Bluthorn Fund Managers P290 million scandal

Skeletons in the Bluthorn Fund Manager (Proprietary) Limited (BFM) closet continue to tumble as records show that the company ignored its mandate and enriched its own directors and associates through investing in its unlicensed sister companies.

The Statutory Manager appointed by the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) Peter Collins made startling discoveries and described the relationship in the Group as “equivalent of brother and sister sitting at a family lunch table and passing money between themselves”.

The companies which were consolidated into one Estate last year through a court petition are Bluthorn Fund Managers (Proprietary) Limited (BFM), Bthorn (Proprietary) Limited, Bluthorn Holdings (Proprietary) Limited (BH), Bluthorn Procurement Solutions (Proprietary) Limited (BPS) and Prime Employee Benefits (Proprietary) Limited (PEB).

Collins’ report recommended that BFM be immediately wound up in terms of Section 47(4) of the Securities Act. Pursuant to that recommendation, on the 21st of August 2020, NBFIRA filed an urgent application to the High Court to place BFM under liquidation.

According to the findings by Collins, BFM was unlawfully engaged in a banking business as it was taking deposits and lending on the proceeds for a margin even though it did not have a banking licence. The report stated that BFM was engaged in asset management activity even though it held no licence for that activity.

He explained that despite BFM being licensed as a collective investment undertaking, there were no collectivised units capable of liquid disposal, and therefore nothing was collectivised.

According to Collins, BFM was unable to meet its maturity obligations to certain clients who had invested funds in the amount of P96 million with BFM with the purpose of the funds accruing interest which ought to have been disbursed by BFM at the maturity date.

“BFM had no funds to meet its payment obligations to its clients whose investments have not yet matured, wherein such investments amount to P114 452 549.70; BFM was therefore liable to its investors in the total amount of P250, 000,000.00; BFM’s assets as set out in its balance sheet are overstated and not accounted for in the region of at least P120, 000, 000; and BFM was the recipient of all client/investor funds but instead of taking on the responsibility of abiding the terms of its license as a collective investment undertaking, it invested the funds in its own unlicensed family companies,” reads Collins’ Report.

Another shocking discovery was revealed by the Liquidator Kopanang Tshekiso in his report to the creditor. Tshekiso recommended for a forensic audit to identify fund flows and see where the funds ended up.

He also recommended for an interrogation of directors and officers of the Group and associated companies at the creditors meeting and for an enquiry to collect evidence under oath from subpoenaed individuals and organisations.

In his findings in the second report for creditors with regards to internal Companies, Tshekiso said a complex web of companies which was put together by the promoters of the Group includes certain companies which came to PEB and BPS looking for financial assistance. These companies, he said were then “adopted” as part of the Group.

Tshekiso revealed that the process of taking over these companies was very similar and the manner in which the companies seem to have been used to channel funds through their bank accounts is also very consistent.

He stated that these companies were mostly financed for seemingly longer-term, high risk, greenfield type projects often with little or no capital being provided by the entrepreneurs and had significantly larger outstanding balances on the schedule of debtors and the reconstructed loan book.

“I have established that a total of approximately P101, 000. 000 is outstanding from these companies. All of these companies make up the top 10 of the outstanding balances to the group.

“I have met with a number of the original shareholders of these companies and discussed their experiences with the Group and their stories are very similar. They were given office space at BFM or Sterkamax offices at Exponential Building in the CBD.

“BFM often appointed directors and officers of their own into these companies, including changing of signing mandates at the banks. Shareholding was often changed to include the various players at BFM or the various companies in the group,” Tshekiso stated in the report.

He revealed further that unexplained but significant sums of money often credited and immediately debited these companies’ bank accounts to destinations which were only known by the BFM officers.