The CEO of the Stringfellow Group, Thomas Stringfellow, handed himself over to police at the Honeydew Police Station in Johannesburg on Thursday morning. His arrest follows allegations that he may have misappropriated hundreds of millions in client funds.
According to his LinkedIn profile, Stringfellow founded Stringfellow Investment Specialists in 2005 after 15 years as a broker, initially within the FirstRand group and then with Sanlam. He was also the MD of Lorna Jane South Africa, which he ran together with his wife Leigh. They managed the local business for the global women’s sportswear brand.
Moneyweb understands that Stringfellow raised a substantial amount of money from clients, purportedly to fund the Lorna Jane business. These clients were promised, and initially received, monthly dividends at a yield of 14% per annum. Earlier this year, however, clients wanting to have their capital paid out to them did not receive payment.
All quiet on the Lorna Jane front
While it is unclear at this stage to what extent the funds were used to finance Lorna Jane’s operations in South Africa, the local business appears to have ceased operating. All seven of its local stores – which were in prominent locations such as Sandton City and the V&A Waterfront – seem to have been closed. The website is also no longer operational and its Facebook and Instagram pages are no longer accessible. The business’s last activity on its Twitter account was on March 29.
Moneyweb phoned all seven of the stores, but the listed numbers were out of order. An e-mail to Leigh Stringfellow requesting clarity on Lorna Jane South Africa’s situation had not received a response by the time of publishing. Moneyweb had also not received a response to an e-mail sent to Lorna Jane’s head office in Australia.
Apart from the investments into Lorna Jane, Moneyweb understands that Stringfellow also received money from a number of clients to be invested into unregulated investment portfolios. It is unclear what the status of these investments is.
The Financial Sector Conduct Authority (FSCA) confirmed to Moneyweb that it had opened an investigation into the matter. The regulator met with clients on Thursday evening in Johannesburg to discuss the situation.
Stringfellow unit trusts
Apart from these unregulated investments, Stringfellow was also the portfolio manager of two unit trusts – the Stringfellow BCI Stable Fund of Funds and the Stringfellow BCI Flexible Fund of Funds. According to their latest fact sheets, up to the end of May 2019, they had combined assets under management of just under R130 million.
The Stringfellow BCI Stable Fund of Funds won a Raging Bull for the best South African multi-asset low equity fund in 2015.
This money is however not at risk.
The nature of unit trusts means that the assets are held securely by a custodian bank, and must be regularly audited. As funds of funds, the money in these portfolios is also invested into other underlying funds, run by asset managers such as Prudential, Coronation and Stanlib, and is therefore easily verified.
Robert Walton, CEO of Boutique Collective Investments (BCI), which is the management company for both funds, told Moneyweb that the contract with Stringfellow to manage these funds was terminated last week when it became apparent that there were problems elsewhere in the Stringfellow business. This was not because there was any risk to the money in the unit trusts themselves, but because of reputational risk to the BCI business.
“For the time being BCI is managing those funds,” Walton told Moneyweb. “Investors’ funds are safe.”