A forensic report into the Community Scheme Ombud Service (CSOS) has recommended that the entity should recover R80-million that was recklessly invested with the now defunct VBS Mutual Bank.
The investment that put CSOS at loggerheads with Human Settlements Minister Nomaindia Mfeketo was not approved by her department. The minister only learnt about it months after it happened.
The CSOS is an alternative dispute resolution body to resolve administrative disputes in schemes such as sectional title and homeowners’ associations. It is financed by levies paid by sectional title schemes, homeowners’ associations and a government grant.
The Mail & Guardian revealed in June that Mfeketo had requested auditor general Kimi Makwetu to investigate the investment, which was made in January without the approval of the body’s own board, her office or the treasury.
A forensic report by Knowles Husain Lindsay Attorneys, which was presented to the board last week, revealed that the investment was made through Gundo, a company that is not an authorised financial services provider, as required by law.
It was further revealed that the company is owned by Ralliom Razwinane, who is among the individuals who received gratuitous payments — payments “without any just or legal cause” — during the VBS “great bank heist”.
According to the South African Reserve Bank’s report, compiled by advocate Terry Motau, Razwinane received R24 224 198 from the heist.
The Knowles Husain Lindsay’s investigators discovered that CSOS chief executive Themba Mabuya, who is on precautionary suspension, had appointed Gundo to provide CSOS with “market research and analysis of the banking deposits and services offered by various financial institutions”.
But the company only provided CSOS with different interest rates from different banking institutions.
“On the face of it, [Gundo] breached the mandate in that it did not ensure that CSOS’s investments with VBS were not at a greater risk to CSOS,” the report states.
The report further said that Razwinane did not take care and due diligence in investing the money.
“CSOS should seriously consider instituting civil claims against Gundo Pty, Gundo CC and Mr Razwinane for the damages that CSOS has suffered … It should also seriously consider whether there are enough grounds to ‘pierce Gundo CC’s and Gundo Pty’s corporate veil’ so that Mr Razwinane is also personally liable for the damages caused to CSOS,” the forensic report said.
According to the report, Razwinane declined on numerous occasions to meet Knowles Husain Lindsay’s investigators to give his side of the story.
When the M&G contacted him for comment, Razwinnane said he had not seen any invitation from CSOS or the attorney to contribute to the investigation. He also said Gundo CC had been converted to Gundo Pty, and provided an application to the financial sector conduct authority for the conversion dated after the mandate to provide advice to CSOS on the VBS investment.
Razwinnane said in an email to the M&G: “It must be noted that in line with our mandate we make recommendations, but the decision to invest ultimately lies with the clients [as] shown on the instruction made [by Mabuya] to FNB to transfer funds to VBS and Absa.
“We look forward to receiving the report and legally weigh our options.”
CSOS had not commented by the time of publication.
In March, VBS was put under curatorship after the Reserve Bank found that the bank was experiencing liquidity problems. The curator, Anoosh Rooplal, has found that R900-million of VBS’s reported deposits of R2.9-billion cannot be confirmed.
Municipal deposits reportedly amount to about R1.5-billion and the bank is holding about R370-million in funds intended for the beneficiaries of deceased mineworkers. The Public Investment Corporation has about R368-million invested in VBS in equity and debt.
Because of the VBS debacle, Makwetu cancelled government contracts with the troubled auditing firm KPMG, which was VBS’s external auditor. Rooplal also withdrew VBS’s audited annual financial statements.
The report also confirmed a previous article by the M&G that Mabuya and CSOS chief executive Seeng Letele misled Human Settlement Minister Nomaindia Mfeketho when she was told that CSOS’s decision to invest with VBS was in line with a board resolution. Mfeketho had sought an explanation after CSOS was placed under curatorship earlier this year.