Yesterday the Appeal Court rectified the slap on the wrist which a lower court gave Fidentia mastermind J Arthur Brown. Instead of paying a fine, he will now be going to jail for 15 years. This brings to an end a saga that began for me seven and a half years ago after I was tipped off by an insider that the dodgy financial services business was unravelling. The first of two stories republished on Biznews.com today  broke the news. We had a nervous couple of weeks as the rest of the media corps studiously avoided picking up the story. Thankfully, I’d just finished reading Katherine Graham’s brilliant autobiography where she described how her team at the Washington Post was for months on its own when attacking the Watergate Scandal. Compared with that, our isolation was a breeze. Besides, as the second of my stories which is republished below points out, when it comes to brainpower J Arthur Brown was certainly no Richard M Nixon. After writing this second piece, my colleagues Jackie Cameron and Barry Sergeant picked up the story for us. After all their effort, they too will also be feeling a little better today. South Africa’s wheels of justice may grind slowly. But they grind well. A fact we should all be celebrating today. A fact that must be disturbing the sleep of Brown’s cohorts, notably former BMF President Danisa Baloyi. The saga is also the focus of this morning’s Rational Perspective – the video is embedded between the two stories. – AH   Â
Fidentia: It’s our worst nightmare
By Alec Hogg ( written on 8 Feb, 2007)
The Fidentia cupboard is bare. Its mastermind, J Arthur Brown, splurged the savings of 47 000 widows and orphans on a Hollywood lifestyle of fancy cars and fast living for himself and his friends.
Early estimates put the cost of his insanity at over R500m.
The only hope for the now destitute beneficiaries of the plundered Living Hands trust is that corporate South Africa – and perhaps the authorities – step in to support the few decent Fidentia subsidiaries which remain.
After lengthy investigations, the Financial Services Board managed to get a court order last week, which allowed it to appoint curators to take over at Fidentia. They were greeted by the financial equivalent of what American troops found at German Death Camps.
Brown and his cronies have looted the Living Hands trust, previously worth R1,2bn, almost to the point of extinction. They have also involved some well known sporting personalities. Provincial cricketer Louis Koen enjoyed a R200 000 a month salary while former national cricketers Dave Callaghan and Meyrick Pringle are among the “employees”. Ex national cricket coach Eric Simons was contracted to run the Fidentia Cricket Academy.
The source of the funds, Living Hands, is a trust run for around 50 000 widows and orphans whose departed husbands/parents – mostly blue collar mine workers – entrusted their final estates to it. Many of them had been relying on grants of around R200 a month as their major source of income.
While Brown was using the trust to draw his own R400 000 monthly pay, dispensing equally fancy salaries to his pals and providing free food in a restaurant-like canteen, orphans have been threatened with eviction for not being able to pay their school fees.
Insiders say they are “sick to the gut” at what is coming to light. Fidentia’s monthly salary bill alone was in the tens of millions for hundreds of head office staff while up-market offices and only the very best furniture and other baubles added millions more to the costs.
Brown’s spendthrift manner made him a legend in his native Cape Town.
Even on the Highveld, suspicions were raised by his company’s ability to massively out-bid rivals when purchasing assets – some good, like independently-managed unit trust administrator AOS and IT firm Software Futures, but mostly bad. But until now nobody fully appreciated how Fidentia was funding its buying spree.
Now that the curators have been installed, the whole pack of cards is crashing down.
Soon after securing the asset management contract for the Transport Sita, Brown acquired a Ferrari. Also, in Dave King-style, Brown bought an expensive home in the Cape’s plush Sunset Beach – and then razed it to the ground so that he could rebuild something of palatial proportions.
His obsession with sporting fame stretched beyond the employment of Koen, Pringle and Callaghan through to headline sponsorship of the Boland provincial rugby team and the Eastern Province Warriors cricket team. Fidentia also recently bought the Manning Rangers soccer team.
Now that the cupboard has been shown to be bare, the future of those franchises must be in question. That might worry sports fans. But those concerns are nothing compared with the social impact that faces beneficiaries of the pillaged Living Hands trust and other funds entrusted to Fidentia.
Management J Arthur Brown style……
By Alec Hogg (written on 19 Feb 2007)
Fidentia founder J Arthur Brown is no criminal mastermind. He’s not a crooked financial genius either.
The 37 year old is probably cerebrally challenged and definitely an inveterate, perhaps psychotic liar. His sole above-average asset is a rat-shrewdness used to take advantage of the greed and fear of fellow human beings.
Brown’s vivid fantasy life makes him a dead ringer for Walter Mitty, the oft-quoted meek and hen-pecked character created in a 1941 short story by James Thurber. Mitty imagined himself an ace fighter pilot, emergency room surgeon and a reckless killer. In his own mind, Brown is a rugby star, IT guru, administrative expert, financial services genius and great South African patriot.
Whatever his fantasies, Brown’s practical failings are starkly apparent in a 56-page Inspection Report into Fidentia by the Financial Services Board (FSB). The report, now published on Moneyweb, has been circulated among Fidentia employees seeking reasons for the spectacular collapse of the organisation.
Unfortunately, the report has obviously not been studied by the specially selected media targets of celebrity publicist Marcus Brewster. Some shamefully shallow interviews last week saw the man’s fiction given some semblance of credibility through these reporters’ verbatim publication of Brown’s absurdities.
