JUSTICE DELAYED IS JUSTICE DENIED
The South African Financial Services Board (FSB) and the South African Police.
Following the collapse of Leaderguard Securities in early 2005 the South African Financial Services Board launched its own investigation of the Leaderguard Group. (Do not however get carried away by the notion that the board itself were actively involved in the detective work.)
One of the big four auditing groups Ernst and Young were commissioned to investigate and report on Leaderguard marketing and trading. Ernst and Young have evidently claimed to have submitted their final report in March 2006. (Two years ago). To date our investor group have yet to see a copy. And this despite enquiries.
When questioned officials of the South African FSB have asserted that the Ernst and Young report was submitted to the National Prosecuting Authority (A police body, sometimes loosely referred to as “the scorpions”) in order to lay charges against what we consider to be the “Fraudulent Directors” of Leaderguard.
However, the victims of the fraud – the duped brokers and investors - have as yet to be informed:-
whether or not this report has been received by the National Prosecuting Authority,
whether or not charges have been laid,
and whether or not the Financial Services Board has enquired about action on the part of the Authority.
What brokers and investors however do know, for a certainty, is that,
the police know who the Leaderguard Directors are, and also
know exactly where they are now.
And finally the victims of the Leaderguard scam also know
that all of these thieves are alive and well and flourishing “free” citizens of South Africa.
Had these fellows broken into a large South African Bank and stolen 350 Million Rand, we can be sure that, within days the police would have had them by the heels and within weeks, sentenced and imprisoned.
The white collar fraudulent theft of 350 Million Rand by South Africans (and upon mostly South Africans) is obviously another matter. Three years have passed. And all that has happened, is that two and a half years ago, these South African robbers were fined (in Mauritius) at 2 cents USD for every dollar stolen.
Three years have gone by and the South African police have yet to make a single “Leaderguard related” arrest.
Justice delayed is justice denied. And this old legal maxim is particularly valid where those charged have repeatedly admitted their guilt.
Monday, March 3, 2008
THE FINANCIAL SERVICES BOARD OF SOUTH AFRICA AND LEADERGUARD SPOT FOREX
THE FINANCIAL SERVICES BOARD OF SOUTH AFRICA AND LEADERGUARD SPOT FOREX
We – a small group of professionals who invested in Leaderguard Spot Forex – do not always agree with the South African FAIS Ombud Mr. Charles Pillai in the matter of the fraudulent behaviour of the Directors of Leaderguard Spot Forex. We have a problem in as much as the Ombud seems to have concentrated his efforts upon brokers of the Leaderguard products and their lack of due diligence within the FIAS Act.
In our view the majority of brokers with whom we have had dealings, simply believed what Leaderguard Securities had advertised and promoted in respect to Leaderguard Spot Forex. For example they believed, with their investors, that a Leaderguard mandate applied. An investor could not lose more than 20% of his or her deposited funds. There are many other examples which could be quoted.
More recently, the Ombud has focused his attention on what we believe to be a more significant culprit in investor loss - and that is lack of suspicion, as well as lack of due diligence on the part of the Financial Services Board of South Africa.
In respect to FSB the Ombud now recognizes that :
The principal failure of the regulatory authority (FSB) was the exemption granted to Leaderguard Spot Forex – as a late applicant for a trading or operating licence in South Africa. The Ombud claims that in order to clear a back log of applications the FSB had “delegated” its authority to grant such a licence to the Forex Investment Association (FSA). (We are not sure that delegation is quite the right word).
The FSB however has asserted that the Ombud is wrong and that such bodies “merely assisted” in the processing of applications. In our view this remains a significant blunder on the part of the Financial Services Board of South Africa. At no time has the FSB explained the nature of this assistance or in fact the other bodies that might have been involved in providing this aid. In our opinion the FSB remains guilty of involving a third party in a process of licensing an activity for which they were solely responsible. The Ombud is in this analysis quite right.
In the case of Leaderguard (as already noted) the assistance and licensing was sought from the Forex Investment Association. Obviously the FSB did not know (or did not seek to know) that:
This was an association that was in part founded by Leaderguard
This was an association headed by Chris Dela Guerre (CEO) who was also a compliance officer for Leaderguard.
Mr. Dela Guerre was a Director of Leaderguard Securities a sister to Leaderguard Spot Forex as well as being a Director of the Leaderguard Game Farm (which was purchased and operated from Leaderguard Spot Forex funds).
