Renée Bonorchis
15 October 2008
Johannesburg — AFTER rushing out an inspection report and recommending an investigation of Rand Merchant Bank's (RMB's) role in the collapse of brokerage Dealstream, the Financial Services Board (FSB) had yet to contact RMB or ask for further information.
Alan Pullinger, CEO of RMB, said yesterday silence had descended, leaving the focus on RMB, although other parties named in the FSB report could help shed light on what happened.
Dealstream traded in single stock futures and contracts for difference (CFDs). It had accounts with Investec and RMB, with the merchant bank acting as a clearing agent for Dealstream's single stock futures trades.
In September, Dealstream started to default on its margin calls with RMB. This meant Dealstream could not give RMB enough cash in reserve to insure its trades. After three weeks, RMB reported Dealstream, and the brokerage was closed down and put into curatorship last week.
No one has been able to contact Dealstream CE Russell Leigh. He is said to have fled, flying first to London. One source said disgruntled clients arrived at Dealstream's offices calling for Leigh's head.
RMB's timing has been questioned, but RMB and the JSE have said it is normal to let a client default on margins before acting.
However, the FSB found that apart from the JSE knowing about Dealstream's misleading statements about CFDs since the beginning of 2006, Investec was acting as a market maker and a corporate cash manager for Dealstream.
Dealstream's clients had to have trust accounts with Investec to trade, and the FSB said those accounts should have had a total of R134,1m in them. But it appears Leigh bundled all but R15,5m into a single account, and may have absconded with the rest. How he got money out of client accounts held with Investec is not clear.
Tim Till, chief of operations at Investec Private Bank, said yesterday Investec held accounts on behalf of Dealstream and Dealstream's clients.
"Investec has been requested to release funds standing to the credit of Dealstream's account and standing to the credit of Dealstream's client's accounts to the curator of Dealstream," Till said.
"Certain clients of Dealstream have requested Investec not to release these funds to Dealstream. Investec is ... faced with competing claims to the funds which it is holding, and is taking legal advice ... to protect all parties."
RMB is owed R214,4m in its own right, and was left with more than R1bn in open trades for Dealstream's account. By the end of last week RMB had sold that down to R742m without losses. Pullinger said yesterday the bank still had two large positions in Vox Telecom and Simmer & Jack, making up to 90% of the remaining portfolio. Pullinger said it would take RMB longer to realise any value.
"We're taking a longer term, private equity type of mindset," he said. "We're moving on, and we're not sure of the FSB's next move. Certainly there are other parties that could shed light on what's transpired, especially the shareholders. Dealstream never released audited financial statements. Shareholders should have been asking for them."
Dealstream curator Bernard Levenstein's first progress report for the registrar of the high court is due next week. A full report is to be filed by November10.
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