There may have been some feeling of satisfaction when the Supreme Court of Appeal handed down prison time for J Arthur Brown this week, but it must be the only positive feeling anyone can have about the sorry Fidentia tale.
There were no expressions of relief from Brown’s victims that justice had finally been served, because many of them are beneficiaries of the Living Hands Umbrella Trust and are still struggling financially.
None of the reports following the ruling provided any indication of what these victims are receiving as an income. The latest curator’s report, to the end of February this year, records that R319 million has been recovered so far, which represents about 23 percent of admitted claims. The Living Hands Trust alone lost R1.3 billion.
Since 2007, two highly paid curators (until one of them was found to be a delinquent director in a separate case) and numerous highly paid lawyers have been unravelling the mess created by Brown and those who were on the take with him.
Although Brown claimed to be remorseful, and vowed to make something positive out of the Fidentia saga and to try to help people, the victims, the public and the curators are today still wondering where all the money went.
And then there is the stinging criticism that Judge Mahomed Navsa, the acting deputy president of the Supreme Court of Appeal, had for Cape High Court Judge Anton Veldhuizen, who initially sentenced Brown to a fine of R150 000 and a 36-month jail sentence suspended for four years.
Judge Navsa’s comments about custodial sentences being imposed on less privileged people who are convicted of stealing items of minimal value and of the need to guard against creating the impression that there are two streams of justice, one for the rich and one for the poor, have been much quoted. So, too, have his comments about how the lower court erred in deciding that the minimum sentence of 15 years for fraud did not apply in Brown’s case.
But part of the judgment that has been little quoted to date is likely to be much cited in future: it’s where Judge Navsa takes issue with the lower court’s view that not adhering to an investor’s mandate while claiming to do so does not constitute fraud.
He describes Judge Veldhuizen’s attitude to the state’s case as “antagonistic”, and says the judge stated that no evidence had been placed before the High Court that proved Brown had stolen money from investors or operated a scam. When questioning witnesses and counsel, Judge Veldhuizen had taken the view that investing beyond the mandates was “not an appropriation” and that the investors could demand their money back.
Although Judge Navsa quotes from evidence led by the now-discredited former chief financial officer of the Financial Services Board (FSB), Dawood Seedat (who earlier this year was alleged to have taken a R12 million bribe from a tax-evader), he highlights the provisions of the Financial Institutions (Protection of Money) Act that state that when a financial institution or nominee company accepts a mandate to look after someone else’s money, it must do so with the utmost good faith and must exercise proper care and due diligence.
That means you cannot use the money to buy property and luxury vehicles through a trust you control. Nor can you buy software companies, hotels, spas and office blocks, while pretending that the money you are supposedly taking care of is safely deposited in a bank. And you cannot engage in what Steve Goodwin and Graham Maddock, the other key players in the Fidentia saga who are serving or have served time in jail, described as “creative bookkeeping”.
Judge Navsa highlights the need for honesty and integrity when managing other people’s money. In his judgment, he draws a contrast between these character traits and Brown’s evidence – from Brown’s explanation of his qualifications to his version of events, which, the judge said, was “obfuscation and evasion and, in the ultimate analysis, just plain dishonest”.
Judge Navsa says that Judge Veldhuizen’s exchanges with witnesses and counsel “reflect an ongoing, consistent attitude that Brown’s conduct was not that reprehensible. A judicial officer faced with continuing evidence that trust monies were being used in the manner described above ought to have been concerned about the propriety of such action, rather than repeatedly seeking to excuse it.”
Whereas the lower court made less of Brown’s misdeeds, the Supreme Court is clear that Brown did indeed commit fraud amounting to tens of millions of rands, and that the minimum sentence should apply.
Dismissing Brown’s comments that he was remorseful, Judge Navsa says Brown was insincere, and the dishonesty he demonstrated during his testimony is to his discredit.
He has scant sympathy for Brown’s ruined family life, saying his misdeeds were entirely of his own making, and his statements about his concerns for investors “reeked of insincerity”.
The judge’s strong words set the record straight so that there can be no grey areas about whether it is acceptable to exceed the bounds of an investor’s mandate, supposedly for the sake of achieving a better return, or about the requirement to exercise a duty of care when looking after other people’s money.
Hours after the Supreme Court handed down the 15-year prison sentence, at a meeting hosted by Cape Town’s African Institute of Financial Markets and Risk Management, Caroline da Silva, the deputy executive officer at the FSB in charge of the Financial Advisory and Intermediary Services, said there had to be a greater deterrent for those who commit financial crimes.
The FSB is planning new regulations to ensure there are more serious consequences for reckless and dangerous financial behaviour, Da Silva says.
The failure to act against people in the financial services industry who do things they should not do helps to “foster the moral hazard”, she says.
And one could add, also when judges fail to recognise these people’s misdeeds for what they are. Fortunately, in Brown’s case, the Supreme Court of Appeal was not hoodwinked.