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Absa sued for R1.1bn

Johannesburg – A summons for the payment of R1.1bn was served on Absa Bank and Absa Bank Nominees last week by the curators of Corporate Money Managers (CMM) and the Altron Pension Fund.

In the summons the curators claim that Absa failed in its duty of care and as trustee of the Cash Managed Fund (CMF).

These obligations are imposed on the trustee of a fund in terms of the trust deed and, in this case, the Collective Investment Schemes Control Act.

Absa was the trustee of the CMF, which was marketed as a money market trust, and CMM the portfolio manager. The administration was done by Ayanda, a subsidiary of Fidentia (which was placed under curatorship in 2007).

In April 2009 CMM was put into curatorship after the CMF was closed down because it was unable to meet its obligations to investors. The CMF was shut down by Fidentia co-curator George Papadakis.

In the summons served on Absa, the curators claim that CMF investors suffered R849.16m in losses and the Altron Pension Fund R48.39m.

The parties also claim R251.05m in interest payments on behalf of the investors and R8.5m on behalf of Altron.

The curators argue further that Absa, in its role as trustee, should have realised that the money invested in CMF had not been invested according to the mandate for investments in a money market trust.

The CMF had not, as clients were led to believe, invested in liquid interest-bearing instruments.

Instead of investments in liquid interest-bearing instruments, the investors had advanced money for bridging finance for property transactions.

CMM had repeatedly issued promissory notes between various related companies when it realised it was unable to repay investors’ money. These promissory notes were in breach of the provisions of the Banking Act and were repeatedly rolled over.

The curators say the value of the promissory notes was also much more than the net asset value of the investments in the fund.

It also points to neglect on Absa’s part to correctly value the assets, which is in contravention of the Collective Investment Schemes Control Act.

On Thursday Absa confirmed receipt of the summons. Absa’s group legal counsel Marthinus van Rensburg said the claim was being studied and has been passed on to the legal team for further handling.

The curators also issued a summons against various individuals to prove claims of millions of rands in respect of benefits, money and assets that those individuals had received from the management of almost 26 companies related in some or other way to CMM.

Absa is also involved in a court case with the curators of Ovation, which is claiming R129m from the bank.

Absa is contesting the claim, but in terms of a court ruling last year Ovation may proceed with the claims. The parties are however still awaiting a court date.
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