Mr. Dela Guerre was also a Leaderguard beneficiary. Funds were regularly dispensed from LSF accounts to the “Dela Guerre Famille Trust”
Clearly the Leaderguard licensing process was in no way influenced by this particular third party!!! How could anybody think that Mr. Dela Guerre had any influence in the Leaderguard Licensing process?
As noted by the FAIS Ombud there is an absolute and total conflict of interest in the granting of a licence to Leaderguard. The FSB is guilty no matter whether the responsibility for licensing was either delegated or assisted. Neither should have occurred!
We – a small group of professionals who invested in Leaderguard Spot Forex – do not always agree with the South African FAIS Ombud Mr. Charles Pillai in the matter of the fraudulent behaviour of the Directors of Leaderguard Spot Forex. We have a problem in as much as the Ombud seems to have concentrated his efforts upon brokers of the Leaderguard products and their lack of due diligence within the FIAS Act.
In our view the majority of brokers with whom we have had dealings, simply believed what Leaderguard Securities had advertised and promoted in respect to Leaderguard Spot Forex. For example they believed, with their investors, that a Leaderguard mandate applied. An investor could not lose more than 20% of his or her deposited funds. There are many other examples which could be quoted.
More recently, the Ombud has focused his attention on what we believe to be a more significant culprit in investor loss - and that is lack of suspicion, as well as lack of due diligence on the part of the Financial Services Board of South Africa.
In respect to FSB the Ombud now recognizes that :
The principal failure of the regulatory authority (FSB) was the exemption granted to Leaderguard Spot Forex – as a late applicant for a trading or operating licence in South Africa. The Ombud claims that in order to clear a back log of applications the FSB had “delegated” its authority to grant such a licence to the Forex Investment Association (FSA). (We are not sure that delegation is quite the right word).
The FSB however has asserted that the Ombud is wrong and that such bodies “merely assisted” in the processing of applications. In our view this remains a significant blunder on the part of the Financial Services Board of South Africa. At no time has the FSB explained the nature of this assistance or in fact the other bodies that might have been involved in providing this aid. In our opinion the FSB remains guilty of involving a third party in a process of licensing an activity for which they were solely responsible. The Ombud is in this analysis quite right.
In the case of Leaderguard (as already noted) the assistance and licensing was sought from the Forex Investment Association. Obviously the FSB did not know (or did not seek to know) that:
This was an association that was in part founded by Leaderguard
This was an association headed by Chris Dela Guerre (CEO) who was also a compliance officer for Leaderguard.
Mr. Dela Guerre was a Director of Leaderguard Securities a sister to Leaderguard Spot Forex as well as being a Director of the Leaderguard Game Farm (which was purchased and operated from Leaderguard Spot Forex funds).
Mr. Dela Guerre was also a Leaderguard beneficiary. Funds were regularly dispensed from LSF accounts to the “Dela Guerre Famille Trust”
Clearly the Leaderguard licensing process was in no way influenced by this particular third party!!! How could anybody think that Mr. Dela Guerre had any influence in the Leaderguard Licensing process?
As noted by the FAIS Ombud there is an absolute and total conflict of interest in the granting of a licence to Leaderguard. The FSB is guilty no matter whether the responsibility for licensing was either delegated or assisted. Neither should have occurred!
Monday, February 25, 2008
INTRODUCTION
“This weblog spot seeks to attract correspondents who have invested funds in promising financial schemes which later proved to be fraudulent schemes or scams most often within a company or corporation structure. The blog seeks not only to expose the hoax or deception (the imposters and tricksters) but to also examine and reveal the faults and failures of public bodies and private instrumentalities devised to monitor/control the transparent and legally correct application of investment procedures and thus protect the interests of investors. The purpose of the “investmentscamsinc” weblog is, wherever possible, to cooperatively provide those victims of cons and swindles with information (advice) in respect to the processes of redress or investment recovery which have been effective in the past or might be effective in the future.”
THE LEADERGUARD SCAM
Thursday the 28th of February is a big day in Mauritius for 1,700 honest folk who invested their hard earned savings in a currency trading company called Leaderguard Spot Forex.
These mostly poor people lost some 300 - 350 Million Rand because the organisations that should have protected them from fraud on the part of company Directors failed to do so.
