignored this story, as did most of the English press, due to the fact that most of the distressed investors were old, white Afrikaans pensioners, and they could not be bothered with their fate.

It is furthermore my view that were more black investors the victims of the Sharemax scam, the regulators, including the FSB, the Department of Trade and Industry, the Reserve Bank and the Hawks would have stepped in a long time ago. A group of 4 000 Swazi military veterans have lost all their money in this scheme.

Mention has to be made of two other activists in all of this: forensic accountant André Prakke and Moneyweb’s Julius Cobbett.

Cobbett has been streets ahead of any other journalist in his articles on Sharemax and Picvest, the other large failed property syndication. I tried to get other journalists interested into the growing debacle at Sharemax. Cobbett was the only one who got out of his air-conditioned office and travelled more than 40 kilometres to a derelict and dusty shopping Sharemax syndication called The Fern, next to Dainfern where I live.

We were joined for a short lunch by André Prakke, who also worked tirelessly behind the scenes with his razor-like analysis of the financial engineering taking place at several Sharemax developments. In almost all instances could he point out that investors’ interest payments were being funded or supplemented by a secret slush fund, the hallmarks of a Ponzi scheme.

The Fern was a R40m syndication marketed by the Sharemax brokers at the time, with the prospect stating that it was an “upmarket shopping centre fully let with a steady stream of wealthy shoppers from Dainfern and surrounding areas…..”

The only problem was that the shopping centre was virtually empty, the anchor tenant Pick’nPay had left months ago and all that was left was a rag-tag collection of estate agents, hairdressers, a pizza joint and an ATM. Quite simply: they were lying, and so did Willie Botha, previous MD of Sharemax when he was quoted by Cobbett in one of his articles in response to his questions on The Fern.

On further analysis I established that The Fern had a bond of R28m with Nedbank at a fixed rate of 14, 5%. It was broke and underwater but still it was being marketed by Sharemax. Furthermore, on reading through the prospectus it took a while to establish that you were not investing in the property itself but merely lending money to a different company via a debenture which in turn lent the money to Sharemax.

On the phone-in radio programme on RSG, which I hosted Friday evenings from time to time with Andries van Zyl, we were often, particularly in 2010 and 2011, asked our views on the merits of investing in a Sharemax development. The answers were always the same: do not touch it with a bargepole!

Rather invest in a listed property fund, the best performing asset class over ten years or more if you wanted to invest in property, was my view.

This naturally drew the ire and legal threats from Sharemax who insisted on a meeting with Moneyweb and me. A date and time was agreed upon and Sharemax sent a list of 11 representatives from Sharemax who would form their delegation, including Willie Botha.

Feeling a little outnumbered we wrote back to state that apart from Andries van Zyl, executive producer Janine Bester and myself we would like to include André Prakke in our team. The meeting was immediately cancelled with no further explanation. Very soon thereafter the SA Reserve Bank stepped in and declared the scheme to be in contravention of the Banks Act and forced Sharemax to stop taking money from the public. This was the beginning of the end.

For his efforts Prakke had to suffer the continued legal threats from the legal bully boys employed by Sharemax. Prakke tells me that a week after Basson’s death he received a phone call from a Sharemax-lawyer with the ominous warning: you‘re next. He has never been sure if it was in reference to Basson’s death or the possibility of a lawsuit.

The Ombud’s ruling also has dire consequences for Weavind and Weavind, the Pretoria legal practice into whose trust account the investors’ billions paid in terms of an explicit undertaking that no money was to be released until the properties (Zambezi and The Villa) have been transferred into the investors’ name. As we know now the billions of rands that came into the account left it almost immediately.

Likewise the auditing firm ACT Solutions have some answering to do. They too have been reported to IRBA, the Independent Regulatory Board for Auditors, to explain their role in this unravelling property scheme.

This is not the last word on the Sharemax- saga. Expect similar developments in regard to Picvest, another failed property syndication which is currently under business rescue. Here too the final words have not been spoken.

*Magnus Heystek is a director at Brenthurst Wealth.

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