South African enquiry into diamond scam

PROCEEDINGS resumed yesterday in a legal enquiry into the disappearance of an estimated N$400 million that Pretoria-based businessman Michael van der Merwe was supposed to have invested for 1 400 American and Israeli investors in Namibian and South African diamond mines.

The Section 417 enquiry, conducted when companies become bankrupt under suspicious circumstances, will focus on Van Der Merwe’s role in a United States-based pyramid scheme that took more than N$3,13 billion off investors in the United States and Israel.Van der Merwe, a former Armscor manager, his girlfriend Elsjere McDonald, accountant Sybrand Hanekom and lawyer Chris Lombaard faced a withering barrage of questions from a 13-strong team of lawyers over the whereabouts of US brokerage firm Wextrust’s investments in southern Africa via Van der Merwe’s SA-registered companies.Money from Wextrust was channelled via Van der Merwe’s Pure Africa Holdings (PAH) group of about 30 companies, most notably Pure Africa Minerals (PAM), which the US authorities said had received US$40 million (about N$400 million) from Wextrust between 2005 and 2008. For this, Wextrust held a 40 per cent interest in Van der Merwe’s paper empire, documents showed.PAM in turn owned or controlled the diamond-mining rights at Toscanini in the Skeleton Coast via local subsidiary Brett Investments, which is also under liquidation. Through partnership with the Robben Island Former Prisoner’s Trust in a Namibian company called Deva (Pty) Ltd, they also held similar rights over Block 3 on the Orange River, close to Oranjemund.Wextrust collapsed spectacularly in August last year when the Federal Bureau of Investigation (FBI) arrested its two principals, Steve Byers and Joe Shereshevsky, both of Norfolk, Virgina, for operating a Ponzi-type investment scheme. A Ponzi scheme is one where money raised from later investors is used to repay earlier investors, usually offering higher-than-normal returns. The court-appointed receiver (liquidator) of Wextrust, Timothy Coleman of Chicago law firm Dewey & LeBoeuf, reported in November last year that about US$313 million was raised in 70 security offerings between 2005 and 2008 from 1 400 investors. Of this, US$74 million was supposed to be invested in four diamond-mining operations situated in South Africa and Namibia, but only US$40 million (about N$400 million) was paid over to Van der Merwe.Van der Merwe has refused to co-operate with Coleman and give his local representatives access to Pure Africa’s books, first claiming PAM was technically insolvent and then having his sister Euzita Henning liquidate PAM for a relatively insignificant unpaid debt, documents submitted in court showed.Former employees and acquaintances said Van der Merwe and his associates had gone on a spending spree, acquiring game farms, houses, cars and other trappings of luxury, with as many as 20 of the properties registered in Van der Merwe’s girlfriend’s name in a company called Morning Glow. Wextrust, starting in 2005 when Sheresjevsky joined Byers in business, had offered seemingly watertight investments in US real estate and, starting in 2007, investments in diamond mines outside Lichtenburg, South Africa, as well as the Toscanini diamond mine on the Skeleton Coast and Block 3 on the Orange River. Evidence obtained by the Securities Exchange Commission (SEC, the US financial watchdog) suggested that Shereshevsky and Byers hoped the diamond mines would produce the kind of profits that would cover their mounting losses back home, estimated at about N$10 million per month.But production at both the South African mines and at Toscanini faltered after an initial good start, mostly due to incompetent managers being appointed who all appeared to be cronies of Van der Merwe, another former PAM employee said this week.Toscanini was also plagued by a shareholder dispute between PAM’s local partner Brett Investments and the Malaysian licensee Subramaniam Raghubati, who was eventually threatened with deportation for bringing Namibia’s diamond industry into disrepute with false allegations. The 2 700 carats of diamonds Coleman found in the Toscanini venture’s inventory now form part of the liquidation proceedings after Coleman prevented Van der Merwe late last year from selling these for a heavily discounted price, Coleman noted.Of the N$400 million Wextrust had transferred to PAM to invest in the mines, only a fraction reached the mines, documents showed. The Pretoria hearing is expected to continue until Tuesday. * John Grobler is a freelance journalist; 081 240 1587

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