Mauritius Foreign Exchange Operators Fined

by Lorys Charalambous, for LawAndTax-News.com, Cyprus

19 October 2005

A Mauritius court has imposed heavy fines on the principals of Leaderguard Spot Forex for falsification of documents; the firm became insolvent earlier this year after losing most of the $59m placed with it by South African investors.

The Intermediate Court of Mauritius convicted Hermanus Stephanus Pretorius and Jacobus Venter on four counts (each) for the offence of falsification of documents. Each accused was sentenced to pay a fine of Rs 800,000 with costs. Renso Stefanus Du Plessis was also convicted on two counts for the offence of falsification of documents and sentenced to pay a fine of Rs 400,000 with costs.

Says the Financial Services Commission:

'Leaderguard Spot Forex (LSF) was licensed as a Category 1 Global Business Company (GBC1) by the Financial Services Commission (FSC) to offer asset management services in the form of foreign exchange services to retail clients. On Friday 25 March 2005, FSC was made aware that the company had been rendered insolvent as a result of substantial trading losses affecting mainly its South African investors.

'Consequently, LSF’s licence was suspended with immediate effect and measures were taken to protect the remaining assets of the company in the interests of its investing clients and creditors, pending a full investigation into the circumstances of the loss. On 1 April 2005, LSF was placed under judicial administration and a Manager was appointed by the Supreme Court of Mauritius (Bankruptcy Division). The principals undertook not to leave Mauritius without the authorisation of the Court.

'FSC’s investigation in the matter was focused on three areas – (1) whether LSF had been conducting the business for which it had been licensed; (2) the company’s adherence to the law, its licence conditions and the efficacy of its internal controls ; and (3) whether the principals in charge of the company’s affairs continue to satisfy the “Fit and Proper” criteria.

'FSC’s investigation included interviews with the Directors, management and officers of LSF, liaison with the Financial Services Board in South Africa (the Regulator of Leaderguard Securities Pty Ltd); LSF’s lawyers; legal representative of LSF’s clients and their Investment advisors, the Manager and the Police Force in Mauritius.

'As a result of its investigation, FSC decided to revoke LSF’s licence with effect from 9 September 2005 for breach of the company’s Licensing Conditions [No 8 and 13(a)] and for carrying out activities in a manner which is detrimental to the reputation of Mauritius. A notice has been posted in this respect on FSC’s website. For the same reasons, FSC also revoked the respective licences of LSF’s related companies in Mauritius.

'LSF circulated a Compromise Proposal to its creditors in the abovementioned context but it was ultimately rejected by a majority of them. The FSC did not object to the Compromise Proposal circulated by LSF to its creditors but made it clear that its non-objection must not be interpreted as the expression of any opinion on the content of the Proposal or as to its suitability or otherwise for potential investors and creditors.

'FSC referred certain matters to the Police for further investigation. The Director of Public Prosecutions (“DPP”) decided to initiate a criminal action against LSF and its officers. On 15 September 2005, the Court convicted LSF (represented by its principals) and its officers including the Risk Manager. In this respect the Court imposed fines amounting to Rs 2.1 million for failing to comply with the directives of the Financial Services Commission and falsification of documents under the provisions of the Companies Act 2001.'

The 'compromise proposal' mentioned by the FSC was a brazen effort to continue to trade the remaining $3.5m left in the fund in an attempt to recoup the lost money.

South Africa's Forex Investment Association said at the time that 'a miracle of biblical proportions' would be required for the scheme to work. The Mauritius Court had appointed Mr Ziyad Bundhun, Chartered Accountant, as Manager of the Company, and he said that the compromise, which had been prepared by a South African consultancy named Towergate, had been submitted to the Financial Services Commission, after which it would be put to the court. "After that, investors will have the choice to vote on this."

Bundhun said the compromise "would allow investors to recover at least part of the loss," but made no promises that losses will be recouped. Someone would have won, though: Towergate estimated the costs of judicial management to be about $60,000 a month, or $720,000 a year. The ownership of Towergate is unclear; however, in May, 2004, the consultancy described Leaderguard as “probably the leading Spot Forex Company in South Africa, and is at the leading edge of compliance, not only within South African Statutory requirements, but international as well.”

Leaderguard's managers are said to have taken an enormous management fee of 1.8% of its assets each month.

Major questions remain unanswered about the management of Leaderguard, its relationship to Towergate, the company's auditors, its directors, who include Jacobus Venter, Warren Luyt and Stephanus Pretorius, and its 'Risk Manager', Renso du Plessis, who is alleged to have been connected with a previous scheme which lost its investors millions.

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