The Non-Banking Financial Institutions Regulatory Authority (NBFIRA) could have played a major role in the collapse of Bluthorn Fund Managers (BFM) by letting its guard down.
Lawyers representing creditors at a hearing before High Court Master Chipo Gaopatwe sought to establish if the regulator should not take responsibility by allowing BFM to violate some regulations under its watch.
During interrogations, Bluthorn auditors at BOD Certified Auditors suggested that NBFIRA should take the blame for the collapse of BFM as some violations of corporate governance and standards happened under the watch of the regulator.
NBFIRA was also hauled over the coals for appointing one of the auditors of BMF at BOD as a provisional liquidator in what was a clear conflict of interest.
Lawyers representing creditors grilled NBFIRA’s director for the capital market sector, Juliana White on the role played by the regulator in the collapse of Bluthorn. Representing BOSETU, attorney Kabo Motswagole grilled White on why NBFIRA continued to “license the company post 2017 when it was apparent that the company was loss making by the period that ended in March 2017.
“What I said in my submission was that during the first day of operation of a company, post licensing, we expect at times that the company should not do well,” said White in her response.
She added that; “It applied for a license in capital markets department or rather with NBFIRA to operate a Collective Investments Undertaking, being an investment fund operating an umbrella fund with variable capital.”
Motswagole also took White to task over “how somebody who breaches a Statutory provision should be engaged you must take action immediately, because they are the ones who were very clear that they gave out loans, why weren’t they subjected to enforcement and compliance?”
White said at that stage they we were not aware that those were the loans using investor funds.
“At that point we were not aware,” said White. For her part, Ghanzi District Council’s attorney, Onalenna Otlaadisa also fired a broadside at White over Van Der Vyver’s admission “that their audit was not complete, was insufficient and did not raise the issues that it should have raised.”
She informed White that Van Der Vyver “kept on saying that they were dependent on NBFIRA because NBFIRA as the regulator was indulging the BFM directors and was in constant engagement with BFM, what would your comment be on that?”
White denied as untrue that they treated BFM with kids’ gloves.
“I would say that firstly, we did not indulge or overindulge BFM at all, I think that is a misstatement. We were operating the monitoring and supervision of a BFM using our own internal processes and procedures,” she said.
Van Der Vyver, a partner at BDO Certified Auditors, defended his company against allegations that they didn’t raise alarm as they were obligated to do.
Attorney Sipho Ziga asked Van Der Vyver; “… it transpires that you don’t have sufficient information to conduct an audit. What did you do about it? What is your obligation as an auditor in that case? Don’t you have an obligation to notify the regulator?”
Replying Van Der Vyver argued that they were “actively engaged with the Regulator throughout the whole BFM process, but they were more focused on BFM.”
“I don’t recall a stage when the regulator was chasing these accounts,” he said.
Ziga asked him; “So basically, when you couldn’t do the audit, you can confirm that you did not report this to anybody.”
In response, Van Der Vyver said; “Well NBFIRA were aware, because we were engaged with them.” Ziga sought to establish if the fact that a “regulated entity can’t produce enough records for BOD to audit…isn’t it that a material irregularity that deserves to be reported?…why didn’t you report it then in terms of section 204 of the Companies Act because this requires a formal report.” Van Der Vyver continued to point his fingers at the regulator.
“NBFIRA was aware that this audit,” he said. Ziga then sought to know from Van Der Vyverwhy if he is familiar with the act which states that Bluthorn was not allowed to give loans to other entities?
Van Der Vyver said “But this is just how the company was structured, from inception.”
Ziga asked if that was not illegal in terms of the legislation. Van Der Vyver said; “But NBFIRA didn’t say that they weren’t happy with it.” Van Der Vyver said they held a meeting with the regulator wherein they showed them how the company was operating, showed them what was going on which he said was done in a transparent manner. “They even requested us to give them information. Which we did,” said Van Der Vyver. Ziga also grilled Van Der Vyver on whether he did not have any concerns about whether or not his
partner Chris Bray had a conflict when he was later appointed provisional liquidator of BMF.
Van Der Vyver said Bray was approached by NBFIRA. “Yes, he was approached by NBFIRA. But were you not concerned about an ethical conflict that as a partner, he is now the liquidator of the company that you audited?” Ziga asked.
Van Der Vyver insisted that his colleague was approached by NBFIRA.
“They asked him to be provisional liquidator, he was appointed as such through the courts. I think he was only told on the 26th of Feb. 2021 that he was officially appointed in the court,” said Van Der Vyver.