In October 1991 thousands of mostly elderly investors were shattered when the Cape-based property empire Masterbond collapsed. In the wake of that massive financial scam, 16 investors who faced financial ruin committed suicide.
In 1994, in response to continuing public outrage, President Mandela appointed a commission of inquiry, chaired by Judge Hennie Nel, to get to the bottom of the mess.
The commissions first report, published in November 1997, exposed an unprecedented scale of fraud by the promoters, dishonesty by the auditors and incompetence on the part of the regulators.
As it would happen, in the same year an obscure closed corporation named DW Promotions was registered in Pretoria. DW Promotions would be the promoter of seven unlisted public companies used to perpetrate yet another property investment scam, this one called Oude Molen. It heralded the arrival of two new players, Durandt and Willie Botha from Boksburg, in the murky world of property syndications; a world in which, they discovered, huge secret profits could be made by fraudulently inflating the value of properties and then inviting the elderly to invest their retirement savings.
Unlike the perpetrators of the Masterbond scam, who spent time in jail, the Botha brothers escaped the net of our famously incompetent criminal justice system.
After the Oude Molen debacle, Willie Botha went on to start a new property syndication venture called Sharemax Investments and again massive secret profits flowed.
The story of Oude Molen and the Bothas is outlined in chapter four of Deon Bassons controversial new book Public Interest Warriors, recently published on the internet, and now the subject of a court application by Willie Botha to suppress its further publication.
Curiously, when Botha asked the Pretoria High Court last month to ban further publication of various chapters of Public Interest Warriors which had been appearing, one by one, on the internet, chapter four was not among those he sought to have censored. On the face of it, this made sense strictly speaking DW Promotions and Oude Molen have nothing to do with Sharemax, and its Bassons criticism of Sharemax that Botha is upset about. But, we suspect, there is another, more sinister reason, for the omission of the chapter on Oude Molen from the court proceedings. Sharemax is a licensed financial services provider (whatever that means). To be so licensed, Botha and the other directors were required by law to satisfy the Financial Services Board that they were fit and proper individuals to be granted the honour.
If Botha were to disclose all the relevant facts of his Oude Molen history he would hardly fit the bill. Better not bring attention to it at all.
But perhaps Botha need have no fear. Beginning his analysis with the Nel Commission, and then running through Gary Porritt and Jack Milnes little adventure with public money at PSC Guaranteed Growth, on to the Fidentia and Leaderguard scandals, Basson shows that the regulatory system is fundamentally and comprehensively flawed. He finds the new FAIS legislation, introduced to address the ills identified by the Nel Commission to be so cumbersome and bureaucratic that it is unlikely to stop the real scamsters in their tracks.
While the regulators are found seriously wanting, Basson finds still more serious fault with the defenders of the public interest who supposedly stand guard over the entire modern capitalist system: the auditors. Even if state-appointed regulators fail, those venerable and trusted professionals should hold the line. Well, with Masterbond they didnt. In the Oude Molen situation, auditors Venter De Jager were conspicuously absent; they failed to report any material irregularity to the then Public Accountants and Auditors Board.
Audit firms have long since lost their independence: the formal annual audit is but a small part of their business today a loss leader, in fact, that is used to market their other, more lucrative, management services. All this was already highlighted in the early 1990s by University of Pretoria professors Dieter Gloeck and Herman de Jager. But the profession acted quickly and angrily to protect its vast commercial empire and pulled out all the stops to censor the two professors. This story, too, is told for the first time in Bassons book.
Both the regulators and the auditors failed, but what about the members of the fourth estate? The media have hardly done better: good news sunshine journalism has proved way more profitable than critical investigative journalism.
- Key chapters of Bassons book will be published on the international website wikileaks.org, which won the 2008 Economist Index on Censorship Freedom of Expression award.
The site has successfully faced off many legal challenges, including those from the US Pentagon, the Chinese Public Security Bureau, the former president of Kenya, the Premier of Bermuda, various major Churches, the largest Swiss private bank and major Russian companies.
Deon Basson died unexpectedly on 13 September.
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