Clients’ Millions embezzled at BluThorn Fund Management
- Bluthorn fails to provide trails of almost P50m in clients funds
- Funds used to settle company operating costs
- BluThorn under Statutory Management
- Over P220m in clients’ assets at risk
Investment firm, BluThorn Fund Management, has failed to provide the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) with trails of over P48 million belonging to its clients, with some funds alleged to have been used to settle the company’s operating expenses, The Botswana Gazette can reveal.
In an inspection carried out by the Authority on May 7 2019 to May 14 2019, NBFIRA found that Prime Employee Benefits (Pty) Ltd has allegedly replaced Ecsponent Projects (Pty) Ltd, a special investment vehicle for BluThorn. It was further found that Ecsponent Projects (Pty) Ltd was no longer in existence. Before closure of Ecsponent Projects, BluThorn had allocated it the sum of P14 915 000. On inquiry by NBFIRA, BluThorn was unable to explain what had happened to the said funds upon Ecsponent Projects closure. BluThorn was further unable to explain another P13 694 072 allocated to BluThorn Solutions (Pty) Ltd and a further P19 567 277 allocated to BluThorn Holdings Botswana Ltd.
The total sum of unexplained money amounts to P48 176 349, which BluThorn failed to explain its whereabouts. NBFIRA , in its letter to BluThorn dated August 7, 2019 instructed BluThorn to provide it with trails of the aforementioned transactions on or before August 31st 2019. To date, documented evidence seen by this publication shows that BluThorn has not provided the money trails to the regulator as instructed. As a result, NBFIRA charged BluThorn with failure to comply with Section 79 (1) (b) of the Collective Investments Undertakings Act, which compels an investment management company to furnish NBFIRA within such period as the Authority may specify, with any financial information which the Authority may require.
Further, NBFIRA charged BluThorn with failure to comply with Rule 8(7) of the NBFIRA (Market Intermediaries’ Conduct of Business) Rules, 2012 which provides that a market intermediary who has control of client money in a client account may only pay the client money to the bank account in the client’s name, transfer the money to another client account or use the client’s money in settlement of an obligation of the client either on the instruction of the client or in accordance with a written agreement with a client.
An inspection carried out by NBFIRA at BluThorn between the 7th and the 14th of May found that there have been instances where the company had deducted money from clients’ bank accounts to meet the its own operating expenses. In its letter dated September 2, 2019, documented evidence shows that BluThorn admitted that it used clients’ funds to meet the company’s operating expenses by indicating that the contravention resulted from BluThorn using the custody account as an operational account.
According to documents filed by NBFIRA Chief Executive Officer (CEO) Srarim Gade before court, the Authority issued BluThorn with a licence to carry on the business of managing a collective investment undertaking. In this regard, BluThorn was to pool the funds of investors together for their collective investment in securities, property and/or financial assets so as to spread investment risk. In an inspection carried out by NBFIRA on BluThorn from May 7 to May 14, 2019, the Authority found that contrary to its licence, BluThorn was not collectively investing funds, but instead, was managing the said funds individually and charging each investor individually.
In a letter dated September 2, 2019, BluThorn did not deny managing investor funds individually, but instead stated that it was actively engaging the Authority with a view to apply for a licence under the Securities Act, enabling it to manage assets of investors on a segregated basis.
As a result, NBFIRA charged BluThorn with failure to comply with Section 6 of the Collective Undertakings Act.
In a letter dated December 9, 2019 NBFIRA issued directives to BluThorn to have rectified all the deficiencies, as outlined in the Authority’s letter dated August 7 2019, on or before January 7, 2019. To date, BluThorn, according to available documented evidence has refused, neglected and/or failed to comply with the said directives.
The letter concluded by directing BluThorn to close its business and cease the issue and purchase of its units in line with Section 82 (2) of the Collective Investment Undertakings (CIU) Act. Further, the temporary closure of BluThorn is to endure until such a time that BluThorn demonstrates to NBFIRA that it shall not operate as an asset manager, whilst still holding the licence for collective investments undertakings (CIU), and provides NBFIRA with money trails of the P48 million it transacted.
NBFIRA applied for Statutory Management of BluThorn at the High Court on such grounds, which was granted by Justice Lekorwe on the 24th of March 2020. Justice Lekorwe granted NBFIRA the temporary closure of BluThorn and freezing of its bank accounts in terms of Section 57 of the NBFIRA Act. Only urgent transactions shall be authorized by NBFIRA in the interim, to allow the company to maintain its financial obligations.
Peter Collins of Collins Chilisa Law firm, has been appointed the Statutory manager. Collins confirmed his appointment in an interview. Communications and Marketing Manager at NBFIRA, Boa Chombah confirmed that indeed BluThorn is under statutory management.
Efforts to speak to Joseph Mosimane, CEO of BluThorn were futile since he was not in office as a result of the statutory management.