October 14, 2006
By Laura du Preez
The Leaderguard Recovery Unit was a loose affiliation of brokers who represented investors in the failed foreign currency trader, Leaderguard Spot Forex, and these brokers were funding the unit's efforts to recover money for investors.
Following the appointment of a liquidator for Leaderguard Spot Forex, the unit essentially ceased operating at the end of last year, André Matthews, the chairman of the Leaderguard Recovery Unit, who is also the chief executive officer of the Avocado Group of companies, says.
The Avocado Group consist of an asset manager, Avocado Investment Managers, and a distribution arm, Avocado Distribution Services. The company also sold investments into Leaderguard.
In recent rulings against brokers who assisted investors to invest in Leaderguard Spot Forex, the Ombud for Financial Services Providers, Charles Pillai, questioned the legal status of the Leaderguard Recovery Unit. He noted with "alarm and discomfort" that the unit had written to investors in the failed foreign-currency scheme warning them to contribute to the unit's costs.
Pillai first questioned the status of the Leaderguard Recovery Unit in his ruling against Wilma Willemse in August. In a ruling this week against Durant van Zyl, Pillai again questioned the role of the unit.
Matthews says although the Leaderguard Recovery Unit is no longer playing an active role, he has been appointed to represent more than 70 percent of the investors who invested in Leaderguard Spot Forex.
Matthews says the Leaderguard Recovery Unit had no legal status and was a group of brokers who had decided to pool both their efforts and resources to ensure the recovery of their clients' investments.
The brokers who advised clients to invest in Leaderguard Spot Forex were conned by the foreign currency trader, Matthews says, but, out of self-respect, they accepted responsibility to assist in the recovery of the lost funds and were contributing to efforts to recover investors' lost funds.
The letter Pillai referred to in his ruling was more than a year old and Leaderguard investors have, in fact, never been directly called on to contribute to the recovery unit's activities, Matthews says.
Before a liquidator, who had investors' interests at heart, was appointed for Leaderguard Spot Forex, the brokers funded both a legal team and forensic auditors in Mauritius, he says.
"At a point in time, a number of brokers had failed to contribute to this endeavour and a letter was written, as a 'shock instrument', to the investors advising them of this fact. In addition, they were advised that in the event of their broker/s not contributing, then ... the investors were to be asked whether they would be willing to contribute. This, however never materialised, given the fact that the brokers then provided the necessary funding," Matthews says.
Legality questioned
Pillai said in his ruling against Willemse that the undated letter warned investors that they risked losing their investment should they not pay the unit, and he questioned the factual or legal basis for unit's claim that investors would lose their money permanently.
The message conveyed, Matthew says, was that if he (Matthews) was unable to raise funds to pay the legal team, he would have to terminate the recovery effort, and this could have resulted in funds not being recovered by the legal team.
Matthews says he and the recovery unit supported or were responsible for:
The appointment of two legal teams, one in South Africa and one in Mauritius;
The rejection of a "bogus" compromise proposal, which was presented on behalf of the directors of Leaderguard Spot Forex by Towergate and the judicial manager, Zihad Bundhun;
The removal of Bundhun as the judicial manager;
The liquidation of Leaderguard Spot Forex and the appointment of an independent liquidator;
The instigation of an enquiry, which is currently under way to which several parties were subpoenaed, including all the directors of Leaderguard Spot Forex; and
Communicating with brokers, investors and the legal team.
Matthews hopes to convey the findings of his efforts over the past 18 months to investors by the end of this month or soon thereafter. Investors will then be given a chance to vote on whether the unit's legal team should "sue those parties responsible for the loss of the funds as a result of gross negligence", he says.
"It is a pity that the regulatory authorities within South Africa have not sought to embrace the efforts made to date by the Leaderguard Recovery Unit, and by implication then the brokers, to recover the investors' funds, but have sought rather to attempt to blame the brokers for these losses," Matthews says adding that he would appreciate help from the Financial Services Board (FSB).
Matthews says brokers who advised investors to put money in Leaderguard may be ordered to repay the investors, but the brokers may only be capable of paying 15c in the rand. In this case, the investor remains the loser, he says.
He also says the ombud can only make such orders against brokers who put investors' money in Leaderguard after October 2004, and this excludes about two-thirds of the all the local investors who invested in Leaderguard.
Responding to Pillai's request for an explanation of why the Leaderguard Recovery Unit was assuming the duties of the liquidators of the Leaderguard companies, Matthews said that before an independent curator was appointed, no person or entity was looking after the investors' interests. Had the unit not become involved, the "bogus" compromise deal could have robbed investors of the opportunity to litigate in future.
The unit does not have any involvement with the current liquidator, he says.
Conflicts of interest
Pillai said investors in Leaderguard were also sent a letter signed by Sean Sim of Sim Attorneys regarding the recovery of their investments. Pillai said Sim attorneys represented brokers who had placed investments in Leaderguard, including two brokers, Willemse and Van Zyl, against whom Pillai has made rulings. Pillai said this was an obvious conflict of interest.
Sim confirmed that prior to 2006 he was briefed by the Leaderguard Recovery Unit.
He also said he currently represents the liquidator of Leaderguard Spot Forex, Jose Thibaut.
On the issue of a conflict of interest in acting for the brokers and acting for the Leaderguard Recovery Unit, Sim says no such conflict exists. He says senior counsel he has consulted in this regard had confirmed this understanding.
Pillai said in his ruling against Willemse that he was referring issues around the Leaderguard Recovery Unit to the relevant authorities. The matter was referred to the FSB and the Law Society.
The FSB says it was not investigating the Leaderguard Recovery Unit as its falls outside the FSB's jurisdiction.
The FSB says its investigation into Leaderguard Securities (the South African entity through which investments in the Mauritian-based Leaderguard Spot Forex were placed) is complete and has been submitted to the prosecuting authorities.
The FSB says its correspondence with about 220 brokers who sold Leaderguard is ongoing.
The Law Society says it is investigating the matter, but could not comment further.
  
 
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