Financial services company Old Mutual said it is “deeply concerned” after it was found liable for R1.7 billion in losses suffered by the Living Hands Umbrella Trust because of the Fidentia scandal.
Old Mutual said in a statement on Wednesday: “Following consultation with our legal team, we can confirm that it has been formally agreed to lodge an application to appeal. Despite the court ruling, we believe that our actions were in accordance with regulations, and we are confident that we followed due process.”
The company said it maintains that the direct cause of the loss and pain suffered was the fraudulent actions of Fidentia well after Old Mutual had transferred funds following a formal client instruction to do so.
“In the circumstances and following our verification of the authenticity of the transfer of ownership, we were legally obligated and had no other option but to transfer the money. We are of the view that there are reasonable prospects that another court would come to a different conclusion,” Old Mutual said.
Concern for the financial services industry
The JSE listed company went on to say that it was concerned about the precedent which the high court has set for the rest of the financial services industry as it relates to managing funds on behalf of trustees.
“This is an additional compelling reason for Old Mutual to seek leave to appeal against the high court judgment. It is important to note that the facts of the case are not in dispute. We understand the need for someone to be held accountable, but we are resolute that Old Mutual is not liable for the damages being claimed,” Old Mutual said.
“As a responsible business that always acts in the best interests of our clients, we have continued to focus on ensuring good governance, while strengthening our processes with increased focus on the environment, communities and social welfare. Our next steps are being governed by what is in the best interests of governance, our stakeholders and our clients,” Old Mutual further stated.
The Living Hands Umbrella Trust funds were invested in Old Mutual Unit Trusts by Mantadia Asset Trust Company (Pty) Ltd (Mantadia). After this investment, Fidentia Holdings Group (Fidentia) obtained the majority ownership in Mantadia Asset Trust Company.
Mantadia thereafter instructed Old Mutual to liquidate the above-mentioned investment.
After Old Mutual had verified the authenticity of the transfer of such ownership, it carried out the disinvestment instruction.
The disinvestment instruction was carried out and Old Mutual Unit Trusts transferred the cash value of the assets held at the time into the bank account of its client, the Living Hands Umbrella Trust.
The current matter, which is being appealed, was brought against Old Mutual Unit Trusts by the Living Hands Umbrella Trust (formerly Mantadia) for R1.2 billion.
The court found that Old Mutual Unit Trusts had acted in accordance with the agreed investment framework in place with Living Hands Umbrella Trust at the time. However, it should have further interrogated the instruction and informed the regulator about it.
Old Mutual Unit Trust Managers (Omut) was found liable for R1.7bn in losses suffered by the Living Hands Umbrella Trust because of the Fidentia scandal, a South Gauteng High Court judge said on Tuesday.
Judge Thina Siwendu wrote in her judgment that there is nothing extraordinary about the recognition and imposition of liability on Omut.
“The provisions are clearly intended to protect the trust funds, and therefore are measures to protect the end beneficiaries, albeit indirectly. The imposition does no more than give effect to the regulatory protections intended,“ the judge wrote.
“There are good reasons to recognise and impose liability in this case. Our law sufficiently provides for liability for wrongfulness in such instances. While I do not decline the relief to develop the common law, I am of the view that there is already a sufficient basis to hold Omut liable.”
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