On Thursday the 28th of February the investors in Leaderguard Spot Forex (the currency trading half of Leaderguard) are taking to court in Mauritius one of their most important protectors: the firm that audited Leaderguard accounts and made sure that a bank in Denmark confirmed individual accounts.
This protector is KPMG Mauritius (one of the international auditing big four).
Why is KPMG in court?
In simple terms – some yes and no questions:- (answers highlighted in red)
When auditing did KPMG find out that two of the Directors of Leaderguard Spot Forex (LSF) had been involved in other schemes (Prozet/Chinza) to defraud other people?Yes/No
Did KPMG make sure that (LSF) had enough funds that would allow it continue in business? Yes/No
Did KPMG make sure that LSF had put together half yearly financial statements for the Mauritius Financial Services Commission? Yes/No
Did KPMG discover that LSF had failed to process all its banking through an account in Mauritius? Yes/No
These mostly poor people lost some 300 - 350 Million Rand because the organisations that should have protected them from fraud on the part of company Directors failed to do so.
On Thursday the 28th of February the investors in Leaderguard Spot Forex (the currency trading half of Leaderguard) are taking to court in Mauritius one of their most important protectors: the firm that audited Leaderguard accounts and made sure that a bank in Denmark confirmed individual accounts.
This protector is KPMG Mauritius (one of the international auditing big four).
Why is KPMG in court?
In simple terms – some yes and no questions:- (answers highlighted in red)
When auditing did KPMG find out that two of the Directors of Leaderguard Spot Forex (LSF) had been involved in other schemes (Prozet/Chinza) to defraud other people?Yes/No
Did KPMG make sure that (LSF) had enough funds that would allow it continue in business? Yes/No
Did KPMG make sure that LSF had put together half yearly financial statements for the Mauritius Financial Services Commission? Yes/No
Did KPMG discover that LSF had failed to process all its banking through an account in Mauritius? Yes/No
Did KPMG find out that LSF had not kept books and records that truthfully set out its business affairs? Yes/No
Did KPMG learn that LSF had failed to keep its own funds separate from money obtained from investors? Yes/No
Did KPMG discover that LSF had failed to keep its promise to investors that only 20% of their money would be traded (or lost)? Yes/No
There are another dozen or more failings in the investor summons against KPMG.
Keep reading our postings and look out for the KPMG’s audit report.
THE KPMG AUDIT
A company audit is simply “a formal or official examination of company records and accounts to verify sound business practice”.
As soon as Leaderguard Spot Forex became a company (January 2003), they were required to appoint an auditor. They chose KPMG.
KPMG was asked to audit the financial statements of Leaderguard for the year starting January 28 2003 and ending February 2004.
After a year’s investigations, interviews with Directors and accounts staff, an examination of all accounts and doubtlessly discussions with Leaderguard bankers – an annual report was submitted by KPMG.
Their findings were:-
“We KPMG have obtained all the information and explanations that we have required”
“In our opinion,
· Proper accounting records have been kept by the company as far as it appears from an examination of those records.
· The financial statements give a true and fair view of the financial position of the company as at 29th February 2004 and of the results of its operations and cash flows for the period ended, and comply with the companies Act 2001 and international finance reporting standards”.
Wonderful: A clean bill of health for Leaderguard Spot Forex!
But how does KPMG explain what happened a year later when the Directors of Leaderguard were brought to court and pleaded guilty to over 20 counts of fraud?
What is more serious, many of dishonest dealings took place in the year of KPMG’s audit! Right under the noses of the auditors!
keep reading this blog and learn more about the directors and their deceitful behaviour.
KPMG AND GUILTY DIRECTORS
While the KPMG Audit was being undertaken, the Directors of Leaderguard Securities (The marketing half) and Leaderguard Spot Forex (the currency trading half): Notably
Stephan Pretorius
Basie Venter
Juan Venter
and
Renso du Plessis
all knew that their record of trading contained a false, deceitful and misleading set of results. They claimed that their trading record began in 1997. But as we know Leaderguard Securities (which did some trading) began activities in 2001 while Leaderguard Spot Forex only came into existence in 2003. (There were thus 5 years of generally fake, false, misleading figures).
After the collapse of LSF the principals in a Mauritius court pleaded guilty to the falsification of these records over virtually the entire period of operation 2003-2005.
While the KPMG audit was being undertaken
The Mauritian Financial Services Commission insisted that LSF had exceeded its authority and demanded that investors be repaid their funds. First lists of repayments made were submitted to the commission.
