Cosatu statements at the latest Fidentia revelations 20 -02-07

 

COSATU statement at the latest Fidentia revelations

The Congress of South African Trade Unions has already expressed its anger over the reported disappearance of R689 million owed to 47 000 widows and orphans of mine workers, which was invested in a trust owned and managed by

Fidentia Asset Management.

The Financial Services Board (FSB) has placed Fidentia under curatorship, after its inspectors claimed that it had "misappropriated client funds" and made numerous "misrepresentations to clients". A quarter the firm's 1200 staff members are now about to be retrenched by the curators who have taken charge of the Fidentia's companies and they have taken the matter to the

CCMA.

All this in itself is scandalous enough, but, as more and more shocking facts about Fidentia are revealed, it becomes clear that there are deeper issues involved.

The company's conduct is the most extreme example of the culture of self-enrichment, which is spreading corruption and greed into every corner of society, against which COSATU has been campaigning so passionately.

If not stopped, this virus will derail our revolution and destroy the hopes of millions of workers and then poor for their lives to be transformed.

Much of the media coverage has centred on the Fidentia's Executive Chairman, J Arthur Brown, who is alleged to have squandered the R1, 2 billion which he persuaded people to invest in his firm on a salary of R400 000 a month, a Ferrari car, a palatial mansion, soccer, rugby and cricket teams. If true, this man personifies the culture of get-rich-quick and me-first.

But however outrageous the behaviour of this one individual, he is surely not unique, nor is he solely responsible for this scandal. His conduct is an extreme example of a trend that is becoming more and more common.

The Fidentia scandal begs the question: how could such a relatively young self-made tycoon, running a new company, persuade so many reputable institution like the Transport Education and Training Agency (TETA) to invest so much money over a period of years?

Why did the Mineworkers Provident Fund (MPF) entrust the funds for the widows and orphans of workers killed in accidents to the Living Hands Umbrella Trust which is wholly owned and managed by Fidentia, at the time a new company with no track record?

We have learnt that the MPF are in a relationship with Fidentia they did not choose. In late 2004 Fidentia bought Matco, a trust company which administered trust monies on behalf of the MPF, but MPF was only informed of this sale after it had taken place.

Early 2005 the MPF Trustees began asking questions about the ownership structure and the inappropriate investment strategy of Living Hands. Towards the end of 2005, the Trustees decided to commission an investigation when reports about improper payments and other administration concerns ensued.

Also, the MPF stopped putting new funds into Living Hands and switched its business to the Fairheads Trust. Living Hands however remained responsible for R800 million which they held in trust for mineworkers' beneficiaries.

There are two possible reasons why Brown got away with it for so long, and why the owners of several established companies accept Brown's offers to buy them out, both equally disturbing if true.

One is that the culture of self-enrichment is so deeply embedded in South African society, that Fidentia's conduct did not at first seem unusual. Many business proposals these days do not involve creating wealth or providing services, but persuading people to part with their cash on the basis of promises of riches to come. Are there so many companies touting get-rich-quick investment scams, that this one did not seem any different?

The second possibility is that some of those investing in, or selling their companies to, Fidentia, were being financially rewarded for their assistance. We trust that the curators who have now taken control of all of
Fidentia's assets will investigate this, and that anyone found guilty will, be at the least removed from their post and prosecuted if they have contravened any laws.

It is widely reported that some of the trustees of the Living Hands Umbrella Trust, which was charged with protecting the funds invested on behalf of the beneficiaries, were also board members of Fidentia Asset Management,which was administering the funds. There is an urgent need to prevent the same individuals acting as fund trustees and being employed by the fund administrators. This poses a clear conflict of interest.

COSATU will support the move by TETA to lay criminal charges against Fidentia but also shares President Mbeki's and MPs' concerns as to why the TETA ever invested nearly a quarter of R245 million of taxpayers money - 75% of all its funds - in a private company which didn't even have a bank account and offered suspiciously high interest rates, rather than spending it on training for drivers and other transport workers.

COSATU demands that if Fidentia is proved to have breached the Public Finance Management Act, the Pension Funds Act and other related laws which oblige state institutions to invest surplus money in accordance with required guidelines, in an "A-rated banks" - essentially the major banks, they should be prosecuted and punished.

Finally COSATU believes it is unacceptable for the curator of the liquidated firm to say it will take "months, if not years" before he completes his investigation. For the sake of the widows and orphans, it is essential that the investigation and recovery of assets be completed as speedily as possible.