Report from Informed Consumer

INFORMED CONSUMER

Leaderguard liquidator focuses on role of third parties The man who is winding up the failed foreign currency trader is focusing on recovering some of the R350 million investors lost from companies which had been involved with Leaderguard.

November 18, 2006 By Laura du Preez The liquidator of Leaderguard Spot Forex believes there is a good chance of recovering money for investors by obtaining settlements from various companies that provided services to the failed foreign currency trader. If that fails, the liquidator will institute litigation against various parties. Jose Thibaut, the liquidator, will be holding creditors' meetings later this month and early next month to inform investors of the progress he has made in establishing the best course of action to recover the money that investors lost and identifying whether any third parties may be liable for the losses. Meetings were held with creditors earlier this year and Thibaut obtained a mandate from investors to investigate ways of recovering their money. About 1 850 investors lost about R350 million when the Leaderguard Group collapsed in early 2005. The Financial Services Board (FSB) commissioned a forensic report into the activities of one of the Leaderguard companies that was based in South Africa, Leaderguard Securities, and this report has been handed over to the Scorpions. Letter to investors Sim Attorneys, which is acting for the Mauritian liquidator in South Africa as well as a number of brokers who sold investments in the Leaderguard group, sent a letter to investors last week outlining possible liability on the part of the auditors, a trust company, a bank and a financial services company that provided services to Leaderguard Spot Forex. The letter states that KPMG Mauritius was the auditing firm for Leaderguard Spot Forex and signed off an audit in 2004 without reporting the significant losses the company had made or disclosing that the trading mandates investors had given had been exceeded. Sean Sim of Sim Attorneys explains that in terms of a trading mandate, investors in Leaderguard's foreign currency products had to be notified when the value of their investments dropped either below 80 percent or 70 percent of the capital they had invested. They then needed to consent to further trading in their accounts, at the risk of further losses. Early losses According to Sim's letter, KPMG Mauritius had advised that it would close down Leaderguard Spot Forex if the foreign currency trader exceeded the trading mandates investors had given. Sim says the only way Leaderguard Spot Forex could have incurred the large losses it did would have been to exceed these trading mandates. He says Thibaut has found that Leaderguard Spot Forex and its forerunner, Leader Limited, began suffering losses as early as 2003 and while they claimed to have about US$56 million (now about R403 million) under management in February 2005, this was not the case as substantial amounts had already been lost. The money invested in Leaderguard was managed by a European bank well known for its foreign exchange services, Saxo Bank, and a London-based company, GNI, which Sim says was an Old Mutual subsidiary, and was later sold. Its name was then changed to Man Financial Services. Both GNI and Saxo Bank provided foreign currency trading services to Leaderguard Spot Forex and were aware of the trading mandates given by the investors. According to Sim's letter, Thibaut has established that by August or September 2003, more than 60 percent of the US$18 million that GNI managed had been lost or dissipated and by August 2004, 58 percent of the US$38 million supposedly managed by Saxo Bank had been lost or dissipated. By November 2004, 20 percent of the remaining money under management at Saxo Bank had been lost or dissipated. Sim's letter says Saxo should not have allowed Leaderguard Spot Forex to exceed its trading mandate and despite its concern about the way in which Leaderguard was trading, it allowed Leaderguard to continue to trade. GNI was also aware of the trading mandates investors had given, Sim's letter says, but more information about GNI's role is needed. Federal Trust, an international trust company with offices in Mauritius, acted as the custodian of funds that were invested in Leaderguard Spot Forex as required by the Financial Services Commission (FSC), the regulator of financial services in Mauritius. Two directors of Federal Trust were appointed as directors of Leaderguard Spot Forex, the two companies shared an office from the time that Leaderguard started operating out of Mauritius until July/August 2004, and all payments made by Leaderguard Spot Forex had to be co-signed by one of the directors of Federal Trust, Sim's letter says. "Federal Trust should, by all accounts have been aware of the losses 'which had been sustained' and taken requisite action in respect thereof," the letter says. Sim told Personal Finance that the prospects of recovering money from these parties was "good" and should there be settlements, money could be recovered within a year. If legal action was necessary Thibaut would obtain a mandate from investors and other creditors to proceed with such action and then any recovery of funds could take longer. Some recoveries The liquidator does not have to obtain approval from the creditors of a company in liquidation for efforts to recover money, but Thibaut has decided to consult with investors and creditors of Leaderguard Spot Forex because he believes that they should be involved in the decisions made. Sim says Thibaut's actions so far have been focused on establishing the best way to recover money for investors and not on the recovery of money itself. He has been holding inquiries under sections 417 and 418 of the Companies Act in South Africa in order to obtain information related to Leaderguard Spot Forex. Nevertheless, he has recovered some money to date. A sum of R2.9 million, which is the purchase price that was to be paid for the acquisition of a game farm, has been transferred to the liquidator's accounts. Shares to the value of about R2.5 million in Hamilton Solutions, a company that was involved in marketing Leaderguard investments to brokers, that some of the directors of Leaderguard Spot Forex and Securities had obtained, have also been transferred to the liquidator's accounts. The liquidator is also in possession of a building in Mauritius worth 15 million Mauritian rupees (about R3.4 million) purchased by Leaderguard Spot Forex, despite a continuing dispute over the ownership of the building. Court action in Mauritius Sim's letter to investors says it has been established that some of the directors of Leaderguard Spot Forex had acted negligently, recklessly and fraudulently. Two of the directors, Jacobus Venter and Hermanus Pretorius, pleaded guilty in the Intermediate Court of Mauritius to failing to comply with a directive of the FSC and of falsifying a document and contravening the island nation's Companies Act. The FSC had instructed Leaderguard Limited to repay the money it had collected from investors and obtain a new mandate from them. According to Sim's letter, this was not done. However, Leaderguard Limited fraudulently advised the FSC that this had been done and continued its operations as a new entity, Leaderguard Spot Forex. Venter and Pretorius were fined 200 000 Mauritian rupees (about R50 000) each and Leaderguard Limited was fined 100 000 Mauritian rupees. The risk manager of Leaderguard Spot Forex, Renso du Plessis, was also fined 400 000 Mauritian rupees by the Intermediate Court for his role in falsifying documents, including inflating Leaderguard Spot Forex's assets in its accounts by stating that it had made loans to subsidiary companies totalling more than US$20 million. Sim says money could be recovered from the directors, but the liquidator is of the view that he should initially focus on recovering money from third parties as these efforts are likely to be the most successful. Thanks for this article by  Laura du Preez