Tuesday, 22 July 2014
Last updated 2 hours ago
Aug 7 2012 | 3:00pm ET
A massive Ponzi scheme may be behind the murder-suicide that claimed the lives of two South African hedge fund managers last week.
The fatal encounter, in which Herman Pretorius allegedly shot and killed Julian Williams in the latter’s Cape Town office before turning the gun on himself, was apparently sparked by a visit from South Africa’s Financial Services Board. The regulator was concerned about Pretorius’ Relative Value Arbitrage Fund, a hedge fund that was not registered with the FSB in defiance of South African law.
Failing to register may not have been Pretorius' only wrongdoing: He was a allegedly paying out phony investment returns of between 20% and 30% per year with new investor money, paying financial advisers commissions of between 7.5% and 12% for business they sent his way. Authorities fear that RVAF’s roughly 3,000 investors may have lost two billion rand (US$245 million) in the scheme.
It is not the first time that questions have been raised about Pretorius’ business. Eight years ago, hedge fund administrator IDS refused to take Pretorius’ Abante Group as a client, citing a disturbing round of due diligence, which was reported to the FSB. And Personal Finance pushed the regulator to probe Pretorius last year; the FSB’s market conduct deputy executive told PF that it “engaged with Mr. Pretorius, a former policeman, and was satisfied with the answers he provided at the time.”
Pretorius and Williams were former business associates who had recently sparred over an unlisted company, SA Superalloys. Williams served on the company's board, and Pretorius sold preference shares in the company. Pretorius, angered when SA Superalloys stopped paying dividends this year, alleged that Williams may have funneled investors' money into Basileus, his private equity firm. Williams shot back that Pretorius was demanding dividends when Superalloys could not pay them to divert attention from his Relative Value Arbitrage Fund, an unlisted hedge fund.
Pretorius killed Williams and himself on July 26.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…