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'CMB was a rogue asset manager that sought to steal millions'

CORRESPONDENT
Boitumelo Molefhe. PIC. MORERI SEJAKGOMO
Viltry (Pty) Ltd ("Viltry’"), as representative of the Botswana Opportunity Partnership ("BOP’"), together with the Botswana Public Officers Pension Fund ("BPOPF’"), have noted with concern the article that was published in the 24 May 2019 edition of the Mmegi Newspaper titled "CMB clears the air".

It is unclear who the author of this article is. It is ascribed to no particular journalist and it is not published as a so-called “letter to the editor” but is afforded significant costly print space as a “rebuttal”. A rebuttal to what, remains unsaid. The article is filled with numerous inaccuracies and factual omissions. It is clearly a flamboyant attempt to deflate and distract from the true state of affairs.


It is necessary that Viltry and the BPOPF clarify the position relating to the establishment of the BOP, BPOPF’s dealings with Capital Management Botswana (Pty) Ltd (in liquidation) (‘’CMB’’) and the litigation that ensured as a result during the course of last year. The facts conveyed herein are easily verifiable and are well-established matters of public record.  

Viltry and the BPOPF do not intend to deal with each and every allegation made in the said article and intend on rather providing a high-level overview. The failure to deal with any particular allegation contained in the article should not therefore be interpreted as an admission of such allegation. However, the press is invited to contact Viltry or BPOPF to respond in respect of any of the allegations made in the article.

 

Establishment of BOP

In 2014, the BOP was established as one of the first private equity funds focussed on Botswana. It was established as an en commandite partnership, with CMB as BOP’s general partner and asset manager. Investors would contribute capital in accordance with the provisions of a partnership agreement.

 

BPOPF’s Investment

CMB approached a number of investors, but in the end only the BPOPF decided to invest in the BOP. BPOPF relied on CMB, an asset manager regulated by NBFIRA, to manage the fund in terms of the partnership agreement and in accordance with its fiduciary duties. CMB had complete control of the BOP Portfolio.

CMB could draw down on BPOPF’s 500 million Pula commitment as and when suitable investments were found. Investments would only be suitable if they complied with the investment policy of the fund. In order that BPOPF could verify compliance with the investment policy, drawdown notices were required to give details about the investments, CMB was required inter alia to report to BPOPF on a quarterly basis and to produce audited financial statements. CMB was also obliged to contribute 1% of the assets in BOP.

Where it went wrong

CMB, represented by its directors Messrs Okaile and Marsland, failed to contribute its 1% and instead used BPOPF’s own funds to do so. CMB also failed to produce any quarterly reports or audited financial statements for BOP for any of its years of operation and continuously gave BPOPF the run-around. CMB’s conduct aforesaid was in breach of the partnership agreement and BPOPF put CMB on notice to remedy these (and other) breaches. When CMB failed to comply, BPOPF approached the auditing firm that was listed in the BOP partnership agreement for an update. The firm in question denied that they had been appointed as auditors by CMB. BPOPF then instructed a law firm to conduct a due diligence into its BOP investments.

This due diligence revealed a litany of breaches of the partnership agreement that suggested not only incompetence by the directors and management of CMB, but the likelihood that various statutory and common law crimes had been committed which resulted in the potential loss of several hundreds of millions of Pula over an extended period of time.

While CMB was on notice to remedy its breaches of the partnership agreement, it issued a drawdown notice for two additional investments. This notice was also defective and BPOPF declined to pay any further funds to CMB and removed CMB as the general partner of the BOP and as the manager of the assets held by the BOP.

 

The sham sale

In the article, it is asserted that BPOPF failed to comply with a drawdown notice and was declared to be a defaulting partner. Its partnership interest in BOP was then supposedly disposed of for P50 million.

This narrative was created by CMB in a failed attempt keep their misdeeds hidden. The truth was that BPOPF was not in default. Moreover, CMB did not dispose of BPOPF’s partnership interest to any other entity. Instead, CMB simply transferred the sum of P50 million to BPOPF’s bank account, later claiming that this was the purchase price for BPOPF’s partnership interest. Despite being invited to do so in the litigation, CMB never named the purchaser. If what CMB claims is true, the directors of CMB sought to take almost P500 million from Batswana pensioners in return for a paltry P50 million.

But this was not true. Subsequently, the statutory manager was able to trace the source of the P50 million. This money had been transferred by BPOPF to BOP in terms of an earlier drawdown notice, but CMB had not used the funds for their intended purpose. Instead, CMB now purported to pay BPOPF with funds obtained from BPOPF. The transaction was sham and has been recognised as such by both the statutory manager, the initial liquidator and the current liquidator.