In court Directors Pretorius, Venter and Renso du Plessis pleaded guilty to the charge that some investors on this list had in fact never been repaid.
While the KPMG audit was being undertaken
The Leaderguard swindlers had produced a second list of investor repayments for commission approval. In the Mauritius court in 2005 they, for a second time, pleaded guilty to fraudulently claiming that investors had been paid out, when in fact they had not.
Stephan Pretorius
Basie Venter
Juan Venter
and
Renso du Plessis
all knew that their record of trading contained a false, deceitful and misleading set of results. They claimed that their trading record began in 1997. But as we know Leaderguard Securities (which did some trading) began activities in 2001 while Leaderguard Spot Forex only came into existence in 2003. (There were thus 5 years of generally fake, false, misleading figures).
After the collapse of LSF the principals in a Mauritius court pleaded guilty to the falsification of these records over virtually the entire period of operation 2003-2005.
While the KPMG audit was being undertaken
The Mauritian Financial Services Commission insisted that LSF had exceeded its authority and demanded that investors be repaid their funds. First lists of repayments made were submitted to the commission.
In court Directors Pretorius, Venter and Renso du Plessis pleaded guilty to the charge that some investors on this list had in fact never been repaid.
While the KPMG audit was being undertaken
The Leaderguard swindlers had produced a second list of investor repayments for commission approval. In the Mauritius court in 2005 they, for a second time, pleaded guilty to fraudulently claiming that investors had been paid out, when in fact they had not.
A last comment:
While the KPMG audit was being undertaken
A group of South African brokers visited Mauritius to find out whether KPMG had enquired about the LSF mandate guarantee – that a client could never lose more than 20% of his/her/ investment. A KPMG official reportedly said that they “would close down Leaderguard Spot Forex (should the audit) establish that the company in its trading had exceeded its stop loss mandate.”
Had KPMG so acted, the investors would not have eventually lost 80% of their investments.
KPMG owes every investor an apology.
THE TRADERS
Investigations undertaken by the liquidator of LSF and his attorneys, with Leaderguard South African Consultant Maria Elizabeth Van Dyk revealed another picture of traders all together.
When asked “tell me about Renso and his traders”, Maria replied “Well I know about Jonty Neels who was a family member of Renso’s wife… there was Swanepoel, and a short Jewish guy and lately there was an advocate who just started.” Van Dyk also reports that her requests for CVs of the Leaderguard traders led to “a supply of the most amazing CVs you can think of”. The CVs supplied evidently contained no names; “it was trader A, Trader B and Trader C”. Van Dyk also narrates a story about Richard Larmos (an information technologist) who told her that “…shortly after he moved to Mauritius, he… also traded”. She claimed that “he had 12 hours training and they gave him some money to trade”.
None of the above seems to suggest a selection of the world’s currency trading crème de la crème or, as the letter to investors asserts:- “Each trader concentrates on his own field of expertise and uses his own methods and strategies in the market. Combined with the proficiency of the Heads of Training who oversee all trading decisions, we have today one of the very best trading recipes in the world”.
Strange it is that it lost 80% of investor’s funds!
When asked “tell me about Renso and his traders”, Maria replied “Well I know about Jonty Neels who was a family member of Renso’s wife… there was Swanepoel, and a short Jewish guy and lately there was an advocate who just started.” Van Dyk also reports that her requests for CVs of the Leaderguard traders led to “a supply of the most amazing CVs you can think of”. The CVs supplied evidently contained no names; “it was trader A, Trader B and Trader C”. Van Dyk also narrates a story about Richard Larmos (an information technologist) who told her that “…shortly after he moved to Mauritius, he… also traded”. She claimed that “he had 12 hours training and they gave him some money to trade”.
None of the above seems to suggest a selection of the world’s currency trading crème de la crème or, as the letter to investors asserts:- “Each trader concentrates on his own field of expertise and uses his own methods and strategies in the market. Combined with the proficiency of the Heads of Training who oversee all trading decisions, we have today one of the very best trading recipes in the world”.
Strange it is that it lost 80% of investor’s funds!
SPECIAL NOTE: THE TRADING RECORD
Our colleagues have suggested that we might put on our blogsite - The last “performance figures” claimed for Leaderguard Spot Forex and distributed as usual through Leaderguard Securities. This is a totally false, misleading and fraudulent record of trading results. Of interest also is the attempt by Director Basie Venter to persuade investors that LSF has a superlative group of highly qualified and experienced trading “specialists”.
