How Cisca protects unit trust investors lost in storm over Belvedere

Reports that two South Africans are involved in what is alleged to be a massive Ponzi scheme created what some of the actors in the drama this week referred to as a media storm.

The storm raged for most of the week, with the bad weather clouding some South African unit trust funds, and it took a while for the message to emerge that investors’ money in registered local unit trust funds is safe.

The story broke in an online publication focused on offshore investments. It alleged that South Africans Cobus Kellermann and David Cosgrove are two of three kingpins in an alleged R200-billion Ponzi scheme run through Belvedere, a Mauritius-based collective investment scheme administrator and financial services group.

The link to South African unit trust funds is that Kellermann used to run Clarus Asset Managers, which took over Dynamic Wealth’s funds after Dynamic Wealth’s asset management and stockbroking companies lost their financial services provider licences in 2011. The funds operated, and still operate, under the collective investment scheme licence of Met Collective Investments (part of the MMI group).

Some of Dynamic Wealth’s investment managers moved to Clarus, but Kellermann this week denied any involvement with Dynamic Wealth as either an employee or a shareholder.

As anyone who followed the Dynamic Wealth saga should know, investments in unit trust funds registered in terms of the Collective Investment Schemes Control Act (Cisca) are safe.

The revoking of Dynamic Wealth’s licence stemmed in large part from the fact that it ran an unregistered collective investment scheme. Investors who invested in this unregistered fund and in an illegal money market fund lost money.

Investors in funds registered under Cisca enjoy certain safeguards that should have resulted in a statement being released swiftly early this week confirming that all is well with funds formerly managed by Clarus.

In terms of Cisca, a fund’s assets have to be held in custody by trustees. Although a fund manager may decide which assets to buy and sell, custodians control the bank account and settle any purchases or sales of the assets.

Local unit trust funds also have to appoint trustees who ensure that what is bought and sold in the name of the fund complies with Cisca. They also verify the prices of the assets and any trading and income received in the name of the fund.

The Act limits the investments that unit trusts are allowed to make – a fund manager cannot, for example, invest the entire fund in a Ponzi scheme or siphon money out of the fund to support a Ponzi scheme.

The trustees who hold the assets of a fund should be able to report that the assets in the fund are safely invested in reputable local and offshore investments.

Unfortunately, it took until Thursday for Standard Trustees, via Met Collective Investments, to confirm this, and for the Financial Services Board (FSB) to confirm that the assets of the Clarus funds were held separately from its manager.

Kevin Hinton, the head of investment distribution at Momentum, says that, in addition to the checks by the trustees, Met Collective Investments checks the assets bought by the portfolio.

Confusing the story about Kellermann’s involvement in the local funds was the sale of Clarus’s fund business to Contego Holdings, the holding company of boutique manager Contego Asset Management, run by father and son Kobus and JC Louw, who have many years experience in the industry.

JC Louw, Contego’s chief executive, says that, in July last year, Contego bought Clarus’s business and the mandates to run the funds, but not the company. Thus, for the past nine months, the funds have been managed by Contego, without Kellermann’s involvement.

Louw says that, during the transfer of the business and in order to effect payments for the purchase of the business, Louw became a director of Clarus, and Kellermann became a director of Contego Holdings. At the same time, Kellermann stepped down as director and key individual at Clarus.

Contego was in the process of changing the names of the funds from Clarus to Contego.

Contego was also in the process of being bought by recently listed asset management and stockbroking company Anchor Capital.

Louw says that, as part of this deal, Kellermann had resigned as a director of Contego, although he still appears as a director in company records.

But this week, Contego’s association with Kellermann proved too much of a reputational risk for Anchor Capital to bear, and it issued a statement on the JSE’s SENS service that it had cancelled the deal.

The FSB has identified four other South African financial services providers in which Kellermann is the key individual director or representative: RSA Multi Asset Management, Governation Investments SA, Pensionation Investments SA and Multivest Financial Planning.

Kellermann told Personal Finance this week that, after starting a family in South Africa, he had focused on businesses here rather than offshore.

Kellermann says Governation Investments SA and Pensionation Investments provide retirement annuities and living annuities to government employees.

Multivest Financial Planning is a new business and is dormant. RSA Multi Asset Management designs model portfolios for investors who use the platforms of linked-investment services providers.

Kellermann says none of these businesses enabled him to access investors’ funds, because the investments are held in retirement funds or on investment platforms.

The FSB says it is engaging with Kellermann, and will take the action it deems necessary once its investigation and the investigations by the overseas regulators are concluded.

Its comments came with the dire warning that such action could include the withdrawal of the licences of the various entities for which Kellermann is the key individual, director and representative. In addition to a criminal prosecution, Kellermann could be debarred from the financial services industry.

The moral of the story so far for the ordinary investor: stick with Cisca-registered funds. If the fund manager or business owner does prove to be a rogue, your investments should be protected.

There is no need to venture into unregistered offshore funds when you can invest in an FSB-registered offshore fund that has been vetted by the regulator and offers you similar protection to a local fund.

THE MAURITIAN CONNECTION

Until offshore financial services regulators have completed their investigations, it may take some time to clarify the facts about Mauritian collective investment scheme administrator Belvedere.

Online publication Offshore Alert has alleged that Belvedere is a massive Ponzi scheme, the net asset values of its funds are fraudulent, the funds are closed and money has been siphoned out of them, and investors cannot withdraw their money. One of the three alleged kingpins in Belvedere, David Cosgrove, countered some of these allegations in a letter to clients published on a local business news website this week.

Cape Town businessman Cobus Kellermann is alleged to be another kingpin. He told Personal Finance that he is a large, but not the controlling, shareholder in Stonewood Holdings, which owns Belvedere, and he cannot answer for its day-to-day operations.

It remains difficult at this stage to make out where the truth lies, However, by the end of the week, the state of play was that the Financial Services Board (FSB) had confirmed that it, the South African Reserve Bank and the Financial Intelligence Centre are assisting both the Mauritian Financial Services Commission (FSC) and the Guernsey Financial Commission with their investigations into Belvedere’s activities and with tracing money that the offshore regulators believe has flowed to South Africa.

The Mauritian FSC has withdrawn the collective investment scheme licences of two funds involved with Belvedere, the Lancelot Global PCC Fund and the Four Elements PCC Fund, and has put them under administration.

Caroline da Silva, the FSB’s deputy registrar for financial advisory and intermediary services, said no South African investors have reported to the FSB that they invested with Belvedere or its entities and cannot access their money.

Jurgen Boyd, the deputy registrar for collective investment schemes, said although the FSB has not found any South African-registered offshore-domiciled funds in the affected Mauritian funds, it has found that some South African-registered offshore funds were being administered by entities in the Belvedere group.