Johannesburg — KPMG Mauritius is being sued in the Port Louis Supreme Court for $57m by 1700 disgruntled southern African investors, most of whom were South African pensioners who lost millions in the Leaderguard Spot Forex (LSF) investment scam.

In March 2005, LSF's South African holding company, Leaderguard Securities, was liquidated after its financial director, Maria Fryer, brought an urgent application for its winding up in the Pretoria High Court.

After the collapse of the company, the two main directors of Leaderguard Securities and LSF, Basie Venter and Stephan Pretorius, were prosecuted and fined in the Mauritius court and ordered to leave the country. They now live in SA.

Leaderguard Securities was the marketing arm of LSF, an investment company that speculated in foreign exchange markets. LSF was liquidated in October 2005.

LSF operated by entering into merchandising agreements with currency brokers in England and Denmark, using local investor funds.

Recruited investors would give LSF a mandate to do this. Yet allegations on the part of investors say that mandates were given only for a first-time investment and that further investments were made on their behalf without permission.

Moses Kgosana, chairman of KPMG SA, said his firm was a separate legal entity to the Mauritian KPMG operation and he expected that the firm would defend the action and go through the usual legal process.

The summons that was served on the accounting firm by Mauritian liquidator Jose Thibault alleges that KPMG Mauritius failed to conduct its audit function in no less than 20 respects.

The most serious of these, he said, was that KPMG had failed to satisfy itself that Leaderguard had sufficient financial resources at its disposal to continue its business and to meet its liabilities, and that it failed to establish that Leaderguard had failed to process all its banking transactions through a Mauritian bank account.

Thibault also alleges that KPMG failed to establish that Leaderguard had maintained its accounting records in Mauritius.

Thibault claims in the summons that KPMG did not ring the alarm bells when LSF continued trading after it exceeded a 20% predetermined risk allocation on its Leaderguard Growth Option, and also when it exceeded its agreed stop-loss limitation of 30% of its Leaderguard Aggressive Risk Option.

A senior partner of KPMG Mauritius, Wilfrid Koon, said yesterday the firm had received a copy of the plaintiffs' summons from the liquidator of LSF alleging negligence and breaches of duty in the conduct of its audit of their financial statements for the year ended February 28 2004, and in connection with certain agreed-upon procedure work.

"KPMG Mauritius is not aware of any reason to doubt the reasonableness of the work undertaken in connection with the engagements concerned," Koon said.

"Lawyers have been retained to represent the firm in the defence of the proceedings, which will be vigorously contested."

Virtually all the investors, many of them pensioners, were from SA, Namibia and Botswana, and their quest to recover their money is being driven by the largest private investor in Leaderguard, Tony Johnston, who lost $650000 in the scam.

Johnston said he decided to invest in Leaderguard to provide an income for an education fund he had set up to educate about 800 Kenyan schoolgirls.

In April, Parliament's finance committee began to investigate whether "regulatory failure" or legislative weakness had led to the Leaderguard Securities foreign exchange scam.

The case is expected to be heard in Port Louis at the end of February next year.