During Moneyweb’s investigations it has become all too obvious when talking to former employees and associates that the former instant lawn salesman was embarrassingly out of his depth.
After being granted the prized FSB licence which entitled Fidentia to accept deposits, Brown systematically ignored all its strict conditions. Like a driver who gets boozed up after leaving the testing grounds, Brown went wild. Immediately after he used the licence to get his hands on State funds he plundered the kitty to buy himself a Ferrari.
This was consistent with Brown’s previous record, strewn with his refusal to acknowledge or pay accounts due – from his university tutelage to various small businesses which funded his Hollywood lifestyle. As one told us: “Arthur has a God-complex; he believes rules which the rest of society lives by just don’t apply to him.”
Brown treated money that actually belonged to others – mainly the Living Hands trust for widows and orphans of departed miners and blue collar workers – as his own, injecting the cash into a single slush fund which financed his fantasies, including salaries for Fidentia’s 1 100 rapidly recruited staff.
To keep what the FSB describes as the pyramid scheme going, Brown offered massive commissions to asset gatherers, giving them 1% of everything brought in. Or simply bribed cohorts like BEE bigwig Danisa Baloyi and Fidentia’s crooked accountant Graham Maddock with non-repayable loans and big bonuses.
And when the authorities came knocking, Fidentia’s staff were simply instructed to fabricate documents to cover up the lies.
Internally, to ensure key people never got close enough to the truth, Brown regularly switched their jobs. Says one Fidentia veteran: “You’d be told on Friday to pack up your things and then on Monday you’d have a completely new position, a new desk and a new phone. Fidentia paid a fortune in office alterations at Century City. I had eight different jobs in two years. My case wasn’t unusual.”
Questioning was also discouraged by the intimidating presence of Brown’s “private bodyguard” Ray Nelson, a former Border Rugby front-ranker. Although Moneyweb has had many discussions with Fidentia insiders, none are yet prepared to go on the record, citing concerns for their safety.
Nelson counters those suggestions, describing himself to Moneyweb as “a magnet, a friendly guy, and definitely not in the business of intimidating people”. He was also not always at Brown’s side: “I worked for him from time to time but not permanently. And I am in the business of protecting and saving people’s lives, not threatening anyone.”
Like many who know Brown well, Nelson is hedging his bets, reserving judgment for now: “Nobody should be found guilty by the media. We must wait for the courts. I believe in the laws of the country and in the police and if Mr Brown is guilty he must get the full punishment of the law. But I don’t know what went on in Fidentia. He never told me anything. Nobody tells bodyguards anything.”
Despite the bulky Nelson’s apparently friendly disposition, the fear of physical well-being was also raised by former Fidentia director Johannes de Jong (46) during discussions with the FSB inspectors.
De Jong was one of the first insiders to break ranks after initial whistleblower Rudi Bam. He confirmed to the FSB that “Brown made no distinction between client funds and that of the group. Brown saw no problem in utilising client funds to pay for business and other expenses or to use for his personal benefit.”
Claiming he was troubled by an “excessive” salary not justified by his duties and responsibilities, De Jong questioned Brown about it. The response, according to the FSB report was: “Such queries were in each instance met with another increase. He [De Jong] claimed to have finally resigned because all his efforts to regularise his activities were unsuccessful.”
The FSB’s investigations team discovered that Brown’s accounting knowledge would have shamed a tenth grader. He personally ran the business on a single Excel spreadsheet that relied heavily on the creation of figures to crudely “balance” the books: “Individual transactions relating to client money are not accounted for using the double entry system. No audit trail accordingly exists.”
And when the FSB started looking behind the figures, they discovered assets listed often just didn’t exist in this Walter-Mitty balance sheet. Like a R150m “promissory note” which was created from thin air; and R800m in “money market instruments” which, similarly, were not real.
It can only be a matter of time before criminal charges, probably of racketeering, are brought against Brown, exposing him to a possible lifetime sentence to prison plus a R1bn fine. He won’t be alone in the dock.
Unless she cuts a deal with the State, former teacher and now leading black economic empowerment (BEE) personality Baloyi could be standing next to him.
Like Brown, she continues to proclaim Fidentia’s innocence. Instead of trying to address its damning findings, she bleats loudly about the FSB report having been “leaked” to the media (our copy, incidentally, came from former Fidentia staffers).
It says little for Baloyi’s self-proclaimed intellect – or perhaps tells us how deeply she is implicated – that instead of distancing herself from this robber of widows and orphans, she has linked arms with Brown and is trying to brazen it out.
But this storm won’t end anytime soon. At best, the chancellor of Fort Hare University and Absa Bank director will be shown to be a gullible fool. Even worse, the BEE big-wig could be a callous money grubber whose conscience is immune to any guilt after pillaging from society’s most vulnerable.
Baloyi’s role was critical in both getting the Fidentia scheme started and in keeping the pyramid scheme going. Baloyi, who carefully cultivates her contacts in the ruling political party, was instrumental in giving Fidentia its kick start with the switch of the R200m fund owned by the State Transport SETA.
She was also one of three trustees, along with Brown himself and his CEO Hjalmar Muller (43), who signed the forms that ensured then R1,6bn Living Hands trust was transferred across from Old Mutual into the Fidentia slush fund.
As for chartered accountant Maddock (52), his defence to the FSB is that he simply “did what Brown instructed him” to.