KPMG: THERE ARE SOME LETTERS
Investors sometimes ask us – why did KPMG complete only one audit (the one that finished in February 2004)?
· Early in 2004 there were suspicions on the part of some in the Mauritian Financial Services Commission, and indeed within Leaderguard Securities that all was not financially well with LSF.
· The liquidator of LSF is also persuaded that quite early in the piece, the collapse of LSF was carefully planned by Directors in collusion with Towergate (Who would come to the rescue with a compromise solution that would both benefit Towergate and protect the dishonest Directors).
· And maybe KPMG was unwilling to venture forth a second time.
Here is the correspondence.
Extract emails between Stefan Pretorius LSF), Juan Venter (LS) and Renso du Plessis (LS)
Obtained by the scorpions from a remnant computer in Leaderguard offices in Mauritius with a hard disk left in place
Email: from Stefan Pretorius to Juan Venter (8th June 2004, 12:13)
Juan, the fact remains as follows. I am the Director of this company. It is my duty to ensure that everything runs 100 percent alright and if this is not the case, I am obliged to report this or to stop it.
Our growth figures are false. We market under false pretensions. We are beyond the maximum allowed losses.
My proposal is that the four of us obtain legal advice and put the cards on the table. Then we can find a way to keep us (lit: our asses) out of prison.
This is the pass that I will follow.
If you don’t feel the same, I will resign.
I don’t have any bad feelings towards anybody, but this is how I feel about the matter.
Email: from Juan Venter to Stefan Pretorius (8th June 2004 14.23)
It really doesn’t work like that. We are in s…t because of the losses on/in the accounts. We will have to make a plan together; it is totally unfair to resign now. I think we should give it another month and then we will have another look at the accounts. We certainly can’t “desert the ship” now, the three of us have made a mess of this, if somebody has to resign, it is my father (Basie Venter). The three of us have made the mess, the three of us can’t “desert the ship”.
Email: from Stefan Pretorius to Renso du Plessis, forwarded to Juan Venter (9th June 2004 11.27)
Hi all of you. I have taken heart to write this email as I am not somebody who seeks confrontation. I will resign with effect from 1 July 2004. This of course means that I will have to leave Mauritius as I will not be a director any longer and as my work permit is based on this. I also still believe that there is a solution for the dilemma we are clearly in. You will have to manage this unbelievably well.
The first thing you have to do is to find somebody who will replace my position on the board. I propose Renso for this, as he has already come to Mauritius and been approved by FSC as “fit and proper”. I also know that Marietjie Fryer (the Financial Director of Leaderguard Securities ) will leave immediately, but she will have to be informed.
Secondly, you will have to find a way to increase the margin with GNI (a branch of MAN Financial that acted as a trading platform for LSF). The process to register GNI as the platform is more easily said than done. Yes, it can be done, but not overnight. As I resign,
I propose that LSF buys back my share; I can then send the money for you to GNI. I know that this is a risk because perhaps I can never give that money back to you, but if I have not stolen money toward that time, I will never do so”. [In other words Stefan is saying “I am an honest guy – if I can’t return the money later on, it’s not because I have ran away with the money.”]
This is a risk that you guys have to take.
According to my calculations, we can get the following moneys from LSF:
- Loan account: USD 125,000 (USD 100,000 already paid out);
- Shareholders contribution: USD 125,000 (USD 25,000 already paid out);
- Assets: USD 200,000 (25 percent of game farm);
- USD 125,000 (25 percent of currency company value – to be confirmed)
- The total is about USD 1,600,000
If we plan this nicely, these additional monies can be with GNI reasonably fast.
I still have a slightly smaller detail that you will have to deal with locally, but will explain this in more detail and forward this to you.
Regards,
Stefan Pretorius.
The letter is important because:-
Ø It is an open admission of fraud on the part of the Leaderguard Directors (both LSF and LS)
Ø It indicates a plan or scheme on the part of Stefan Pretorius to illegally acquire remnant Leaderguard assets that (if past records be correct) will find their way from GNI (MAN Financial – a trading platform) into some irregular bank accounts belonging to the correspondents. KPMG now knows which they should have known in their audit that once a thief, always a thief.
I suppose that it would be too much to expect that Stefan’s plan “to obtain” 1.6 Million Dollars of Leaderguard assets was his intention to trade such Leaderguard funds through GNI for the benefit of investors!
