Magnus Heystek has sustained a final kick in the teeth over allegations that he abused a family trust. Mungo Soggot reports
Magnus Heystek, the financial guru and former darling of the media, has paid a “very large” out-of-court settlement to two young boys after being accused of mismanaging and profiting from their family trust.
Heystek’s marathon legal battle over the trust ended earlier this month, with brief reports in the Sunday press that he had settled the case. Heystek told one newspaper that the ordeal had ruined his life. The claims made against Heystek in the court papers and the transcripts of the court proceedings show why.
The terms of the out-of-court settlement with Clive Berman and his two sons, who were the beneficiaries of the Berman Family Trust, are confidential.
But an exchange with Judge Percy Blieden of the Johannesburg High Court indicates how much Heystek has had to fork out and how seriously the court viewed the claims against him.
Having lost the services of his tenacious attorney, David Levithan, Heystek was asked why he had not signed a settlement like his two fellow trustees, Anne Marie Wentzel, a psychologist, and Leonard Singer, an attorney. The exchange went:
Heystek (at that stage representing himself): My apologies, sir. I am not unwilling, the settlement … my involvement in the settlement, is a very large financial one.
Court: Well, I would imagine so, having read the pleadings in this case.
Heystek wanted a postponement of the trial to find new lawyers, but the case eventually got under way. One of his strategies was to blame his situation on Levithan, who he said was now only a part-time attorney and was doing other business. Heystek also said he needed another deal to go through before he could pay the settlement.
He told the court: “I am not being obstructive in this case but I cannot commit myself to a very, very large payment until I know that I will be able to pay the money.” In the end Heystek capitulated and signed off the confidential settlement.
There are several sets of allegations against Heystek and the trustees, all of which the trustees denied in court papers filed before the settlement was struck.
There are specific instances in which Heystek is alleged to have improperly stripped the trust for his own personal benefit, or made the cardinal error of mixing his own affairs with those of the trust.
Heystek also stands accused of having failed to disclose information about his handling of the trust. Trust law imposes a heavy duty of care on trustees, which appears to have been consistently flouted by the trustees.
In particular, Heystek is accused of having tried to cover up the fact that he received kickbacks from a financial services company, TMA, for placing the trust’s investment portfolio with it. In one application before the Johannesburg High Court in September, Deputy Judge President Monas Flemming said: “I have most serious doubts about a situation where the trustee is a financial adviser [Heystek], when he is a trustee to decide upon investments, whether he can charge a fee for considering investments. In fact, in this case the kickback is not even a fee for considering what is a good investment. It is a fee for placing it with TMA and not with somebody else a kickback in its worst form.”
Judge Flemming says elsewhere in his judgement: “… there is reason to think that the court is dealing with a person who is trying to get away from the duty to [hand over documents relevant to the case]. I have alluded to the question of ‘forgetting documents’, ‘not knowing’ where it has gone, ‘not having a record'” all explanations offered by Heystek about the whereabouts of various documents.
It is almost three years since the Mail & Guardian first published some of the allegations against Heystek concerning the trust. Heystek and the other two trustees were approached in 1994 by Berman and his wife, Monica Strivens, to set up the trust for their two young sons. Heystek had by then built up his reputation as an avuncular investment adviser with his media profile in particular a slot on radio 702.
Strivens was a wealthy heiress and was due to receive a tranche of about R21-million from another trust. The trustees were also made executors of her will and guardians of the children. In addition to being a trustee, Heystek also had joint signing power over the R21-million, about R5-million of which went into the trust. It remains unclear how the rest of the money was spent. The legal attack against Heystek has focused mainly on the trust as opposed to the R15-million of Strivens’s money to which he had access.
Berman’s case has had a turbulent history, partly because he was at one stage working with Lionel Reichenberg, an amateur litigator who has been barred from litigating. Reichenberg’s reputation made it easy for Levithan and Heystek to discredit Berman and the M&G, for reporting on the allegations. Heystek sued the M&G in 1999 for defamation, but withdrew the suit after the newspaper’s lawyers sought access to key documents.
