Five pension funds that suffered losses of more than R18 million while under the administration of investment manager Stuart Deel-Smith are being liquidated.

The Financial Services Board (FSB) today said officers of the funds who may be criminally liable for the loss suffered by the funds would be prosecuted.  The Commercial Crimes Court is investigating the case.

The High Court in Pretoria authorised the liquidation of the Small and Medium Enterprise Independent Preservation Pension Fund; Small and Medium Enterprise Independent Pension Fund; Small and Medium Enterprise Independent Provident Fund; Small and Medium Enterprise Independent Retirement Annuity Fund and Small and Medium Enterprise Independent Preservation Provident Fund.

The funds were previously administrated by two of Deel-Smith's companies, Benefit Administrators and Deel-Smith and Company. Deel-Smith and Company was not registered as an investment manager as is required in terms of section 13B of the Pension Funds Act 24 of 1956 (PFA). 

Nikki Howard of Cheadle Thompson & Haysom Inc, who had been the curator of the funds since November 2002, was appointed as liquidator of the funds. 

Investigations during the curatorship revealed that the funds suffered a loss of approximately R18.2 million, leaving more than 350 members with practically no retirement funds.  Many of the members, after a lifetime of saving for their retirement, are now destitute. 

Assets remaining in the funds amounted to less than R1.5 million.

The reasons for the loss were that the assets of the funds were not invested in accordance with the PFA and appear to have been utilised by the investment manager of the funds, Stuart Deel-Smith, to fund various investments managed on behalf of persons other than members of the funds. 

The assets were subsequently lost through these investments, which were futures and derivatives.

Deel-Smith Benefit Administrators administered the funds, while the investments were administered by Deel-Smith and Company.  The two companies belonged to a group of five companies placed under the curatorship of Ms Barbara Richmond of Deloitte. 

As at December 2002, the directors of Deel-Smith Benefit Administrators were Mr PP Eloff, Mr TD Storbeck, Mr SD Deel-Smith and Mr GJJ Boshoff.  The directors of Deel-Smith & Company were Mr PP Eloff, Mr HJ Van Loggerenberg and Stuart Deel-Smith.

Deel-Smith was the only remaining trustee after the funds were placed under curatorship.  Former trustees of the funds were Mr GJJ Boshoff, who resigned as a trustee in 2001; Mr GA Rennie, who resigned as a trustee in August 2002, immediately prior to the funds being placed under curatorship; and Mr JPW Knight, who resigned as a trustee in October 2002 immediately after the funds were placed under curatorship. 

The principal officer of the funds was Karen Todd.

The funds were insured for loss resulting from the negligence, fraud and dishonesty of officers of the funds for a sum of approximately R17.1 million.  In May 2003, however, attorneys acting on behalf of the insurer notified Nikki Howard that the insurers elected to avoid the funds' policy on the basis that there were material facts in existence prior to the inception of the policy, which were not disclosed by the funds to the insurer.

It appeared that no significant assets were recoverable. As no further monies were available for distribution to members, Howard was authorised by the FSB to recommend to the High Court that the funds be liquidated.  

Note to editors: The FSB is a statutory body responsible for supervising the non-banking financial services industry. The FSB's regulatory objectives are:

• Fairness, efficiency and transparency
• Stability of financial markets
• Protection of consumers

This media release was issued by the FSB's Communication & Liaison Department, Tel (012) 422  2823.