· Early in 2004 there were suspicions on the part of some in the Mauritian Financial Services Commission, and indeed within Leaderguard Securities that all was not financially well with LSF.
· The liquidator of LSF is also persuaded that quite early in the piece, the collapse of LSF was carefully planned by Directors in collusion with Towergate (Who would come to the rescue with a compromise solution that would both benefit Towergate and protect the dishonest Directors).
· And maybe KPMG was unwilling to venture forth a second time.
Here is the correspondence.
Extract emails between Stefan Pretorius LSF), Juan Venter (LS) and Renso du Plessis (LS)
Obtained by the scorpions from a remnant computer in Leaderguard offices in Mauritius with a hard disk left in place
Email: from Stefan Pretorius to Juan Venter (8th June 2004, 12:13)
Juan, the fact remains as follows. I am the Director of this company. It is my duty to ensure that everything runs 100 percent alright and if this is not the case, I am obliged to report this or to stop it.
Our growth figures are false. We market under false pretensions. We are beyond the maximum allowed losses.
My proposal is that the four of us obtain legal advice and put the cards on the table. Then we can find a way to keep us (lit: our asses) out of prison.
This is the pass that I will follow.
If you don’t feel the same, I will resign.
I don’t have any bad feelings towards anybody, but this is how I feel about the matter.
Email: from Juan Venter to Stefan Pretorius (8th June 2004 14.23)
It really doesn’t work like that. We are in s…t because of the losses on/in the accounts. We will have to make a plan together; it is totally unfair to resign now. I think we should give it another month and then we will have another look at the accounts. We certainly can’t “desert the ship” now, the three of us have made a mess of this, if somebody has to resign, it is my father (Basie Venter). The three of us have made the mess, the three of us can’t “desert the ship”.
Email: from Stefan Pretorius to Renso du Plessis, forwarded to Juan Venter (9th June 2004 11.27)
Hi all of you. I have taken heart to write this email as I am not somebody who seeks confrontation. I will resign with effect from 1 July 2004. This of course means that I will have to leave Mauritius as I will not be a director any longer and as my work permit is based on this. I also still believe that there is a solution for the dilemma we are clearly in. You will have to manage this unbelievably well.
The first thing you have to do is to find somebody who will replace my position on the board. I propose Renso for this, as he has already come to Mauritius and been approved by FSC as “fit and proper”. I also know that Marietjie Fryer (the Financial Director of Leaderguard Securities ) will leave immediately, but she will have to be informed.
Secondly, you will have to find a way to increase the margin with GNI (a branch of MAN Financial that acted as a trading platform for LSF). The process to register GNI as the platform is more easily said than done. Yes, it can be done, but not overnight. As I resign,
I propose that LSF buys back my share; I can then send the money for you to GNI. I know that this is a risk because perhaps I can never give that money back to you, but if I have not stolen money toward that time, I will never do so”. [In other words Stefan is saying “I am an honest guy – if I can’t return the money later on, it’s not because I have ran away with the money.”]
This is a risk that you guys have to take.
According to my calculations, we can get the following moneys from LSF:
- Loan account: USD 125,000 (USD 100,000 already paid out);
- Shareholders contribution: USD 125,000 (USD 25,000 already paid out);
- Assets: USD 200,000 (25 percent of game farm);
- USD 125,000 (25 percent of currency company value – to be confirmed)
- The total is about USD 1,600,000
If we plan this nicely, these additional monies can be with GNI reasonably fast.
I still have a slightly smaller detail that you will have to deal with locally, but will explain this in more detail and forward this to you.
Regards,
Stefan Pretorius.
The letter is important because:-
Ø It is an open admission of fraud on the part of the Leaderguard Directors (both LSF and LS)
Ø It indicates a plan or scheme on the part of Stefan Pretorius to illegally acquire remnant Leaderguard assets that (if past records be correct) will find their way from GNI (MAN Financial – a trading platform) into some irregular bank accounts belonging to the correspondents. KPMG now knows which they should have known in their audit that once a thief, always a thief.
I suppose that it would be too much to expect that Stefan’s plan “to obtain” 1.6 Million Dollars of Leaderguard assets was his intention to trade such Leaderguard funds through GNI for the benefit of investors!
