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Press Release by The Financial Services Board

17 October 2002

The Financial Services Board (FSB) today successfully applied to the High Court of South Africa for an order placing the business of five companies in the Deel-Smith group of companies into curatorship.

The court order followed inspections by the Registrar of Pension Funds and the Registrar of Financial Markets, as well as an inspection by the surveillance department of the JSE Securities Exchange of South Africa, which raised concerns regarding the business conducted by the five companies.

Barbara Richmond of Deloitte & Touche has been appointed as the curator. The return date of the provisional order that was granted is 26 November 2002.

The Johannesburg-based companies are Deel-Smith Investment Holdings Limited, Deel-Smith & Company (Pty) Ltd, Deel-Smith Benefit Administrators (Pty) Ltd, Deel-Smith Securities (Pty) Ltd and Deel-Smith Nominees (Pty) Ltd.

Deel-Smith Securities is a member of the JSE Securities Exchange South Africa in the membership category non-clearing broking member: derivatives, trading in financial derivative products.

Deel-Smith & Company is an approved investment management company and Deel-Smith Benefit Administrators an approved retirement fund administrator.

Media release

27 November 2002

FSB extends Deel-Smith curatorship to include pension funds

Allegations of maladministration against the former trustees and administrators of five pension funds managed by the troubled Deel-Smith group of companies will be investigated following a court application by the Financial Services Board (FSB) in the Pretoria High Court yesterday.

A provisional order granted by the Court on 17 October this year to place the Deel-Smith group of companies into curatorship was extended yesterday to include the five pension funds administered by the group.

At the same time the order granted additional powers to the curator, Barbara Richmond of Deloitte & Touche, to bring the business and operations of the five group companies to cessation and to wind down their affairs in an orderly fashion.

The court decision was made after the curator reported that the companies were not viable and that the liabilities of four of the companies exceeded their assets. The fifth company, the securities firm in the group, was technically solvent but unable to survive as it had lost its expert staff and could no longer comply with the rules of the JSE Securities Exchange.

The five Deel-Smith companies involved are Deel-Smith Investment Holdings Limited, Deel-Smith & Company (Pty) Ltd, Deel-Smith Benefit Administrators (Pty) Ltd, Deel-Smith Securities (Pty) Ltd and Deel-Smith Nominees (Pty) Ltd.

Louis Wessels, acting head of the FSB’s legal department, said the extension to include the pension funds was granted after a forensic investigation had shown that the assets of the pension funds had very likely been misappropriated for purposes of the investment business within the Deel-Smith group.

The Pretoria High Court consequently yesterday ordered that the five pension funds up to now administered by Deel-Smith Benefit Administrators be placed under management and control of an independent curator, Johannesburg attorney Nikki Howard.

“One of Ms Howard’s tasks will be to investigate possible actions for maladministration against the former trustees and administrators of the funds, as well as the Deel-Smith group of companies,” Wessels said.

Information about the outcome of the investigations and the winding down of the companies will be made available as soon as possible. Interested parties are requested not to contact any of the curators, as it is not yet possible to give clear answers to any questions.

Media Release by The Financial Services Board

Deel-Smith trustees to be prosecuted

21 July 2004

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.