Three former auditors of the failed Sharemax property syndication scheme are facing a total of 413 improper conduct charges at their Independent Regulatory Board for Auditors (Irba) disciplinary hearing.
Jacques Andre van der Merwe is facing 340 charges, Danie Dreyer 40 charges and Petrus Johannes Jacobus Bekker 33 charges.
They were all directors of ACT Audit Solutions Incorporated at the time when they allegedly committed the offences, while Van der Merwe was also the managing partner of the firm.
All three pleaded not guilty last week to all the charges against them.
The disciplinary hearing was adjourned on Friday to allow Irba and Mike Maritz, counsel for the three audit practitioners, to file papers on an application by Irba for a postponement of the hearing due to the coronavirus (Covid-19) pandemic.
The hearing will reconvene on Monday to hear arguments and take a decision on this application.
Advocate Kate Hofmeyr, appearing for Irba, said last week that Dreyer, Van der Merwe and Bekker had engaged in 11 acts of improper conduct.
This includes three instances when Dreyer allegedly failed to report reportable irregularities to Irba when it was his duty to do so.
Dreyer is facing two reportable irregularity charges related to alleged breaches of Government Notice 459, which introduced certain investor protections to property syndications; two reportable irregularity charges related to Government Notice 2172, which designated activity that would not constitute the business of a bank and the issue of commercial paper; and a single reportable irregularity charge arising out of an alleged failure to report on missing books of account.
In terms of Section 45 of the Auditing Profession Act of 2005, an auditor has a duty to provide a written report of any reportable irregularity to Irba without delay.
Dreyer’s charge sheet stated that he was the auditor of Villa Holdings for the financial year ended February 28, 2009 and also of Zambezi Holdings for the financial year ended February 28, 2008.
In this capacity, Dreyer signed and issued an Independent Auditor’s Report for both Villa Holdings and Zambezi Holdings for these financial years and signed and issued Independent Accountant’s Assurance Reports in relation to information contained in Prospectus 14 of Villa Holdings dated October 16, 2009 in relation to Prospectus 1 of Zambezi Holdings dated November 9, 2007.
The charge sheet stated that the property syndication investor protection introduced by Government Notice 459 included that “investor funds are to be retained in a trust account and shall only be withdrawn in the event of transfer of the property into the syndication vehicle”.
It further states that both Villa Holdings Prospectus 14 and Zambezi Holdings Prospectus 1 had set out the consumer protection requirement of Government Notice 459.
‘No intention to adhere to investor protection requirements’
However, the charge sheet states that a paragraph or section in these prospectuses indicated that the management of both these holding companies “was not intending to adhere to the investor protection requirements as set out in Government Notice 459″.
It added that having issued Independent Accountant’s Assurance Reports in relation to both Prospectus 14 for Villa Holdings and Prospectus 1 for Zambezi Holdings, Dreyer was aware of the contents of these reports.
The charge sheet said the financial statements for both Villa Holdings and Zambezi Holdings “showed a transfer of the investor funds prior to the transfer of the property into the syndication vehicle”.
It said this was not in accordance with the obligations of the management of both Villa Holdings and Zambezi Holdings under Government Notice 459 “and constituted a reportable irregularity”.
“The practitioner failed to report this irregularity to the board at the time he was engaged on the prospectuses and audit work,” the charge sheet states.
In regard to Government Notice 2172, the charge sheet states that neither Villa Holdings nor Zambezi Holdings had complied with this notice in a number of respects.
‘Engaged in the business of a bank’
The charge sheet said that as a result of the non-compliance with the requirements of this notice, Villa Holdings and Zambezi Holdings were engaged in the business of a bank, because they did not fall within the requirements of the exception created in this government notice.
It added that Under Section 11 of the Banks Act, no person may conduct the business of a bank without being duly registered as a bank under the Banks Act and, as a result, Villa Holdings and Zambezi Holdings were in breach of the Banks Act, which constituted a reportable irregularity.
The charge sheet said Dreyer failed to report this irregularity to Irba.
In terms of the Auditing Professions Act of 2005, a registered auditor who fails to report a reportable irregularity or – for the purposes of, or in connection with, the audit of any financial statement – knowingly or recklessly expresses an opinion or makes a report or other statement that is false in a material aspect, shall be guilty of an offence.
Irba is required to report any reportable irregularity reports it receives to a number of regulators.
According to the Auditing Profession Act of 2005, a person convicted of an offence in a court of law under the reportable irregularities and false statements sections of this Act is liable for a fine or to imprisonment for a term not exceeding ten years, or to both a fine and such imprisonment.
About 33 000 investors invested an estimated R5 billion in the Sharemax scheme.
At the time it imploded in 2010, it was the biggest-ever collapse of a property syndication scheme in South Africa.