Old Mutual will appeal a ruling by the South Gauteng High Court in Johannesburg that it must pay more than R1,7 billion to a group of investors in Fidentia.
The Living Hands Umbrella Trust, which was originally called the Mantadia Asset Trust Company (Matco), was set up to benefit widows and orphaned children of mineworkers who died in service.
Matco was sold to Fidentia in 2004.
The Living Hands accused Old Mutual of allowing convicted Fidentia fraudster J Arthur Brown and his cohorts, who became Matco’s directors between October 2004 and January 2007, to access its funds without performing any due diligence or exercising proper precautions.
Days after Fidentia bought Matco/Living Hand in 2004 – and without having actually paid the R93 million price for those shares – Fidentia representatives tried to persuade Old Mutual to give them R150 million of the trust’s money.
An Old Mutual Unit Trust Managers (OMUT) official declined to do so, stating “vague” and unclear instructions. The official also reiterated to the Fidentia officials that Old Mutual was required to act on behalf of Matco/Living Hands and would require concrete authorisation from it in order to act.
But four days later, Fidentia would officially become the sole shareholder in Matco/Living Hands, whose directors all resigned and were then replaced by Brown and his colleagues.
That same day, those newly appointed directors wrote a threatening letter to Old Mutual – in which they accused the company, without any basis in fact, of not complying with a number of financial regulatory requirements in respect of its dealings with Matco/Living Hands.
Three days later, and without addressing any of the false accusations of wrongdoing levelled against it, Old Mutual paid R1,2 billion to Matco/Living Hands, which was completely under the control of Fidentia.
The money, meant to assist poor and vulnerable women and children, who had lost their breadwinners, would then be splurged on game farms, luxury cars, massive bonuses to Fidentia staff, sponsorship of the Boland rugby club, and a spa that Brown bought for his wife.
While Fidentia was placed under curatorship in 2007, after R1.4 billion in trust funds it was meant to be managing disappeared, only a fraction of that money has been recovered.
On Wednesday, Judge Thina Siwendu found that Ou Mutual must pay R854,6 million in capital and R854,6 million in interest to the trust. Old Mutual also has to cover its legal costs.
Siwendu found there a sufficient basis to hold OMUT liable.
“[The] sheer size of the portfolio, the material risks and the detrimental consequences were foreseeable and would have been foreseen by a prudent manager. The plaintiffs have established factual and legal causation in my view.”
But on Wednesday night, Old Mutual said it was “deeply concerned” about the ruling and would lodge an application to appeal
“Quite apart from Old Mutual, the direct cause of the loss and pain suffered was the fraudulent actions of Fidentia well after Old Mutual had transferred funds following a formal client instruction to do so. In the circumstances and following our verification of the authenticity of the transfer of ownership, we were legally obligated and had no other option but to transfer the money.
“We understand the need for someone to be held accountable, but we are resolute that Old Mutual is not liable for the damages being claimed,” the company said in a statement.
Old Mutual said it is concerned about the precedent which the High Court sets for the rest of the financial services industry as it relates to managing funds on behalf of trustees.
Brown has been sentenced to 15 years behind bars for his part in the Fidentia scandal. He was recently released on parole, after serving seven years of that sentence. – fin24