Katz and mice
In 1998 senior staff in Investec’s R1-billion Cape Property Finance division – in a mess after the acquisition of Metboard’s property division – were suspended, fired or took sudden “early retirement”. Every effort was made to cover it all up, but, behind the scenes, allegations of fraud, and summonses, were flying. Investec had called in “Lenny the Liquidator” Katz from Sonnenbergs.
Katz’s solution appeared bizarre, if not downright reckless: he was liquidating the division’s clients – in bulk. More than 30 of them within weeks. All the while, according to the sworn evidence of those employed to do the job, he and Investec were illegally having the phones of a variety of their victims and the victims’ attorneys tapped and their private bank records accessed.
Was the idea simply to generate fat fees for Sonnenbergs or to keep the bank’s insurers happy, or both?
We know it generated many millions of rands in fees and that it was dangerously close to being – if not actually – a fraud on Investec’s insurers, Lloyds. It was certainly used to justify claims approaching R100m against the insurers. After that, there were bargains to be had at the sale of all their victims’ assets.
The story of one of the victims of the slaughter is worth recalling here.
Leonard Katz assisted Investec in liquidating Justin Lewis’s company, Midtown Building Systems, by fraud. Then, presumably thinking he had “slammed the till drawer shut” on Lewis, he proceeded to apply for Lewis’s personal sequestration in order to legally disable him – or “cut him off at the knees” – before Lewis could take any action against either Investec or its lawyers, should he discover the fraud. “Cut him off at the knees” is a standard Katz stratagem.
At each crucial stage, a judge is persuaded to endorse or enable the fraud with a court order, creating the outward appearance of legality.
But Katz and his friends at Investec underestimated Lewis – at least temporarily. He had an unexpected source of funding and, unlike most Katz victims, was able to employ some of the best advocates money can buy not only to oppose his sequestration, but also to get a high court injunction forcing Investec to produce the incriminating accounts it had withheld for more than a year.
Once reluctantly produced (“without prejudice”!), Investec’s accounts for Midtown contained phantom charges totalling hundreds of thousands of rands: an unjustified transfer – described as “profit” – to Investec itself of over R1m (which was straight theft) and overstated interest and bank charges totalling several million rands more. All to create a false claim with which to liquidate a company and misappropriate its assets. All either on Katz’s advice or with his connivance.
In November 2002 Noseweek investigated another curious aspect of the case: why Investec’s rush, as sole creditor, to sell the assets of Midtown immediately it had a liquidation order?
The only reason why a stressed and confused Lewis – pressured by Katz and still ignorant of the frauds – agreed at the last minute to the provisional liquidation of his company, was that he had been assured by Investec director Robert Gottlieb that he would have the opportunity to buy its assets out of liquidation. Lewis was confident that Midtown’s assets were worth far more than the R12m Investec (falsely) claimed they were owed and, he thought, surely a bank’s only interest is to recover its money. Wrong.
Shortly after the liquidation, and just as Lewis appeared to be raising the necessary funds, Investec rushed to court, urgently seeking authorisation to sell the assets – to Investec’s own property company, IPG. (Another example where Katz used the courts to endorse a fraud.)
The reason for the urgency? In an affidavit drawn up by Katz, the bank claimed it had a buyer whose offer would soon expire. At the court hearing, all four parties – Investec, the liquidator, IPG, and the on-buyer – were all represented by Sonnenbergs. Investec had gone to great lengths to discourage other bidders. Its court application was unopposed and was granted.
The assets of Midtown were immediately sold to IPG for R8.5m – a far lower price than Lewis and other investors were prepared to pay. IPG on-sold the assets to their arranged buyer for R10.3m, making a quick profit for themselves of R1.8m.
Thanks to the last-minute disclosure of Investec’s dodgy accounting, Lewis successfully opposed the application for his sequestration.
Subsequently, the forensic division of PricewaterhouseCoopers analysed the accounts on which Investec had based its applications to have Midtown, first, then Lewis, declared bankrupt. The auditors found that Investec had contrived to overstate Lewis’s debt to the bank by over R4m.
[And that was dealing with only half the list of Investec’s misdemeanours in the case. – Ed.]
Had Investec not cooked the books, Midtown could not have been forced into liquidation – a damning indictment of Investec’s accounting standards and dishonest management style.
A state of chaos in the property division of Investec may have explained how problems first arose with the Midtown account.
