Prowealth investors sue Namfisa

INVESTORS who lost millions of Namibia dollars when the Prowealth group of companies went bankrupt in early 2009 have launched a massive legal claim against the Namibia Financial Institutions Supervisory Authority (Namfisa) and Prowealth’s former auditors.

Eighty-seven people who invested money with the Prowealth group are among the plaintiffs in a case in which Namfisa and chartered accountants and auditors SGA are being sued for a little more than N$105,25 million.The liquidator of Prowealth Asset Managers, Alwyn van Straten, and Prowealth Asset Managers itself are also plaintiffs in the case.They are claiming that Namfisa and SGA were negligent in the performance of their duties with regard to the regulatory oversight and auditing of companies in the Prowealth group, and that this enabled Prowealth’s chief executive officer, the late Riaan Potgieter, to steal huge amounts of money from investors who were clients of Prowealth Asset Managers.SGA will be defending the claim against it, the firm’s managing partner, Gerard Swart, said yesterday.’According to us we were in no way in breach of our duties. We complied with all our duties,’ he said.SGA is also denying claims that it had been negligent in its auditing of the Prowealth group’s accounts ‘in the strongest terms’, Swart said.’We were not negligent in any way,’ he said. Prowealth Asset Managers was registered by the chief executive officer of Namfisa as somebody that could hold investments in safe custody on behalf of other people on August 1 2003, it is claimed in legal documents filed with the High Court in Windhoek at the start of this week. At the same time, Potgieter was approved as the company’s sole portfolio manager.The registration enabled Prowealth Asset Managers to start to do business as an asset manager.The company’s registration with Namfisa reassured people who invested money with Prowealth Asset Managers that the company fell under the overall supervisory functions of Namfisa, it is claimed in the papers filed with the court.It is also claimed that Namfisa knew, or should have known, that the company’s proper compliance with all its obligations to Namfisa and with applicable laws provided a safeguard to people who entrusted money to the company for investment, and was essential to minimise and avoid any misappropriation of the public’s money entrusted to the company.However, from its registration until it was provisionally liquidated at the end of February 2009, Prowealth Asset Managers failed to submit financial statements to Namfisa as required by law, failed to keep proper accounting records, failed to maintain a proper trust account that was kept separate from its operational account, and failed to invest its clients’ money, it is alleged.At the same time, the company represented to the public, through Potgieter, that it was highly profitable and was paying exceptionally high yields to its investors, it is claimed.Potgieter was however using funds received from investors to cover his personal expenses and the expenses of Prowealth Asset Managers and other companies in the group, the plaintiffs are alleging.Potgieter failed to invest any of the money received from Prowealth Asset Managers’ clients in any approved investment products, and instead used this money to cover his personal expenses ‘and to fund his extravagant lifestyle’, it is also being claimed.Investors lost more than N$105,25 million as a result of Namfisa’s negligence to properly supervise the activities of the company and Potgieter, the plaintiffs are claiming.SGA is also being accused of negligence for failing to discover and disclose the conduct of Potgieter and the company.The auditors are further claimed to have assisted Potgieter to disguise money which he misappropriated by reflecting it as loans on the company’s financial statements, and by recommending a scheme in terms of which the loans were to be converted into share capital, it is alleged.Despite realising that there was something amiss with the way the company operated and in respect of its accounting records, the auditors did not take steps to inspect those records more closely or to report it to Namfisa, the plaintiffs are also claiming.As a result of the auditors’ negligence, Potgieter was able to misappropriate money belonging to the company to the tune of more than N$105,25 million, it is claimed.Potgieter committed suicide in Windhoek on December 8 2008. Four and a half months earlier SGA had warned him in a letter that almost all of the companies in the Prowealth group were trading while being ‘factually insolvent’, it was revealed during an insolvency enquiry into the collapse of Prowealth Asset Managers before the Master of the High Court, Elsie Beukes, in August last year.Namfisa did not respond to a request for comment by the time of going to press yesterday.It has previously commented about the collapse of the Prowealth group by stating: ‘The mainly pensioner investors have been defrauded by a sophisticated conman who managed to deceive the regulator, the commercial community, but most sadly, the investing public. The late Mr. Riaan Potgieter created an illusionary empire of wealth on the back of investors’ money and did so mainly by misleading the investors through the promise of unrealistic returns.’