21 Feb 2022

There is no evidence that local authorities were granted permission to invest in BluThorn scheme, says Minister of Finance and Economic Development, Ms Peggy Serame.

Ms Serame explained that the Local Government Act 2012 allowed local authorities to invest surplus funds with the approval of finance minister.

Ms Serame said nine local authorities had invested in the scheme, of which two were land boards, two district councils and five were sub-district councils. She said the total amount invested in the BluThorn scheme was P106 million.

She said Ghanzi District Council invested P40m, Letlhakeng Sub District Council P15m, South East District Council P10m, Southern District Council P10m, Tlokweng Land Board P10m, Mahalapye Sub District Council P10m, Tlokweng Sub District Council P5, Malete Land Board P4m and Hukuntsi Sub District Council P2m.

Ms Serame said Collective Investment Undertakings (CIUs) in Botswana were administered and managed in terms of the CIU Act (CAP: 56:09). “The Act provides for the licensing, on-site and off-site monitoring of the CIUs,” she said.

She said BluThorn Fund Managers (Pty) Ltd, formerly called Ecsponent Asset Management Limited (EAM) was licensed in 2016 under the CIU Act, as an Investment Company with Variable Capital in line with regulation 68 of the CIU Regulations, to market their business solely to professional investors.

In terms of the CIU Act, Ms Serame said BluThorn was required to operate a collectivised scheme. However, she said during monitoring BluThorn was found to be operating segregated mandate investments.

“In accordance with the CIU licence granted to BluThorn was required to pool the funds of the investors together for their collective investment in securities, property or financial assets so as to spread the investment risk. In terms of the prospectus that was issued by BluThorn, the company was going to offer the investors a capital growth fund which was supposed to be operated as a CIU,” said Minister Serame.

Essentially, she said BluThorn was engaged in what appeared to be an unlawful banking business as it was taking deposits and on-lending for a margin.

“There was no trace of collectivised units capable of liquid disposal. To the contrary, each depositor entered into an individual depositing agreement for term repayment at agreed interest rates, which essentially was a banking practice,” she said.

She said BluThorn and its controllers had misrepresented in the prospectus that investments would provide higher returns at low risk as the loans advanced to SMEs were highly risky in that they were not secured.

She indicated that prospectus and audited financial statements provided crucial information that was relied upon by the investors to conduct their due diligence on whether the product being offered was sound, that the company was financially sound as well as establish that the risks and the mitigants were adequately disclosed.

In addition, she said the loans were incorrectly reported in the audited financial statements as having no impairment, therefore with no provision having been made in cases of default and no security noted against such loans, which was contrary to international financial reporting standards.

Through the monitoring process, Minister Serame said numerous contraventions of licensing requirements were discovered and consequently remedial actions were taken which included freezing of bank accounts and business operations through a court order and a statutory manager was appointed to manage the affairs of BluThorn through a court order.

She said since the company was found to be insolvent a liquidator was appointed through a court order to investigate and trace missing funds. She said the process was ongoing.

“The matter was also reported to the law enforcement agencies to undertake criminal and economic crime investigations with the view to trace the missing funds, identify embezzlement and or fraud, if any.

The matter is still under investigation at the law enforcement agencies, the outcome of the investigations will determine the course of action to be taken against the individuals concerned,” she said.

She was answering a parliamentary question from Thamaga-Kumakwane, MP, Mr Palelo Motaosane, on Friday who had asked the minister if she was aware that several district councils invested government funds with private businesses including BluThorn and that there have been no returns.

He wanted to know if district councils had authority to invest  with private businesses. He further wanted to know the councils involved in the investment and the amount that was invested with BluThorn.

Mr Motaosane also wanted to know measures that would be taken to ensure that the misappropriated funds were recovered and whether any legal steps would be taken against the individuals concerned. ENDS