Dealstream placed under curatorship
But remains under provisional liquidation until both matters come to court.
Moneyweb07 October 2008 15:12
Failed derivatives broker Dealstream has been placed under curatorship. This is despite it being provisionally liquidated.
The Pretoria High Court ordered the curatorship on Tuesday at the request of the Financial Services Board (FSB). It appointed accountant Bernard Levenstein as curator.
On Monday, JSE-listed Control Instruments (JSE:CNL), announced that its subsidiary company had been granted a provisional liquidation order against Dealstream. Control Instruments was a client of Dealstream.
Liquidation orders are granted when there is evidence that a particular company is insolvent. Companies are placed under curatorship when there is evidence of mismanagement, as in the case of Fidentia.
FSB spokesperson Russel Michaels says that the return date of the provisional liquidation is the same as that of the curatorship order, namely November 18.
He explains that this means the two orders will run concurrently until they return to court.
The FSB says it will collaborate with legal representatives of Dealstream clients to decide what will be best for investors.
In the South African context, curatorships have a history of being more creditor-friendly than liquidations.
"Investors may rest assured that everything will be done in their interests by both the liquidator and the curator," says Michaels.
"As these officers will be occupied with an immense task of unravelling the affairs of Dealstream, they should be allowed to do so without interference. Investors are requested not to contact either the liquidator or curator.
"Further public communication with investors will be issued by the FSB following reports received from the curator."
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RMB report on Dealstream
The full text of RMB's report on its involvement with failed broker Dealstream
SENS09 October 2008 08:29
Dealstream Securities was a non-clearing member of the JSE and an authorised user as defined in section 1 of the Securities Services Act. A non-clearing member trading SAFEX instruments has to place margin at theJSE through a clearing member. RMB acted as the clearing member for Dealstream in respect of its JSE Single Stock Futures dealings.
It did not know and did not have a relationship of any nature with Dealstream`s clients. RMB`s only
dealings with Dealstream was as clearer of Dealstreams futures contracts. RMB placed Dealstream in default on 22 September 2008 because Dealstream was unable to meet its margin obligations which RMB as its clearing member had an obligation to guarantee.
The FSB have issued an inspection report on Dealstream. This investigation was conducted by the FSB at the request of the Registrar of Securities Services and Financial Services Providers and the report formed part of the documents presented in a hearing in the Pretoria High Court on Tuesday 7th October 2008 for the appointment of a curator for Dealstream.
As a claimant against Dealstream, RMB fully supports the FSB`s investigation of Dealstream and has, to date, provided the FSB with details of transactions between itself and Dealstream but has not yet had the opportunity to engage with the FSB over its findings. Should the FSB choose to conduct any further investigation, RMB will cooperate fully.
The FSB report indicated that Dealstream started failing to meet its margin calls from the 2nd September 2008 and that RMB had allowed the situation to continue despite Dealstream not being able to meet its obligations. In terms of our normal credit procedure, it is not common to immediately place a customer in default following a breach.
The common practice for a clearing member is to first try to understand the cause of the breach and establish with the customer what can be done to remedy such a breach which may often be as innocent as an administrative error. Under such circumstances, the clearing member would
provide the margin to the JSE on behalf of the non clearing member. This effective provision of credit is secured by the non clearing member`s initial margin placed with the JSE in terms of JSE regulations and which is intended to cover normal market movements. In general, a customer is only placed in default as a last resort.
During the period of 2nd September to 22nd September, meetings were held with Dealstreams management to discuss payment of their margin obligations. Some additional margin was placed with RMB.
Furthermore, the required level of variation margin decreased and increased with market movements and position close-outs and at a time in this period Dealstream was up to date with its margins. When it finally became clear that Dealstream could not continue to meet its commitments and that the market prices had moved dramatically to effectively eliminate the security provided by the initial margin, RMB took the decision on 22nd September 2008 to place Dealstream in default in terms of its
future clearing agreement and JSE rules governing the default of a member.
The report also indicated that RMB had, as a result of Dealstream`s default, incurred losses of R401,7m which is not correct. The financial consequences for RMB of Dealstream`s default are as follows:
- RMB`s gross claim against Dealstream was R401,7m million assumingDealstream`s positions after default
- Dealstream had an initial margin with the JSE of R187,2m which, whenoffset against the gross claim, resulted in RMB having a net claim against Dealstream to the value of R214,4m, the recoverability of which will only be determined once the financial position of Dealstream has been established.
- In accordance with its future clearing agreement and in conjunction with the JSE, RMB took over the futures positions of Dealstream. These positions amounted to an equivalent physical value of R1,14bn.
- RMB has subsequently sold the portfolio down to R742m and did not occur any losses in the sell down.
- Included in the remaining portfolio are significant holdings in Vox Telecom and Simmer and Jack Mines. These investments will be managed by RMB as strategic holdings with a longer term investment horizon in order to fully realise fundamental value.
