Prowealth phoenix rises again!
A respected local auditing firm and the financial regulator are both in the crosshairs of the Prowealth liquidator, following a landmark decision this week by the Supreme Court.
This week’s judgement from the highest legal authority opened the door for a N$105 million claim against auditing firm Swart Grant Angula, and the Namibian Financial Services Supervisory Authority, Namfisa.
It is the first Namibian court case to establish a legal footing for liability by auditors and the regulator. The claim against both can now go ahead in the High Court.
Prowealth is the name for a group of companies under the ownership and management of the investment wunderkind, Riaan Potgieter. He started out as a Sanlam broker but after some ten years, launched Prowealth which focussed mostly on the investment of funds from private individuals in the form of pension monies.
The company went belly up in 2008 after Potgieter’s suicide leaving in its wake a trail of destruction and lost investments, unfortunately also of a large number of people who invested their pensions with Prowealth Asset Managers, the latter having been registered by Namfisa late in 2003.
According to the Supreme Court judgement, the appointed liquidator, Alwyn van Straten of ExecuTrust, launched a claim against Namfisa and against Swart Grant Angula in the High Court of Namibia, but lost the case as both the regulator and the auditor claimed exceptions, legal jargon for oversight in due process.
“[3] The plaintiffs assert two claims. One is against Namfisa, asserting that its oversight of PAM [Prowealth Asset Managers} was lacking. The second is against SGA [Swart Grant Angula] as PAM’s auditors, contending that SGA should have become aware of a fraudulent scheme perpetrated by the controlling mind behind PAM and should have blown the whistle on the scheme. Both Namfisa and SGA excepted to the particulars of claim on the basis that the particulars did not sustain a cause of action and that they were vague and embarrassing, each raising multiple grounds in support of their respective exceptions. The High Court upheld all the exceptions and found that the particulars cannot sustain a cause of action. This appeal is directed against that judgment” said Justices D Smuts, P Shivute and E Hoff, in their 70-page judgement.
During the first case in the High Court which started early in 2014, particulars of claim indicated that 89 investors claimed a cumulative N$104.8 million from the Potgieter estate but that only some N$17 million was retrieved. However, a lawyer familiar with the detail told the Economist after the Supreme Court judgement, that principal constitutes roughly only N$50 million of the claimed losses. Prowealth’s investment statements to investors, showed bogus returns running in the order of 15% per annum, which never materialised.
Careful not to pre-empt the High Court case which will follow this week’s Supreme Court judgement, the learned judges said “[149] it would be premature to decide on exception whether the alleged omission on the part of SGA to report the deceased to Namfisa was wrongful vis a vis the investors. Whether or not causation between the alleged omission and the loss sustained by each investor can be established would likewise be a question to be determined after all the circumstances were revealed in evidence at the trial, upon an application of the test for causation referred to in para [109] above which, as I have said, also involves policy considerations and the limits of fairness, reasonableness and justice.”
Proceedings in the resumed High Court case will now be followed closely by the investment community, given current attempts to hold the auditors of the National Development Corporation liable for a N$100 million loss when its investment managers stole the money from the government-owned entity.
