White Collar Crime Brief – 21/08/2013

21 August 2013|In White Collar Briefs

In this issue:

  • South Africa: ANC retracts dismissal of security chief
  • South Africa: Investigation into sale of racecourse by Public Protector
  • South Africa: Report on Liberty franchise may result in persecution
  • United States: US government file fraud suits against Bank of America
  • United Kingdom: SFO to investigate miner’s operations in Africa and Kazakhstan

South Africa: ANC retracts dismissal of security chief

ANC security chief Tito Maleka, who was allegedly fired due to his links to the Libyan Government, has had his dismissal by the ANC retracted. It has been alleged that Mr Maleka was fired as a result of his knowledge of the involvement of senior South African government members and ANC officials in the disappearance of the “Libyan billions”, which were allegedly flown into South Africa by Muammar Gaddafi. The Libyan billions included money, gold and diamonds.

In a move which may believe to indicate that the United Nations has little confidence in the South African government to address the issue, the UN has turned to Mr Maleka for assistance in finding the hidden billions. This is a request that could result in a ruction between Department of International Relations and the world body.

Maleka has taken the ANC before the Commission for Conciliation, Mediation and Arbitration ("CCMA") for unfair dismissal. The ANC did not oppose it and agreed to pay him part of his salary until he goes on pension. The CCMA placed him on medical boarding until the age of 65.


South Africa: Investigation into sale of racecourse by Public Protector

It has recently been reported that the South African Public Protector, Thuli Madonsela, is currently investigating the sale of the Arlington Race Course in Port Elizabeth allegedly on the basis that the property was improperly transferred into the private sector in 1999. Arlington is owned by the JSE-listed racing and betting company, Phumelela. Phumelela are in the process of building an all-weather race track in the area and wish to sell the Arlington race course to the Nelson Mandela Metro so that the land maybe be used for development of low cost housing.

The Public Protector has written to the Executive Mayor and acting Municipal Manager of Port Elizabeth and Nelson Mandela Metro respectively, advising them of the investigation into the ownership of the race-course, following a complaint by the CEO of Africa Race Group.


South Africa: Report on Liberty franchise may result in persecution

A former Liberty franchise, SFS Financial Services ("SFS"), which was accused of running a Ponzi scheme has had its liquidation inquiry finalised. The court-appointed commissioner confirmed that the report will consider whether any potential criminal offences or irregularities need to be referred to the director of public prosecutions. The liquidation report is likely to throw more light on claims that SFS had not been audited since 2001 due to an alleged R90m hole in its accounts, as well as an alleged loan of R7m by Liberty.

A liquidation order was granted in 2007 against SFS, but the inquiry has been delayed, resulting in the litigants eventually withdrawing the matter. The litigants had allegedly suffered total losses of R140m, but Liberty denied failing to meet its obligations under the Financial Advisory and Intermediary Services Act ("FAIS") as it alleges the victims knew that certain products sold by SFS at the time were not Liberty products. The litigants, however, claimed that SFS used the Liberty licence number, logos and letterheads and Liberty failed to establish an effective monitoring system as required by the FAIS Act.


United States: US government file fraud suits against Bank of America

The US government filed two lawsuits against the Bank of America relating to fraud on $850m (GBP553m) of mortgage-backed securities.

The US Justice Department and the Securities and Exchange Commission filed parallel suits in North Carolina.

Attorney General Eric Holder said the government wanted "justice for those who have been victimized". Bank of America denied the charges, arguing "these were prime mortgages sold to sophisticated investors".

In the Justice Department case, the government alleged that Bank of America "knowingly and wilfully misled investors about the quality and safety of their investments" in a residential mortgage-backed security known as BOAMS 2008-A.

The security, worth around $850m when it was issued in January 2008, eventually collapsed during the crisis as the quality of the loans contained in it soured. This led to investor losses of more than $100m according to the complaint.

Bank of America says that the fact that the security failed was not the fault of the bank.

Bank of America has recently announced a series of settlements, including an $8.5bn settlement with investors dealing with similar mortgage-based securities and a $1.6bn deal with MBIA Inc, a bond insurer.


United Kingdom: SFO to investigate miner’s operations in Africa and Kazakhstan.

The Serious Fraud Office in London is investigating the possibility of fraud, bribery and corruption in the Eurasian Natural Resources Corporation’ ("ENRC") mining operations in parts of Africa and Kazakhstan. ENRC had acquired Dechert LLP to investigate corporate governance issues.

ENRC has subsequently appointed Debevoise & Plimpton and Fulcrum Chambers. According to the Financial Times, the documents were handed over after the SFO investigators demanded to see all non-privileged documentation. Some had to be given over by the end of the August and a second tranche will go two months later.

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