Moneyweb: Author: Ryk van Niekerk 2 Sep 2020
AfriForum says decision is ‘irrational’ and ‘incongruous’
The National Prosecuting Authority (NPA) has decided not to freeze the assets of the Nova PropGrow Group, the rescue vehicle of the failed Sharemax property investment scheme.
The decision follows civil rights movement AfriForum asking the NPA in June to seize Nova’s assets on the basis of the South African Reserve Bank’s 2010 finding that Sharemax had contravened the Banks Act.
AfriForum said this was a criminal offence, meaning that Sharemax had acquired the properties with the proceeds of crime.
The Reserve Bank’s finding triggered Sharemax’s collapse. Nova was then established through a Section 311 Scheme of Arrangement (SoA) to take ownership of the properties and to repay investors. AfriForum contends that the SoA does not remit Sharemax’s contravention of the Banks Act, and that Nova acquired assets that were procured with proceeds of crime.
AfriForum labelled the NPA’s decision not to freeze Nova’s assets “irrational and incongruous” and asked Shamila Batohi, national director of public prosecutions, to take it on review.
Moneyweb is in possession of a letter the NPA sent to AfriForum in response to the request to freeze Nova’s assets.
In the letter Advocate Rodney de Kock, deputy national director of public prosecutions, motivated the NPA’s decision. He also acknowledged that the Hawks had handed the case to the Gauteng division of the Director of Public Prosecutions for a prosecution decision and that Nova, through its attorneys, submitted “representations” in response to AfriForum’s action. (Moneyweb has not had sight of this letter and has asked the attorneys for a copy. At the time of publication, it had not been forthcoming. However, Nova issued a press release in response to the AfriForum claims shortly after the original announcement).
De Kock stated that the court sanctioned the SoA and that the Reserve Bank supported the scheme. “As a result of this there appears to be no ‘illegality’ as the companies and their underlying assets taken over by Nova complied with the Banks Act and can therefore not be regarded as assets acquired from the proceeds of crime.”
He added that Nova continues to sell properties and “they have already sold a large number of the properties”.
De Kock also said that if the NPA froze the assets, the NPA would merely assume the functions of Nova.
“The purpose of Nova is to compensate the investors who lost their money. The purpose of any possible asset forfeiture intervention, at this stage, will be exactly the same,” said De Kock.
“The NPA/AFU [Asset Forfeiture Unit] will therefore be assuming the functions of Nova at great expense to itself.”
In response, Advocate Gerrie Nel, head of the AfriForum Private Prosecution Unit, wrote directly to Batohi and called for a review of the NPA’s decision not to freeze Nova’s assets.
“The entire Sharemax investment scheme was declared illegal following proven transgressions of the Banks Act … During 2012 all the property-owning companies promoted by Sharemax were transferred to and became part of Nova Properties. The Nova scheme cannot absolve the contravention of the Banks Act by Sharemax,” he wrote.
“We feel strongly and consider this an aspect that perhaps did not get the attention it deserves and we, therefore, reiterate that if the original funds were procured through criminal conduct it remains proceeds until restitution is made to the victims.”
Nel said AfriForum’s argument “may seem crude, but the principle is stark that the Reserve Bank cannot condone criminal conduct or affect the reality that assets were procured with the proceeds of crime.”
Further, De Kock’s argument that the freezing of Nova’s assets would result in the NPA and AFU assuming the functions of Nova “escapes us”, said Nel.
“The NPA is obliged and equipped through the AFU to take action concerning the proceeds of crime. We argue that a Chapter 6 asset forfeiture intervention is required in the interests of justice and protecting the rights of the investors since the other safeguards have failed them dismally to this point,” Nel wrote.
Nel also criticised the delay in the decision to prosecute.
“An inference is possible that the delay to prosecute the directors of Sharemax is not only inexplicable but may contribute to the dissemination of assets by the board members of Nova which may, in turn, deprive the investors of their investment funds for an extended time.”
(NDCAG Comment: the letters referred to above will be posted separately)