The financial services sector, in its own best interests, needs to act in a manner that engenders public trust in the system. If it does not, the sector itself loses out, consumers lose out and do not save, and then the country and economic development also lose out.
These are the words of Finance Minister Trevor Manuel and his deputy, Jabu Moleketi, commenting at a media briefing earlier this week on the various scandals that continue to bedevil the financial services industry.
On top of this, Moleketi expressed his concern about suspected white-collar criminals being able to escape the law because they tend to be intelligent, well qualified and have been able to amass significant amounts of money, which enables them to employ formidable legal teams to defend them and delay justice when they are caught out.
Moleketi says that a white-collar criminal in the financial services industry is worse than someone who robs a bank because apart from the theft itself, there is also a betrayal of trust that the investing consumer places in the system.
He says the current situation creates a perception that the rich can evade justice.
I could not agree more. All too often, action is taken by the authorities to close down scam schemes but no criminal action is taken against the perpetrators of the schemes.
Scams exposed
Over the years, Personal Finance has exposed many scams but, to my knowledge, only one of the scamsters has gone to prison, namely Jack Milne for his PSC Guaranteed Growth Fund scam.
Another person involved in the scam is Gary Porritt, the chief executive of the formerly listed company Tigon. He has used every legal trick in the book to delay facing the charges against him that will establish whether in fact he is guilty or innocent of complicity. The money raised in the scam was used to ramp the share prices of companies controlled by Porritt.
At least charges have been laid against Porritt. Charges have also been laid against top businessmen and companies, including financial services companies, that were involved in a massive pension surplus skimming operation in the 1990s.
Many others have simply moved on to new and bigger financial scams.
But the failure to bring people involved in unlawful behaviour to justice is not only a failing of the criminal justice system. There are also major gaps in the financial services sector itself.
No prosecutions
Let's go back to the unlawful secret profits made at the expense of retirement funds by a number of financial services companies, in particular Alexander Forbes.
Alexander Forbes is quite rightly having to pay out about R500 million because of the unlawful activities conducted.
But the reality is:
- Not one person who was responsible for the unlawful activities has been fired by Alexander Forbes;
- No criminal charges have been laid by Alexander Forbes or anyone else against those people who were involved in the unlawful activity; and
- No effort has been made by Alexander Forbes to recover the money from anyone who was involved in making the decisions to launch the unlawful activity and who then continued the practice after the company's lawyer, Peter van Niekerk of law firm Routledge Modise Moss Morris, told the company what it was doing was "not lawful".
The company's only reaction to Van Niekerk's warning was to put him on its board.
It is pleasing to see that the Registrar of Pension Funds, Rob Barrow, has, according to Moleketi, referred all instances of secret profits made by Alexander Forbes and 10 other administration companies to the National Director of Public Prosecutions for further investigation.
Moleketi says administrative action, such as the withdrawal or suspension of licences, will be considered by the Registrar once the full investigation and monitoring of the administrators has been completed.
Cost to investors
Even the R500 million settlement by Alexander Forbes comes at a cost to many ordinary, hard-working investors who indirectly own shares in Alexander Forbes through retirement funds, life assurance endowment funds and unit trust funds.
The R500 million settlement wiped out a year's worth of trading profit and therefore value for the shareholders. This money, or as much as possible of it, should be recovered from those who managed the company at the time that secret profits were being made and all others involved.
Instead, the company continues to duck the issue. I suggest Moleketi asks Alexander Forbes and the other 10 companies why they are not taking steps to recover this money from the perpetrators, many of who are now multi-millionaires as a result of bonuses and share options issued on the basis of the secret profits made.
Fidentia targeted
One thing that is clear, however, is that the state is pursuing the Fidentia debacle with vigour.
Manuel and Moleketi let it be known that they are shocked at what took place at Fidentia. The announcement that there is to be a total review, which includes all regulators, is good news.
The review is not only aimed at failures in the state apparatus but also at failures in the private sector to halt the plunder at an earlier stage.
Moleketi says that major firms in the private sector must have known what was happening but many of them continued to do business with Fidentia and its associated company.
Over the next few weeks, I will be dealing with the roles of some of the companies, including Fidentia's lawyers, Bowman Gilfillan, which among other things helped Fidentia to delay placing the company under curatorship; retirement fund administrator Lekana, which is 75 percent owned by Momentum and which received secret commissions from Fidentia; and Absa Bank, which had many ties to Fidentia.