From Moonstone Monitor
by Mark Bechard and Nettalie Viljoen
While the Specialised Commercial Crime Unit remains mum on the progress of its official investigation into Craig Warriner, the threads of the web that was BHI Trust are slowly starting to unravel as more people come forward to share their dealings with the unauthorised collective investment scheme (CIS) business.
Last week, the FSCA confirmed it was investigating the activities of the trust and the possibility that it was conducting unauthorised financial services (FSP) business and unauthorised CIS business. The Authority also confirmed that none of the parties under investigation was authorised as financial services providers or licensed as CIS managers.
In response to questions from Moonstone, the FSCA this week confirmed that in 2017 and 2018 the Authority received complaints alleging that BHI Trust was conducting unregistered CIS and FSP business, taking client deposits and charging higher-than-normal industry fees.
According to the FSCA, following a preliminary investigation, the Authority decided to conduct a formal investigation.
“On 30 September 2020, a full investigation was launched in respect of BHI Trust and Mr Craig Warriner, Rubicon Administration Services (Pty) Ltd, Axiam Capital Management (Pty) Ltd, Global and Local Investment Advisors, and Global Capital. The scope of the investigation included, amongst others, possible contraventions of section 7(1) of the FAIS Act and section 5(1) of the [Collective Investment Schemes Control Act],” the FSCA stated.
The Authority said it is not at liberty to disclose the details of its 2020 investigations, but it confirmed the investigation found that several financial sector laws had been contravened.
“However, it should be noted that as a result of the additional information that has come to light recently, the FSCA’s investigation has been extended to include possible contraventions under sections 2 and 4 of the Financial Institutions (Protection of Funds) Act 28 of 2001,” the FSCA said.
The Authority said the investigation was also extended to other aspects of the operations of the investigated parties and to additional entities and persons.
“The FSCA has also launched an investigation into licensed entities that may have advised clients to invest in BHI products.”
The Authority added it was important to note that as a creature of statute, the FSCA’s investigative powers are, in terms of section 135 of the Financial Sector Regulation Act, restricted to contraventions of financial sector laws.
“The FSCA is working with the criminal prosecution authorities and will assist them in any investigation or prosecution they may pursue. The Authority also continues to, on an ongoing basis, warn the public not to invest or do financial services business with unregulated persons or entities,” the Authority said.
The FSCA’s statement is confirmed by the numerous media releases it issues, warning the public not to invest in unauthorised entities.
Raising the red flag
The head of an independent financial planning company contacted Moonstone and shared some of the concerns he raised with the FSCA after encountering BHI Trust in July 2018.
The initial concerns raised with the Authority included:
- BHI Plus/Trust did not seem to be a registered Category II FSP, and the “investment management” was in the name of BHI Trust. He queried whether a trust could be a Category II FSP.
- The “investment mandate” did not seem to comply with the FSCA’s requirements.
- None of the forms appeared to meet the most basic FAIS requirements as to disclosure, etc. No FSP numbers could be found for any of the parties.
- Rubicon did not seem to be a registered FSP, yet it was doing the client-side (liability) administration.
- The “client statements” issued by Rubicon appeared to be very short on detail or substance.
- It was unclear how or that the “assets” of BHI Trust were matched to the “liabilities” that were recorded and issued by Rubicon to the investors.
- The investor returns quoted in the correspondence showed a tight band of “improbable returns year in and year out”.
- BHI Trust appeared to be taking in client deposits.
- The fees were relatively high.
- The mandate referred to their bank account as “Berkshire Hathaway Investments (Pty) Ltd” – hence the use of “BHI”.
- Warriner, the manager of BHI Trust, was also an authorised representative of Axiam Capital Management, a registered CAT II. It was unclear whether this legitimised the overall BHI Plus/Trust scheme and structure.
In a Cape Talk interview, Simon Brown, financial educator at Just One Lap, told broadcaster Bruce Whitfield that a trust was an extremely unusual structure to be used for a CIS. Brown believed Warriner had most probably used that structure to get around the FAIS requirements.
“I could be wrong but that does seem to be the case here because if you take a collective investment scheme, which is a hedge fund, a unit trust, ETFs and the like, there’s a ton of regulation around who is your key individual, what is your FSCA licence. Is it Category I or Category II?”
Brown said these legal requirements were there to ensure that the person who was overseeing your financial investments was qualified.
The reason the public should invest only in regulated entities is that these entities must adhere to rules and regulations, including the appointment of auditors and compliance officers, which are designed to protect investors.
Until two weeks ago, Warriner and the trust were, for the most part, flying under the radar. Those who knew Warriner generally described him as “a well-known respected person in the financial industry with an impressive CV”.
News24 reported that the investment scheme had no website and was marketed only through word of mouth, usually to friends and family. Moneyweb wrote that the former insurance salesman turned day trader worked his St Stithians College old boy school ties to rope clients into the scheme.
Earlier this week, St Stithians rector Celeste Gilardi sent a letter to the school community saying the college has never been financially exposed to a “collapsed investment scheme” run by a “college alumnus” who “appears to have betrayed the trust of a significant number of financial investors and individuals, resulting in the loss of hundreds of millions of rand”.
The school received donations from Warriner more than a decade ago, and parts of the college that bear his name were being renamed, Gilardi said.
On 12 October, the jig was finally up when news of Warriner handing himself over to the authorities, and his confession to fraud, began to spread among investors. Warriner allegedly admitted to using the trust’s funds in a highly irresponsible manner, referring to it as “using the funds of Peter to pay Paul”, a practice that allegedly began after the 2008 global financial crisis.
Although the complete scope of the fraud remains undisclosed, and the numbers are pending verification, it is speculated that BHI Trust had a worth of R3 billion thanks to the individual investments of more than 2 000 clients.
As of publication, the Specialised Commercial Crime Unit has not responded to Moonstone’s enquiries regarding Warriner’s reported arrest, what the trustee was being charged with, or how its investigation is progressing.
Warriner first appeared in the Palm Ridge Magistrate’s Court on 18 October. During the appearance, which was documented by Cawood Attorneys (an investor in the trust), the presiding magistrate said there were three complainants, but this would likely change as the investigation unfolded.
The magistrate confirmed that the accused could not plead guilty until the State had finalised its investigations and all charges had been correctly formulated. The case was postponed for further investigation.
Warriner remains in custody, with his next court appearance set for 29 November.
Last week, BHI Trust was provisionally sequestrated in an application filed by Cawood Attorneys. On 30 October, the Master of the High Court in Johannesburg appointed two provisional trustees to oversee the financial affairs of the trust, Gert de Wet and Sumaya Mohamed of Kaap-Vaal Trust.
A designated website – www.insolventbhi.com – has been created to communicate with affected parties.