Chaos cannot, however, explain events after Gottlieb and his advisor, Leonard Katz, took over the division: the surreptitious transfer of a massive debit between accounts; Investec’s appropriation of R1m in “net profit” from Midtown when, allegedly there was no profit; and Investec’s determination to prevent Lewis’s seeing the accounts.
And then there’s Brakspear
In the case of Ian Brakspear, Leonard Katz outdid himself. Brakspear’s wine farming project in the Franschhoek valley had generated only trouble and losses for the Durban futures and options trader, so he decided to call it day. He had bought the farm in the name of a company, Westdunes Property 5, funded with a R13-million bond from Rand Merchant Bank and backed by a guarantee from the Jersey-registered Wesley Trust.
He had set up the trust on the advice of his bankers, Nedbank, whose Jersey subsidiary, Fairbairn Trust, acted as their trustee. (For more about that read “Swimming with Sharks” in nose128.)
A local estate agent produced a buyer, Johannesburg businessman
Zunaid Moti (see noses118,119,120, 126,128,130,131,139 & 143) who offered R37.75m for the farm, planning to develop a luxury winelands hotel and country housing estate. He paid a R1m deposit.
A relieved Brakspear kept the Jersey trustee, Fairbairn MD Justin Thomas informed of negotiations. Thomas was encouraging but, he reminded Brakspear, “it is important the sale is progressed as soon as possible, as the Bank will not provide a further extension and will seek full repayment on 28 February 2008”.
Thomas somehow managed to copy the email to Moti’s legal adviser, who immediately realised it was a distressed sale and that, if Moti withdrew his offer and waited, he could probably buy the farm at auction for a lot less. Which is what happened. RMB foreclosed on their bond and Moti’s R18m bid at auction was accepted.
The Fairbairn Trust’s negligence – for which Thomas apologised profusely – had just cost Brakspear R19m and exposed Nedbank’s subsidiary to a damages claim for at least that amount.
At about this time, the owners of the neighbouring Rupert-Rothschild’s farm L’Ormarins, decided that they desperately wanted the farm and were prepared to pay a few million more, say, R25m. But Brakspear was already bound to give transfer to Moti for R18m. And, since Moti had himself valued the farm at nearly R38m, he was not likely to accept the offer of R25m from the Rupert company, Applemint.
Nedbank had a seemingly insurmountable problem: its Jersey subsidiary faced a financially and reputationally ruinous damages claim. Applemint-L’Ormarins too, had a problem: they faced the prospect of a Moti township on their doorstep, and no legal way of undoing the sale to him. Transfer was imminent. What to do?
Call in Lenny the Liquidator.
Katz immediately negotiated his R1m bonus fee, then set about applying his old recipe, but this time with some salad on the side. The plan was to fraudulently manufacture a debt with which to liquidate Brakspear’s Westdunes Property 5. And then to appoint a friendly liquidator who would not dream of suing Nedbank’s Fairbairn Trust. That might “slam the till drawer shut” and deprive Brakspear of the funds he would certainly need in order to institute a court action against a major bank. The salad: it would provide an apparently legal tool with which to undo the farm sale to Moti, and sell to Applemint. (In insolvency, a liquidator can undo a sale to accept a better offer.)
Only days before Christmas in 2008, when his victim and most better-class lawyers could safely be assumed to be on holiday, Katz filed notice of an urgent application for the provisional liquidation of Westdunes, to be heard in the KwaZulu-Natal High Court, Durban, at 9.30am on 23 December. The applicant was named as Fairbairn Trust of Jersey, trustee of the Wesley Trust; the stated cause of the action: an alleged R7m loan, said to have been made by the trust in June that year to Westdunes Property 5, which had not been repaid.
Brakspear knew there had been no such loan, and that he owed the trust nothing. Incredulous, he rushed home from his holiday and found a one-woman law practice and an advocate to represent him. They filed an opposing affidavit in which he categorically denied the debt and the validity of the application, and accused them of abusing the legal process.
Brakspear’s efforts were of no avail, apparently. On 23 December an order of the court – or what superficially appeared to be such – was delivered to the Master of the High Court, placing Westdunes Property 5 in provisional liquidation.
From then on everything went as Katz had planned. He urgently applied for and was given the court’s permission to cancel the sale to Moti, sell the farm to Applemint for R25m – and charge the company in liquidation his outrageously extravagant fee.
