Fidentia’s Brown goes down

Court criticises Judge Veldhuizen’s finding that Brown’s fraud was ‘not serious’.

The Supreme Court of Appeal (SCA) handed down a judgment on Monday in which it overturned the effective 36-month sentence (or R150 000 fine) imposed on Fidentia’s former head, J Arthur Brown and substituted it with 15 years direct imprisonment.

The collapse of the Fidentia group of companies was one of the biggest corporate collapses of the first decade of the new millennium.

The Financial Service Board (FSB) placed the flagship company, Fidentia Asset Management, under curatorship.  The group was the subject of much litigation and legal wrangling.  It was also alleged at the time that the FSB had been dragging its heels.

Read Did the FSB act too slowly on Fidentia?

Criminal charges

Brown and two other associates – accountant Graham Maddock and Steven Goodwin – were charged with fraud and theft. 

In 2007 Maddock concluded a plea bargain agreement with the prosecution in which he received a seven-year sentence that was converted in 2010 into correction supervision.

Steven Goodwin fled the country and was finally tracked down in Los Angeles and extradited to face trial. He also entered into a plea bargain agreement and was sentenced to 50 years imprisonment on 36 counts involving fraud, corruption and money laundering.

J Arthur Brown

Brown had initially pleaded not guilty in the Western Cape High Court to numerous counts of fraud, theft, corruption and racketeering.

Toward the end of his lengthy trial before Judge Anton Veldhuizen, Brown decided to plead guilty to two counts of fraud.

The first count related to the purchase by Brown, through Fidentia, of an entity called Mercantile Asset Trust Company (MATCO). The purchase price was R93 million and Brown has used R60 million of the pensioners’ funds for this acquisition.

The Transport Education and Training Authority (TETA) had invested R206 million with Fidentia. Brown led TETA into believing that R100 million of the investment was “secured by promissory notes” and that the balance had been place in trust investments.  This was not so.

Findings of the SCA

The five SCA judges found that it was, “strikingly clear that Brown and his cohorts were at the very least ‘gung-ho’ about how they dealt with investor funds. They ignored the most basic regulatory rules directed at ensuring that the funds were safeguarded and treated as trust funds.” Brown had also lied about having a Bachelor of Commerce degree.

The court criticised Judge Veldhuizen for finding that Brown’s fraud was “not serious” and that his “moral blameworthiness was limited”.

The minimum sentence for financial crimes involving amounts in excess of R500 000 is 15 years imprisonment.

The court said that, “The sentence imposed by the Western Cape High Court tends toward bringing the administration of justice into disrepute. Less privileged people who were convicted of theft of items of minimal value have had custodial sentences imposed. We must guard against creating the impression that there are two streams of justice; one for the rich and one for the poor.

Revised sentence

The judges found that Brown had been correctly convicted on the two counts of fraud and changed the sentences on each to 15 years.  The sentences will run concurrently.

The National Prosecuting Authority welcomed the new sentences saying it was pleased with the outcome of the appeal: “The trial court should have imposed the minimum sentence in terms of legislation.”

Cosatu’s Tony Ehrenreich also applauded the sentence:  “This must serve as a clear indication to fund managers that they are going to be put in jail for corruption and for stealing from the poor. This sentence must hopefully also serve as a deterrent to the growing levels of white-collar crime. We commend government action in appealing the case and call on all forms of corruption to see the perpetrators imprisoned.”

Read the SCA judgment here.


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