Since then Berman’s case against Heystek has been run by a Johannesburg attorney, Julian Solomon.
In addition to the kickbacks slated by Judge Flemming, there are several other specific allegations levelled against Heystek.
One allegation is that Heystek swindled the trust by buying a sub-divided property in the Johannesburg suburb of Saxonwold together with the trust a model conflict of interest. Heystek took the better piece of the land the one with a palatial house on it for himself for R650 000, and got the trust to pay R850 000 for the inferior, empty plot. The M&G learned from its original investigation that the estate agent pulled out of the deal in disgust, passing it on to a colleague.
The formal claim against Heystek says the trust suffered a loss of R550 000 arising from the payment of R850 000 for a property worth R300 000. Heystek used the trust’s land for himself, the entire property serving as his business headquarters. Three years after this arrangement started, he and the other trustees arranged for his company, Cream Publishing, to retrospectively rent out the R850 000 trust land for R24 000 a year, a nominal rental.
The next allegation is that Heystek’s wife, Anne, who has since divorced him, sucked almost R1,5-million from the trust for interior decorating fees run up by Casa Deco, a business she ran with another woman.
Heystek also stands accused of getting Strivens to pay R1,8-million for a soap factory, Red Ring, which he wanted to invest in. Heystek initially denied in court papers that Strivens had anything to do with Red Ring, but eventually was confronted with evidence of it. Heystek said at one stage on affidavit that Strivens had cajoled him into allowing her to invest in Red Ring in which, he said, he was already involved. Berman’s legal team subsequently discovered documents showing that Heystek had got her to liquidate R1,8-million of unit trusts to pay for the company’s entire share capital (reflected in the share register). All of which suggests Heystek arranged for Strivens to pay for both his and her investment in the company.
As for the TMA kickbacks, the claim against Heystek filed in court says he wilfully caused the trust to pay TMA R132983 more than it would have done had Heystek not negotiated the deal “a kickback of the worst kind”, as Judge Flemming put it. Heystek initially denied receiving commissions.
The plaintiff’s claim accuses the trustees of drawing excessive fees from the trust.
As for the other two trustees, they were targeted in the court papers for neglecting their trustee duties by letting Heystek get away with it as opposed to actively participating in the various acts of impropriety.
In one court application, Singer’s and Wentzel’s legal team took a drubbing for their handling of the case and in particular their attitude to discovery. Judge Jonathan Heher said of David Singer a lawyer who handled the other trustees’ case, and who happened to also be Leonard Singer’s brother that he was “disingenuous at best”. Elsewhere in his judgement, Judge Heher says of one of David Singer’s strategies to avoid discovery that it was “completely inimical to the pursuit of justice”.
All the trustees stand accused of neglecting the trust of not keeping proper financial statements, and of not even setting up a separate bank account for the trust until more than two years after the trust’s inception. Their failure to do this violates section 10 of the Trust Property Control Act 57 of 1988: “Whenever a person receives money in his capacity as trustee, he shall deposit such money in a separate trust account.”
Under Heystek’s stewardship, the trust paid Monica Strivens more than R1,5-million before she died in 1998, which meant transferring, in various instalments, the money to accounts over which Heystek had signing power. This violated one of the ground rules of the trust, which was that its income beneficiaries Strivens and the children were not to be paid out of the capital of the trust. Strivens was a spendthrift and suffered from various addictions, which was why she and Berman wanted Heystek and the other trustees to look after the money in the first place.
In the plaintiffs’ armoury was a report by a forensic auditor, Vincent Faris, blowing holes in the way the trust was run, and highlighting various dubious transactions. Among other things, Faris raises questions about a “forensic report” offered by the trustees that sought to give the trust a clean bill of health. Faris says the report does not “look past and behind” the transactions, as forensic audits should.
One of the themes of the litigation has been that the trustees have used the trust’s remaining money to fight their case. Earlier this year they wrote to Berman saying they would stop monthly instalments to the trust beneficiaries, his two sons, for their school fees in case the money was needed for litigation. Berman declined to comment beyond saying he was relieved the matter has finally been settled.