Saturday, November 27, 2021

Bluthorn directors likely to escape litigation over P250 million scandal

The directors of Bluthorn Fund Managers (BFM) which reportedly fleeced over P250 million from investors are likely to escape litigation due to limited liability. The regulator Non-Bank Financial Institutions Regulatory Authority (NBFIRA) seems not to have legislative powers beyond liquidation, which they ordered recently following advice from the Statutory Manager. 

Responding to our inquiry about what steps could be taken against the directors of the company in their personal capacity the Regulator would not point to specific action likely to be instituted against the shareholders save to say they have an array of supervisory tools.

“The Regulatory Authority fosters inter alia the soundness and stability of regulated entities, as well as fair market conduct. In instances of non-compliance, the Regulatory Authority has an array of supervisory tools as per the NBFIRA Act 2016 and the relevant industry specific legislation, with which to take the necessary enforcement action against identified entities and their respective Controllers and key persons, including but not limited to fit and proper proceedings,” NBFIRA told Sunday Standard.

Aggrieved investors of non-bank financial institutions, the Regulator said, have the option to seek redress through civil litigation for matters that fall outside the scope of the Regulatory Authority.

But with the corporate veil which remains protected by a century old (Salomon v A Salomon) unyielding construct of company law, the investors have little (if any) chance of victory against the directors in a court of law. Under the law a company is seen as separate and distinct from the owners, and thus they cannot be held responsible for the actions of the business. The law basically seeks to protect company directors’ private assets.

While the Regulator cannot provide any assistance in this regard, NBFIRA insists the current legal framework has robust provisions to safeguard investors as afforded by the NBFIRA Act and the various industry specific legislation and their associated Regulations. “Needless to say, reviewing, refining and strengthening the regulatory framework remains an ongoing exercise. It is also important to clarify that the role of the Regulatory Authority is to ensure compliance to financial services laws, which is distinct from the role of an entity’s Board of Directors which is to oversee the operations of an entity.”

A report filed with the High Court earlier this year laid bare how of district councils who had invested in Bluthorn Fund Managers (BFM) may have lost more than P250 million between 2018 and 2019. The list also includes trade unions, and individuals among others.

The information is contained in a confidential report compiled by Statutory Manager Peter Collins.

The former high court judge was appointed by NBFIRA as a statutory manager for BFM in 2020.

According to the document titled ‘List of investors or depositors’, Gaborone City Council invested P20 million, Mogoditshane Sub District Council, P40 million, Ghanzi District Council, P40 million, Kgalagadi District Council P50 million, South East Sub District, P45 million, Southern District Council, P10 million, Tlokweng Sub District Council, P23 million, Hukuntsi Sub District Council, P5 million, Tonota Sub District Council, P10 million and Kanye District Council (sic), P6 million. The most affected district councils  are Letlhakeng Sub District Council which had deposited P140 million, South East District had deposited P100 million, Mahalapye Sub District Council, deposited P70 million. Landboards across the country were also not spared from losing millions in the investment scheme. 

Malete Landboard had invested P13 million and Tlokweng Land Board had deposited P28 million.  The Botswana Sectors of Educators Trade Unions (BOSEUTU) had invested P16 million, Kgateng Development Trust, P15 million, Botswana Institute for Development Policy (BIDPA) P3, BOFESETE Funeral Scheme, P7 million. While individuals had invested more than 111 million collectively. 

In what reads like a well calculated scam, Collins found that there were five primary related parties in the BFM “family” of companies, namely; Blu Thorn Fund Managers, Blu Thorn Procurement, B Thorn Pty Ltd, Blu Thorn Holdings, and Prime Employee Benefits.

BFM has four minority shareholders holding 10 percent each of shares with the majority shareholding (60 percent) held by Blu Thorn Procurement Solutions which is 100 percent owned by B Thorn . B Thorn being held by Eune Engelbrecht (40 percent) Kelebogile Sibisibi (40 percent) and Henk J van der Merwe (20 percent).  From a shareholding perspective, it emerged the same Engelbrecht, Sibisibi and van der Merwe jointly own all the shares in the real holding company ,B Thorn, which owns the majority of shares in BFM. 

“These parties are so closely related that transactions between them are the equivalent of brothers and sister sitting at a family lunch table and passing money between themselves.  As will later be seen BFM was the recipient of all client/investor funds but instead of taking on the responsibility of abiding by the terms of its license as a collective investment undertaking, it ‘invested’ the funds in its own unlicensed family companies,” Collins said in his report. 

He said “this incestuousness does not end with these companies. There is more to be said on the topic when I analyze the lending/investment books of what Joseph Mosimane (director of BFM) charmingly calls the ‘credit lending institutions.” 

Collins discovered that BFM was engaged in banking business unlawfully. “It was taking deposits and lending on the proceeds for a margin. That is what banks do. To the extent that it may have been ‘investing’ rather than ‘lending on’ in some instances, its activities may be seen as management. But it held no license for that activity either. It was licensed as a CIU but there is no trace collectivized units capable of liquid disposal. Nothing was collectivized. To the contrary each depositor entered into an individual depositing agreement for term repayment at agreed interest rates. That is banking,” Collins’s report said. 

He said the total amount outstanding to depositors was in excess of P220 million (excluding interest).  “Given the extraordinarily generous interest rates paid or promised to depositors by BFM, I would expect the real exposure to be in the region of P250 million,” Collins said. 

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