But here’s the problem: the court order delivered to the Master effectively putting Westdunes Property 5 into liquidation is not typed on the high court’s typewriters or in the court’s standard format. It is unsigned by the high court registrar and does not bear the court’s date stamp or seal. It is, on closer inspection not a valid court document and by all counts, a fake. The Master should never have acted on it. Two more copies are known to exist. Both do bear a signature that purports to be the signature of the court registrar,
but the signatures are a bad forgery and the registrar in question, Bovani Chetty, has denied under oath that she signed them.
The court file which should record the court order has disappeared.
Every one of the other court orders issued that day by Judge Sharmaine Balton, including a dozen similar urgent applications, was typed by the court typing pool in the usual format, signed and impressed with the court’s seal by the registrar, and in the case of liquidation orders, was delivered by the court messenger in a bundle to the Master’s office only the next morning.
At various times Katz has stated in writing: (1) the case was called and argued in open court; or (2) it was initially called in open court and then heard later in the judge’s chambers at the end of the open court roll; or (3) it was heard entirely in the judge’s chambers after she had completed the roll in court, ie after 11.10am
The trouble is: the copy of the court order delivered to the Master of the High Court was faxed while Judge Balton’s motion court was still in session.
If it was heard that day at all, it was the only case out of 12 other urgent applications that was not added to the court roll. The entire day’s court proceedings were tape-recorded by the court stenographer. Every other case can be heard being called – except the Westdunes case. There is no mention of this case on the recording.
The judge has no recollection of having heard such a case in her chambers, and it is not recorded in her bench diary, as regulation would require.
Making it still more unlikely that a provisional liquidation order was granted, as alleged by Katz, is the fact that the case was clearly not urgent and the case presented to the court did not justify a liquidation order: there was no documentary proof of the loan, the person who alleged it had no personal knowledge of it.
In fact this person was an arbitrary director of BoE, another legal entity entirely, who could not commit and has no authority to speak for the Fairbairn Trust of Jersey. He claimed no authority to represent the Fairbairn Trust; merely stated he was the director of another Nedbank subsidiary which, in law gives him no such authority. The alleged loan was denied under oath by the alleged debtor.
The court file has disappeared.
In summary: no case for urgency; no legitimate applicant; no credible founding affidavit; no evidence presented of a debt, which was merely alleged by hearsay – and that hearsay allegation was denied by the alleged debtor under oath; no record of the case having been called before a judge; the typed orders have all the characteristics of a fake – two of them bear signatures that are clearly not genuine; the main actor, Katz, gives radically contradictory versions of what supposedly happened at the high court that December.
There is a great deal more evidence to support Brakspear’s claim that the alleged R7m loan by the Wesley Trust is part of a deliberate fraud. For a start, the trust deed of the Wesley Trust does not empower the trustees to make loans and, in any event, Jersey laws and regulations require all such transactions to be in writing.
Katz admits they have no written loan contract.
There is no evidence in any bank record of such a loan amount having been either paid or received at about the date of the alleged loan.
It emerges that what the fraudsters did was to try to mimic an earlier R7m payment received by Brakspear from another trust established long ago by his father: the Brakspear Trust in the Isle of Man. It was paid to him a year earlier to settle a debt to RMB, and is recorded in that trust’s books, at the appropriate date, as a distribution to Brakspear, who is a beneficiary of the trust.
A significant concluding point to make with regard to Katz’s credibility: on 31 March 2009 Katz submitted an invoice to the liquidators of Westdunes in which he demanded payment of fees totalling R227,417.97 for services rendered by himself and his assistants at court in Durban on 5 and 6 February, 2009. It was paid.
On 28 May 2010 he submitted another invoice, with a different invoice number, but listing the identical services and hours and totalling the same R227,417.97. That also got paid, without question.
It is either grand larceny or a terribly fortunate error.
When are South Africa’s judges going to stop buying second-hand cars from this fraud salesman? Until they do, they share the shame.
► In May 2013 Brakspear filed an application in the Durban high court for the order placing his company provisional liquidation on 23 December 2009 to declared a forgery and therefore to be declared invalid (null and void).
It is set down for hearing on 12 August 2014 – but Katz, acting for the Nedcor Group, has asked the court to once again postpone it to a later date as he claims too little time has been set aside for the case on that day.
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