 

Report to NBFIRA

BPOPF lodged a complaint with NBFIRA in relation

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to CMB. NBFIRA saw sufficient cause to place CMB under statutory management which it did on 30 January 2018. The Court of Appeal subsequently found this to be ‘’an eminently rational and sensible’’ decision by NBFIRA in the circumstances.

 

The legal proceedings

It is a statutory requirement that NBFIRA apply to Court to confirm the appointment of a statutory manager. NBFIRA duly did so. CMB fought tooth and nail against the appointment. Its first step was to proceed to Court without notice to the other parties and to obtain an order setting aside the appointment of the statutory manager. This order was set aside one day later because it was unlawful. But this was not before CMB’s directors rushed to the bank and transferred P10 million out of CMB’s bank account. The liquidator is tracing this money and will attempt to recover it.

In the article, much is made of the judgment of Motumise J in the High Court in which the statutory management was set aside. It is strange – and indeed sinister – that no mention is made in the article of the fact the Court of Appeal overturned the High Court judgment. As the Mmegi’s editor well knows, on 27 July 2018 the Court of Appeal unanimously set aside the High Court judgment and confirmed the appointment of the statutory manager. The Court of Appeal vindicated the decision of NBFIRA to place CMB under statutory management.

In doing so the Court of Appeal stated that the facts ‘’cry out for further investigation by a statutory manager’’ and that ‘’the apparent disappearance or dissipation or disposal of P400 million of BPOPF assets entrusted through BOP to the management of CMB bears full investigation, as it may indicate that a financial crime has been committed’’.

 

The Statutory Manager

The appointed statutory manager was an experienced lawyer and former judge whose credentials and independence were duly considered by the Court of Appeal.  The supposed conflict of interest referred to in the article was raised by CMB. It was rejected by the Court of Appeal.

His appointment and the reasons therefore, were also confirmed by the Court of Appeal. Part of the statutory manager’s role was to manage CMB. He found reason to suspect ‘’criminal activity on a massive scale which eclipses isolated breaches of financial services laws.’’ It also fell to him to decide whether to proceed with an arbitration that BPOPF had commenced against CMB in regard to the unlawful conduct of CMB. Having carefully reviewed all of the facts, the statutory manager decided that there was no merit in the submissions that had been made by the directors of CMB (Messrs Okaile and Marsland) and that there were no prospects at all of CMB succeeding in the arbitration. He therefore decided to settle the matter. In doing so, he recognised that ‘’the purported disposal of BPOPF’s partnership interest in BOP… was a sham and unlawful’’.

 

Liquidation of CMB

On 16 August 2018, NBFIRA filed a petition to place CMB into liquidation. CMB was placed into final liquidation on 19 September 2018. CMB’s shareholders, represented by Messrs Okaile and Marsland, subsequently filed an application to have the liquidation set aside. This application was dismissed by the High Court on 10 May 2019. It bears mentioning, when dismissing the application by Messrs Okaile and Marsland to set aside the liquidation of CMB, the High Court remarked as follows:

‘’I can say with conviction that the commercial morality surrounding the circumstances which led [to CMB] being placed under liquidation, demand that the liquidation proceedings be continued with and not stalled by frivolous rescission applications. Moreover, it is in the public interest that this liquidation process be undertaken to finality considering the huge sums of money which have allegedly disappeared or are unaccounted for in respect of the BOP relationship between BPOPF and [CMB]. Discontinuing the winding up proceedings even momentarily, at the behest of the Applicants, will be a clever plan by [CMB’s] directors (the Applicants) to avoid liability. Stoppage or delay of the liquidation proceedings will be an instrument of injustice’’.

 

Continuance of Investigations

The investigations into the culpability of the directors of CMB for the losses suffered by CMB and its creditors (including the BOP and Viltry) are ongoing. In this regard it is important to note that Mr Marsland failed to adhere to a subpoena and attend these proceedings to be questioned on the business and affairs of CMB; and that Mr Okaile is yet to be so examined. Criminal investigations into the conduct of Messrs Okaile and Marsland by the relevant investigative and prosecutorial authorities are also under way.

 

Conclusion

VIltry and the BPOPF express their indignation at the irresponsible publication of the highly inaccurate and defamatory article. They urge the media to check the facts of articles published by them. In this era of fake news, it is most important that journalists remain vigilant to publish the truth. The truth in this instance is that CMB was a rogue asset manager that sought to steal millions of Pula from Batswana pensioners. The truth is slowly but surely being revealed in the liquidation proceedings.

BOITUMELO MOLEFHE*

*Boitumelo Molefhe is BPOPF Chief Executive Officer



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