Sunday, February 24, 2008
AUDITING THE AUDITORS
The Public Company Auditing Oversight Board (A United States Federal Authority based in Washington DC) was established under the Sarbanes-Oxley Act 2002 to “conduct an annual inspection of each registered accounting firm that regularly audits reports for more than 100…clients”.
In 2004 the federal board selected at random nineteen (19) different KPMG audits for investigation and review. (See the PCAOB release No. 104-2005-088)
Our consultant forensic accountants in examining the KPMG performance found that the nineteen (19) audits had produced a total of seventy-four deficiencies. (On average nearly four deficiencies per audit). This average however tells us little. By percentage frequency distribution of these audit deficiencies by clusters we have the following table.
DISPLAY X
In 2004 the federal board selected at random nineteen (19) different KPMG audits for investigation and review. (See the PCAOB release No. 104-2005-088)
Our consultant forensic accountants in examining the KPMG performance found that the nineteen (19) audits had produced a total of seventy-four deficiencies. (On average nearly four deficiencies per audit). This average however tells us little. By percentage frequency distribution of these audit deficiencies by clusters we have the following table.
DISPLAY X
Percentage frequency distribution of KPMG Audit Deficiencies
Audit Deficiencies – None Number – 0 % Frequency 0.0
Audit Deficiencies – One Number – 9 % Frequency 12.2
Audit Deficiencies – Two-three Number – 10 % Frequency 13.5
Audit Deficiencies – Four – Six Number – 6 % Frequency 8.1
Audit Deficiencies – Seven or more Number – 49 % Frequency 66.2
Total Audit Deficiencies – 74 Total % Frequency 100.0
The pattern is clear.
Fact one
Of all the KPMG audit deficiencies revealed by the Federal Oversight Board no audit escaped censure-a deficiency of one kind or another. All those reviewed were either found inadequate, negligent or inaccurate in some specific respect.
Fact two
Of all the audit deficiencies revealed by the Federal Oversight Board nearly one half reported a single deficiency. Frequently however this deficiency was of considerable importance to the efficacy of audit.
Fact three
Of all the KPMG audit deficiencies revealed by the Oversight Board a quite significant number revealed six or more audit errors. High error multiples were more common place than might have been expected.
While the Oversight Board is careful to point out the smallness of the random sample and the repair mechanisms that KPMG were asked to implement, the board nevertheless concluded:-
“The KPMG audit deficiencies included failures by KPMG to identify and/or appropriately address:- errors in generally accepted accounting principles.
The board went on to say that ‘failures on the part of KPMG to sufficiently perform certain necessary audit procedures were notable in their evaluation.’”
The board also complained that KPMG had “failed in many instances to obtain sufficient competent evidence (evidential matter) to support its opinion on the clients financial statements.”
On the basis of this federal evaluation report it would be difficult for KPMG to claim that they were satisfied with the audit work undertaken.
Yet this is what they have claimed in Mauritius for their audit of Leaderguard Spot Forex.
Saturday, February 23, 2008
KPMG: CASE HISTORIES
Over the past three years small group of investors have been collecting KPMG auditing failures from around the world. They have been looking for court cases which are similar to the Leaderguard auditing debacle which has occurred in Mauritius and where investors have sued KPMG for audit negligence or ineptitude.
Two (landmark) parallel cases come from the USA.
The New Jersey Supreme Court: Shareholders in the Physician Computer Network v KPMG USA.
In June 2006 the New Jersey Supreme Court ruled that shareholders (investors) in a company that had been bankrupted by fraud on the part of its executives or Directors could sue the company auditors (KPMG) on the grounds that they had failed to detect executive or director fraud.
In an earlier hearing KPMG had sought the dismissal of the case on the grounds of “the imputation doctrine” which in essence means that auditors are dependent upon information or knowledge provided by company Directors. Unfortunately for KPMG the state Supreme Court held that “this doctrine” did not prohibit company share holders (ignorant of the fraud) to obtain damages from an auditor who had failed to reveal or uncover the fraud perpetuated by the company Directors.
This ruling has implications for Mauritian justice, should KPMG attempt to reapply this doctrine.
The United States Securities and Exchange Commission on behalf of Gemstar shareholders v KPMG
In October 2004 KPMG agreed to pay “a record USD 10,000,000” to settle charges brought by the Security and Exchange Commission for “improper professional conduct”. Evidently (four) KPMG auditors overlooked Gemstar’s improper inclusion of “licensing and advertising revenues in its public findings” Over the years 1999-2002 such inclusion did not comply with generally accepted accounting principles.
