Da Silva: FSB investigating “suspicious” Kellermann investments into SA

Caroline da Silva of SA’s Financial Services Board is a clear, concise communicator. In the following interview (and in an interview I conducted on CNBC), she says the FSB has been investigating Kellermann for months – long before the now famous OffshoreAlert article caused such a commotion. Da Silva says the FSB’s foreign counterparts asked for help in tracking “suspicious” investments of money flowing into South Africa from the alleged Ponzi scheme. For his part alleged Ponzi kingpin Cobus Kellermann communicates rather differently. Kellermann told the Sunday Times last week he “wouldn’t know if it was a Ponzi scheme” because he was an “absentee shareholder” in the offshore operations. Oy vey! – Alec Hogg

Following various media reports regarding investigations carried out by the Mauritian Financial Services Commission and the Guernsey Financial Commission into the affairs of Cobus Kellerman and associated entities, the Financial Services Board revealed that it is working with the commissions. Alec Hogg spoke to Caroline da Silva, Deputy Executive Officer for FAIS for the latest regarding that news. Let’s take a look.

When you say the FSB is right in the thick of this investigation; it hasn’t really been. We’ve been on the outside of the investigation, assisting international regulators with their enquiries. This is really a scheme or a fund, managed offshore by international regulators. However, we’ve been working with them in tracking investments from those international schemes into the South African market and that’s where we’ve been involved. In tracking those investments into South Africa, we’ve been engaging with Cobus Kellerman et al.

What complicated this is that Cobus Kellerman is also involved with South African funds. Is all the money there as far as his South African operations are concerned?

If you look at the FSB website, you’d be able to track any individual representative or key individual of any financial service provider. You’ll find that Cobus Kellerman is involved with at least five different fund managers, asset managers, or advisors. Those funds are managed under Collective Investment Schemes and Collective Investment Schemes are very strictly and tightly controlled in South Africa. They’re segregated with Trustees away from the Fund manager and those schemes/funds are all accounted for in South Africa.

The big international story as it broke, was an alleged Ponzi scheme run out of Mauritius involving a South African. Why would the Guernsey and the Mauritian authorities who are investigating this ask you to assist?

As I’ve said, we haven’t yet seen the report from the International Regulators, to date. We don’t know who’s invested in those funds or what the allegations look like. What we’ve been assisting with is tracking investments coming out of those funds into South Africa. These investments were suspicious in the sense that they didn’t mirror what a normal investment should look like. They weren’t liquid investments, which investment managers usually look at.

Give us an example.

An investment into property for example, is very illiquid so how can you redeem your clients’ investments if you’re invested in very illiquid properties? We were tracking these kinds of investments from these offshore funds, into South Africa on behalf of the foreign Regulators, and that’s where we’ve become involved.

What have you found?

Well, I wish I could share what we found with you, but we can’t without potentially interrupting the investigation. The investigation is not yet complete. We were advised by the International Regulators that they’ll complete their report by about mid-May and we’ll be able to have access to the report by then.

Why would that money have come into South Africa?

Well, this is part of the question. Were these illegal investments? Were they in breach of money laundering laws? Were they in breach of SARS regulations? These are the kinds of investigations we’re looking into.

It was interesting to notice that Cobus Kellerman who is domiciled in South Africa, is a registered person with the Financial Services Board. His partner, however – the guy he’s joined at the hip with (David Cosgrove): is he also?

He’s not.

It always interests me when people say it’s a South African Ponzi scheme. You might as well say it’s an Irish Ponzi scheme because David Cosgrove is Irish.

This is not a South African scheme. I have to emphasise that once again. It’s an international fund. I think it attracts investors from all over the world. It’s not a South African scheme, so it’s not subject to our jurisdiction but we will assist international authorities where we can. David Cosgrove is not registered in South Africa.

He has a history in this country, though.

Apparently, he has a history in South Africa (way back, before my time), but he’s no longer registered.

Well, I guess mCubed will tell you that he was the reason for the R140m fine the Reserve Bank and SARS levied on them. I presume with that background, he’s not the kind of person that you would give a tick to, to be a registered person.

No. If there were a finding against anybody in South Africa, they will would be regarded as unfit and improper in our jurisdiction, unless they rehabilitated. Proving rehabilitation is not an easy task, though.

What about in the international community? How closely do you work together?

We have a Memorandum of Understanding with every single international Regulator. Those Memoranda of Understanding are different with each Regulator. Some require proactive reports on any contraventions. Some only require reactive responses upon enquiry, so we have MOU’s with every International Regulator. Where we do have a concern about somebody who may be subject to foreign jurisdiction, we make enquiries with those Regulators and they share information with us in accordance with those MOU’s.

What about South Africans? We know that this is a country where some have irrational fears about the future. They like to ship money offshore, which is how David Cosgrove in fact, did what he did ten years ago. Is there any way of tracking that?

It depends whether those offshore funds are regulated by local South African laws. The Collective Investment Schemes Act for example, has jurisdiction over the local schemes that invest offshore. We can track those monies and in the same way they’re with Trustees – segregated and track-able. However, if an advisor advises a client to invest offshore and it’s with an offshore fund, and we don’t have jurisdiction over that fund, then it’s very hard for us to track. We have to wait for complaints from the public and in this particular case, we’ve had no complaints from the public, which gives us some level of comfort.

South Africans might not be that much involved… On the other hand, they might also be little concerned if the money was moved offshore illegally.

If the money was moved offshore illegally, it’s a contravention of more than the Financial Services Board Act. Then we’re looking at SARS jurisdiction, financial intelligence centre, and money laundering issues.

Where do you think all of this is going to end up?

Well, we’ll have to wait for the report from the International Regulators to see exactly how far this spreads, exactly what the charges are, what the allegations are, and what their findings are. We can’t really take action yet, based on allegations. We have to actually wait for the findings. Once we have the findings, we can determine how to move forward.

And you’re expecting that to come in May.

In May.

If the findings do implicate Cobus Kellerman as has been suggested, in this international scheme, what would happen to him then?

Well, he would have action taken against him – locally, in terms of whether his fitness and properness has been compromised. You have to be a fit and proper person in order to be authorised under our law, which allows us to remove him from all financial service providers locally and debar him from working for a certain time. Obviously, the International Regulators will have their own powers and jurisdictions, which range from withdrawal of licenses, to debarring a person, to criminal prosecution.

The one thing that I’m still a bit confused about is Contego. What is Kellerman’s relationship there?

Cobus Kellerman is listed as a Director under CIPC, of Contego Holdings. Contego Holdings owns Contego Asset Management.

So what share does he have in that?

I’m not sure if it’s 75 to 100 percent, but I know that he has a majority shareholding in Contego Holdings.

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