SA auditors report suspicions

Cape Town - The Financial Services Board (FSB) is investigating alleged irregularities at property investment company Capital Investments and the Dividend Investment property syndication company.

Manasse Malimabe, head of the FSB's division that enforces the Financial Advisory and Intermediary Services Act, said that this was related to alleged irregularities that had been reported by the Independent Regulatory Board for Auditors (IRBA). In terms of Section 45 of the Auditing Profession Act, a company's auditors are required to report irregularities to the IRBA. The IRBA, in turn, has to inform the relevant authorities in writing.

The Capital Investments Group established the City Capital Property Fund, which had apparently received about R330m from investors.

At the end of 2007 the fund bought 15% of Dividend Investment (or Div-Vest as it was registered) in a number of property companies. The rest of the stake in these property companies is held by about 2 500 investors via property holding companies.

The investors ostensibly invested R250m in shares in the property holding companies. Capital also took over management of the property companies.

According to the IRBA, BDO Spencer Steward reported Capital on July 24 last year. The claims included various alleged irregularities, including the fact that a loan had been made to Capital Investments by the City Capital Property Fund without permission from its shareholders. The directors had allegedly also failed in their fiduciary obligations.

Capital Holdings and its four subsidiaries (including the above) were also reported by BDO in February this year. The allegations included non-compliance with the Companies Act as well as the Income Tax Act.

Bertus van Zyl, Capital's acting chief executive, responded to enquiries saying the group did not agree with all the allegations. Those on which it concurred had received immediate attention. A special meeting had to be held with shareholders of the Capital Fund in November to disclose the alleged irregularities and obtain permission for the loan of R120m that had been advanced.

In 2007 PricewaterhouseCoopers had apparently threatened to report Dividend Investment to the IRBA. This was in connection with a R20m shortfall in the syndicate accounts. According to Ettienne Naudé, the legal representative for Dividend, the shortfall had been rectified, paid out of the purchase price, and investors have suffered no loss.

He added that the auditors had acknowledged making a calculation error.

- Sake24.com

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