A regional Director of the Securities and Exchange Commission claimed that
“This case illustrates the dangers of auditors who rely excessively on the honesty of management. KPMG auditors repeatedly relied on Gemstar’s management representations even where those representations were contradicted by their audit work. ”
“The auditors thus failed to abide by one of the core principles of public accounting-to exercise professional skepticism and care.”
Our Forensic Accountants have to date amassed some 30 KPMG case histories which are indicative of poor auditing and weak advisory services. Most of these cases led to court awards while others were settled “in order to avoid further costly litigation.
Two (landmark) parallel cases come from the USA.
The New Jersey Supreme Court: Shareholders in the Physician Computer Network v KPMG USA.
In June 2006 the New Jersey Supreme Court ruled that shareholders (investors) in a company that had been bankrupted by fraud on the part of its executives or Directors could sue the company auditors (KPMG) on the grounds that they had failed to detect executive or director fraud.
In an earlier hearing KPMG had sought the dismissal of the case on the grounds of “the imputation doctrine” which in essence means that auditors are dependent upon information or knowledge provided by company Directors. Unfortunately for KPMG the state Supreme Court held that “this doctrine” did not prohibit company share holders (ignorant of the fraud) to obtain damages from an auditor who had failed to reveal or uncover the fraud perpetuated by the company Directors.
This ruling has implications for Mauritian justice, should KPMG attempt to reapply this doctrine.
The United States Securities and Exchange Commission on behalf of Gemstar shareholders v KPMG
In October 2004 KPMG agreed to pay “a record USD 10,000,000” to settle charges brought by the Security and Exchange Commission for “improper professional conduct”. Evidently (four) KPMG auditors overlooked Gemstar’s improper inclusion of “licensing and advertising revenues in its public findings” Over the years 1999-2002 such inclusion did not comply with generally accepted accounting principles.
A regional Director of the Securities and Exchange Commission claimed that
“This case illustrates the dangers of auditors who rely excessively on the honesty of management. KPMG auditors repeatedly relied on Gemstar’s management representations even where those representations were contradicted by their audit work. ”
“The auditors thus failed to abide by one of the core principles of public accounting-to exercise professional skepticism and care.”
Our Forensic Accountants have to date amassed some 30 KPMG case histories which are indicative of poor auditing and weak advisory services. Most of these cases led to court awards while others were settled “in order to avoid further costly litigation.
Friday, February 22, 2008
THE FINANCIAL SERVICES COMMISSION IN MAURITIUS: DUTY OF CARE
The government of the Republic of Mauritius has recently July 2007 amended three Acts of parliament:-
- Financial Services Act
- Securities Act
- And Insurance Act
in an attempt inter alia to better protect “members of the public investing in non-bank financial products”.
The Mauritian government and its Financial Service Commission have now managed to lock the door long after the Leaderguard horse has bolted. More lamentable however has been their failure to clean up the mess made by the horse. And the mess is substantial. Investors are left entirely without compensation. And this largely because the FSC failed in its duty of care.
In the matter of the Leaderguard Spot Forex the Financial Service Commission (Mauritius)
Failed to undertake due diligence investigations in respect to the character and past financial dealings of the company’s Directors.
Failed to undertake an investigation and thorough examination of Leaderguard accounts – income and expenditures via their operating banks prior to awarding this company a global category one business licence.
Failed to ensure that their (FSC) demand that Leaderguard Spot Forex Directors should close investor accounts and repay investments and that this would be undertaken honestly. FSC (Mauritius) twice believed the validity of the Leaderguard client repayment lists (supplied by Director Stefan Pretorius) which were in fact and significantly in part, fraudulent. (Many investors listed had in fact not been repaid).
Failed to revoke the Leaderguard Spot Forex Licence to trade until some seven months after the collapse of Leaderguard Securities.
What the Financial Services Commission did eventually achieve was the arrest of Leaderguard company Directors on a wide variety of charges (which did not however include fraud!) The Directors were fined some 2 cents in every dollar lost by investors. This is a slap on the wrist if ever there was one.
It is obvious that the FSC Mauritius have a duty of care to past investors who lost funds due to their negligence. Investors deserve an apology. They also deserve the support of FSC in their attempt to seek compensation of their losses from both auditors and trustees through the Mauritian court. How else can they live down their failings.
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