Among the scalps accumulated over the past year are BHI Trust’s Craig Warriner and Classic Financial Services’ Cobus Geldenhuis. From Moneyweb.
The Financial Sector Conduct Authority (FSCA) ramped up its war on financial scammers over the past year, as shown by the nearly 10-fold increase in administrative penalties in the year to March 2024.
Total penalties imposed over the year tallied R943 million on 31 people, up from a little over R100 million the prior year, according to the FSCA’s Regulatory Actions Report 2024 released on Friday.
One reason for this new enforcement zeal is to remove SA from the dreaded Financial Action Task Force (FATF) grey list by 2025.
SA was placed on the grey list in 2023 for lax monitoring and enforcement of money laundering and anti-terrorism financing. One of the improvements the FATF wants to see in SA is its ability to investigate and prosecute complex financial cases, such as the Steinhoff, Tongaat and BHI Trust frauds.
The Steinhoff case took years to unravel, while the BHI Trust case took roughly six months, resulting in a 25-year prison sentence for mastermind Craig Warriner – a clear sign of new treads on the FSCA speedster charged with investigating and preparing cases for the prosecuting authorities.
Read: BHI’s Craig Warriner nailed for 25 years by FSCA forensic audit
Among the penalties imposed by the FSCA over the past year:
- A record R475 million fine on the now deceased Markus Jooste, former head of Steinhoff, for publishing false financial statements;
- A R143 million penalty on Jacobus (Cobus) Geldenhuis of Classic Financial Services for breaches of the Financial Advisory and Intermediary Services (Fais) Act and the Banks Act;
- A R216 million penalty on Coenraad Botha of CBI X SA and CBI Association for running a scam investment scheme promising 1-4% returns a week; and
- A R58.7 million penalty on My Wealth Method and another R15 million on associate company My Wealth Dias for breaches of the Banks Act.
Executive head of enforcement at the FSCA Gerhard van Deventer told a media briefing on Friday that the increase in administrative penalties serves as an effective deterrent against non-compliance with the law.
Aggravating factors in determining the size of penalties include “deliberate or reckless conduct, extensive harm to financial customers, extensive benefit to the wrongdoer and lack of cooperation [with investigators]”.
Steinhoff
The R475 million fine imposed on Jooste was the highest ever in FSCA history, largely due to the financial harm caused.
Former Steinhoff CFO for Europe Dirk Schreiber, acting on Jooste’s instructions, created fake transactions to inflate the group’s operating profit.
This led to misstatements of R3.26 billion in operating profit and R13.7 billion in cash for the 2014 financial year, as well as similar misstatements of R3.24 billion in operating profit and R31.38 billion in cash equivalents for 2015. Further misrepresentations were made in 2016.
Read: Markus Jooste slapped with a R475m fine for Steinhoff misconduct
Jooste and Schreiber inflated goodwill in Steinhoff UK by R3.93 billion in 2015 and €253.2 million in 2016, unsupported by legitimate transactions.
Schreiber, who was sentenced last year to three and a half years in jail for his role in the Steinhoff accounting scandal, cooperated with the FSCA’s investigation and entered into a leniency agreement with the regulator.
Classic Financial Services
Moneyweb recently reported on the case of Geldenhuis and Classic Financial Services (One), a Ponzi scheme reckoned to have pulled in more than R800 million by making promises of extravagant returns. My Wealth Method was operating a similar Ponzi scheme.
Both schemes solicited funds from the public, with only a small portion going into investments.
The rest was used to pay out demands for withdrawals from earlier “investors” and to fund the extravagant lifestyles of the owners. It also emerged in court filings that millions of rands was squandered in casinos.
Read: The unravelling of the Classic Financial Services scam and the gambling millions
In addition to the financial penalties imposed on Geldenhuis and My Wealth Method, the FSCA barred both from rendering financial services for 20 years.
BHI Trust
No penalty was imposed on Warriner for his involvement in the BHI Trust fraud, given his apparent inability to pay (though a former cellmate says he secreted money away before his arrest for fraud). Warriner was sentenced in May 2024 to 25 years in prison for fraud and operating an unregistered financial services business.
Read: Craig Warriner’s cellmate spills the beans
An investigation by the FSCA demonstrated that Warriner offered three fictitious investment strategies: the BHI Strategy, BHI Plus and the BHI International Strategy.
A forensic analysis shows these schemes roped in R2.9 billion between September 2020 and November 2023, but only about 20% of this was actually invested. “The remaining 80% of the funds were held in a money market account, used to pay returns to other investors in a Ponzi scheme fashion, and to fund Mr. Warriner’s lifestyle,” says the FSCA report.
Tongaat
Another case highlighted in the FSCA report details the efforts by former Tongaat CEO Michael Deighton to be given access to documents that would allow him to prepare for his interrogation relating to charges of publishing misleading financial statements.
Deighton initially won a victory against the FSCA in 2022 when the Pretoria High Court found he had been treated unfairly and set aside the investigation. This ruling was overturned by the Court of Appeal on 7 February 2024. Deighton was denied leave to appeal by the Supreme Court of Appeal and has now taken the matter to the Constitutional Court.
Read: Court finds FSCA acted correctly when questioning Tongaat executive
Deighton was identified by PwC as one of several Tongaat executives involved in accounting malpractices, including the backdating of land sale agreements that resulted in revenue being recognised in earlier reporting periods than it should have been.
“This case illustrates the FSCA’s commitment to addressing legal challenges, particularly where it impacts on its powers to combat misconduct in the financial sector, “says the FSCA.
The FSCA report says financial services providers (FSPs) debarred 1 312 representatives over the last year, almost all for dishonesty.
There was a 15% increase in debarments compared to the prior year.
The FSCA itself debarred 156 people, down from 210 the prior year, mostly for dishonesty and submitting false policies.
Some 9% of FSP licences were suspended during the year, 97% of them for non-submission of statutory returns or non-payment of levies. A further 75 FSP authorisations were withdrawn.
There was also a substantial increase in enforceable undertakings, many of which were to regularise funeral parlour businesses collecting premiums without the requisite licence or underwriting policies.
