Blue leadership left red-faced after fraudulent transactions

OLD Mutual Investment Group responded this week to allegations of irregularities linked to an investment vehicle managed by Mayibuye Group.

An internal e-mail circulated to current and former employees of a Mayibuye company, as well as brokers and underwriters, laid the blame at the door of the chief financial officer, who left in April.

Old Mutual said in a statement it had become aware of allegations of misappropriated funds and fraudulent activity at Mayibuye, which was in control of Old Mutual’s affordable housing investments.

“In 2008, Old Mutual granted Mayibuye a facility through a ring-fenced special purpose vehicle (SPV), Leonox Securitisation, to provide home loans and short-term finance to borrowers. The investment into this SPV is held by Housing Impact Fund of SA. HIFSA’s market value is R9-billion, of which R422-million is invested with Leonox.”

Old Mutual is among a group of investors in HIFSA, and it discovered that fictitious loans and loans that did not meet the agreed criteria had been sold to Leonox Investments by Mayibuye and its various group companies. It said an investigation had been launched, and that Old Mutual would “work to recover financial losses, if any, on behalf of all investors”.

Terence Hatzkilson, director at forensic investigators Crowe Horwath, confirmed the inves- tigation was under way, but said it was a complicated undertaking and despite all affected parties being keen to see the report, it might take another month to materialise.

Dave van Niekerk, former CEO of Blue Financial Services, which has been part of the Mayibuye group since 2009, said that although connections had been drawn between Blue’s current voluntary suspension on the JSE and another trading suspension in 2010 under his watch, the current problems were not related to his management team.

“The team from my era has moved on. It’s a small industry and they’ve all moved on to competitors, so that meant a bit of a drain on Blue’s resources.

“We got some feedback from those left at Blue, and the rumour was that there was definitely something wrong in the Old Mutual securitisation deal,” Van Niekerk said.

“An e-mail went out — Blue had uncovered fraud linked to some due diligence in the process of raising more funds. There were some dodgy transactions.”

The e-mail said Deon Bekker, then chief financial officer of Blue Limited and Mayibuye Group, was under investigation over “certain financial irregularities”.

These included selling Blue’s loan book assets to Leonox at inflated values, selling the same Blue loan book assets to Leonox more than once, selling fictitious loan book values to Leonox and selling it assets that did not meet the contractual criteria between Blue and Leonox.

All these activities related to the securitisation deal between HIFSA, a subsidiary of Old Mutual, and Blue as it went about raising fresh capital to grow its business, it said.

Further, the e-mail said monthly collections of loan repayments in Blue’s book were sold to Leonox but not paid over. Instead, the e-mail alleges these payments were used as cash for

All this time, with the blame laid at our door, we didn’t fight back

Blue’s daily operations.

It said Blue could incur financial liabilities and losses, and that Bekker had been relieved of his duties.

The e-mail also said the matter had been reported to the Financial Services Board and the Financial Crimes Unit.

Van Niekerk said that although allegations of other irregularities under his leadership had been published in some publications, they had nothing to do with Blue’s present strife.

“We were the founders and we grew Blue quickly into 300 branches in 14 countries. We then sold to a private equity partner and there was plenty of due diligence done — they’d asked us to involve several legal and financial companies to carry out the diligence and they showed there was lots of work to be done and how much capital it would take. We had lots of bidders and the board made a call to sell to Mayibuye.”

He said he left Blue — a microlending business — with a massive distribution network. “It was already a big listed animal, but the company was fine — they knew what they were getting into. All this time, with the blame laid at our door, we didn’t fight back.

“We just expected them to get on with it. But after current CEO Johan Meiring claimed there was this big turnaround, 18 months ahead of schedule, the company was suddenly suspended. It’s three years later — we can’t be blamed.”

Van Niekerk said he could no longer hold back. “The company listed in 2006 and I left in 2010, and by that stage we’d got R1.5billion in funding. The company might never recover. Mayibuye brought in their CEO and [chief financial officer], and now people are still blaming us.”

Of the previous suspension on the JSE, Van Niekerk said that had been for just one day.

“What the present management needs to do is to tell all of us shareholders what’s going on and how they’re making progress. Johan Meiring needs to tell us the future, but there is no communication coming from them. All we have is the SENS announcement from January that says Mayibuye and Blue are in negotiations, but they’re the same people.”

Bekker and Meiring could not be reached for comment.