Creditors in the P500+ million Bluthorn Fund Managers (BFM) ‘ponzi scheme’ have raised concerns following revelations that the company’s provisional liquidator was also a partner in the firm that served as auditors for the company.
The creditors concerns followed complaints that the auditors BDO Botswana failed to raise a red flag following discovery that the company was not operating the way it had proposed in the prospectus and in the legislation as submitted to the regulator Non-Bank Financial Institutions Regulatory Authority (NBFIRA).
The ongoing interrogations of all involved in the multi-million Pula saga heard how provisional liquidator, Chris Bray, is a partner in the company’s auditing firm, BDO.
NBFIRA’s director of capital markets Juliana White told creditors at Gaborone High Court that they had reported Bray and the firm to Botswana Accountancy Oversight Authority (BAOA).
But how did a partner at an auditing firm become liquidator for the same company they had been auditing? “I’ll explain that the appointment of liquidators is all done within NBFIRA, but it’s handled by different departments. So it’s possible that the auditor that we know of in line with the company that we have licensed from one department might not be known to the department that appoint liquidators, I think that’s probably where there was an oversight,” White said at the BFM liquidator’s interrogations, presided over by Master of the High Court Chipo Gaobatwe. One of the creditors Seabelo Paycheal Segale expressed concern that Bray’s relationship with the auditing firm may have influenced his decision making as BFM’s provisional liquidator.
“I wanted to know for them to have appointed Chris Bray, yet he was a partner to the auditing firm of the same company and issued a report that they went on to approve that it is right.”
Segale said he wanted to establish if the regulator NBFIRA didn’t find a conflict of interest in getting someone whose company has been part of the BFM that had not submitted financials that were up to par, as the provisional liquidator.
“Let me say, I as well took the step to go and report after the decision that made the provisional liquidator that was appointed, yes, by a department within your (NBFIRA) authority ended up influencing other appointments, and whatever that he made, the statements that he made, may have influenced the turnout of events in some point. So the conflict of interest there, that we eventually established, I put it to you that it could have maybe jeopardized evidence at one point because he was entangled with
the business, yet he became a judge of his own,” Segale said.
The creditor argued that the influence of Bray, and his auditing firm, has had much impact on investors putting their money in the company. “Yet he turns around, and then he says, he doesn’t have any record that he found of the financials in his report. He has nothing, he only knows about five companies and then eventually he turns around and says, this is a Ponzi scheme. Yet he has been entangled with the Ponzi scheme all along. So my question was, when the regulator appointed such, did they not foresee such issues coming out? That someone who is involved here, maybe the reason why he said he didn’t find any evidence, who knows?”
The auditors, BDO, were challenged as to why they couldn’t pick up that BFM was not operating the way it had proposed in the prospectus and in the legislation. BDO’s position was that they had notified NBFIRA, and they had taken the necessary steps and that they were not obliged to take any further steps. “If I may refer to Section 70 of the Collective Investment Undertaking Act,” BNFIRA’s White told the liquidator and creditors, “It outlines the responsibilities of an auditor.
Obviously, the auditor has to provide the regulatory authority with the half annual returns and also the annual returns. In addition to that, the auditor is expected to disclose adverse material information to the regulator.” She said if the auditor of a licensee Collective Investment Undertaking (CIU) has reason to believe that the information provided to investors, or to the regulator authority in the reports, or other documents of a CIU does not truly describe the financial situation and the assets and liabilities of the Undertaking or the assets of the CIU are not or have not been invested in accordance with the provisions of the Act, they ought to have notified the regulator.