RMB report on Dealstream
The full text of RMB's report on its involvement with failed broker Dealstream
SENS09 October 2008 08:29
Dealstream Securities was a non-clearing member of the JSE and an authorised user as defined in section 1 of the Securities Services Act. A non-clearing member trading SAFEX instruments has to place margin at theJSE through a clearing member. RMB acted as the clearing member for Dealstream in respect of its JSE Single Stock Futures dealings.
It did not know and did not have a relationship of any nature with Dealstream`s clients. RMB`s only
dealings with Dealstream was as clearer of Dealstreams futures contracts. RMB placed Dealstream in default on 22 September 2008 because Dealstream was unable to meet its margin obligations which RMB as its clearing member had an obligation to guarantee.
The FSB have issued an inspection report on Dealstream. This investigation was conducted by the FSB at the request of the Registrar of Securities Services and Financial Services Providers and the report formed part of the documents presented in a hearing in the Pretoria High Court on Tuesday 7th October 2008 for the appointment of a curator for Dealstream.
As a claimant against Dealstream, RMB fully supports the FSB`s investigation of Dealstream and has, to date, provided the FSB with details of transactions between itself and Dealstream but has not yet had the opportunity to engage with the FSB over its findings. Should the FSB choose to conduct any further investigation, RMB will cooperate fully.
The FSB report indicated that Dealstream started failing to meet its margin calls from the 2nd September 2008 and that RMB had allowed the situation to continue despite Dealstream not being able to meet its obligations. In terms of our normal credit procedure, it is not common to immediately place a customer in default following a breach.
The common practice for a clearing member is to first try to understand the cause of the breach and establish with the customer what can be done to remedy such a breach which may often be as innocent as an administrative error. Under such circumstances, the clearing member would
provide the margin to the JSE on behalf of the non clearing member. This effective provision of credit is secured by the non clearing member`s initial margin placed with the JSE in terms of JSE regulations and which is intended to cover normal market movements. In general, a customer is only placed in default as a last resort.
During the period of 2nd September to 22nd September, meetings were held with Dealstreams management to discuss payment of their margin obligations. Some additional margin was placed with RMB.
Furthermore, the required level of variation margin decreased and increased with market movements and position close-outs and at a time in this period Dealstream was up to date with its margins. When it finally became clear that Dealstream could not continue to meet its commitments and that the market prices had moved dramatically to effectively eliminate the security provided by the initial margin, RMB took the decision on 22nd September 2008 to place Dealstream in default in terms of its
future clearing agreement and JSE rules governing the default of a member.
The report also indicated that RMB had, as a result of Dealstream`s default, incurred losses of R401,7m which is not correct. The financial consequences for RMB of Dealstream`s default are as follows:
- RMB`s gross claim against Dealstream was R401,7m million assumingDealstream`s positions after default
- Dealstream had an initial margin with the JSE of R187,2m which, whenoffset against the gross claim, resulted in RMB having a net claim against Dealstream to the value of R214,4m, the recoverability of which will only be determined once the financial position of Dealstream has been established.
- In accordance with its future clearing agreement and in conjunction with the JSE, RMB took over the futures positions of Dealstream. These positions amounted to an equivalent physical value of R1,14bn.
- RMB has subsequently sold the portfolio down to R742m and did not occur any losses in the sell down.
- Included in the remaining portfolio are significant holdings in Vox Telecom and Simmer and Jack Mines. These investments will be managed by RMB as strategic holdings with a longer term investment horizon in order to fully realise fundamental value.
Dealstream: As the FSB saw it
Johannesburg - On Tuesday the Financial Services Board (FSB) released a report into the events leading up to the collapse of the failed derivatives trader Dealstream Securities which may leave more questions than answers.
The report shows a two-year sequence of events, which appears to have culminated in private and institutional clients being left sorely out of pocket.
- January 2006: The JSE meets Dealstream MD Russell Leigh and complains that he is misrepresenting contract for difference (CFD) instruments, and that Dealstream was incorrectly representing its instruments as regulated by the JSE. The JSE requests Leigh to change the wording on the Dealstream website.
- January 23 2006: Another letter is sent from the JSE legal representatives regarding the above.
- February 28 2006: A further letter is sent from the JSE legal team.
- March 17 2006: Another letter from the JSE is sent to Leigh.
- July 11 2008: The FSB receives a complaint from a Dealstream client about an unusual request from Dealstream for a "lump sum" transfer into their trading account.
- August 6 2008: The FSB contacts Leigh by letter regarding the above complaint, and the registrar instructs Dealstream to stop selling CFDs until the firm is properly administered.
- August 12 2008: Leigh responds to the FSB, saying that Dealstream is a registered member of the JSE broking exchange and every transaction it makes is through the regulated single stock futures market.
- September 2 2008: Dealstream fails to meet a margin call from Rand Merchant Bank (RMB). This trend continues for three weeks before RMB calls in the margin on the Dealstream account, after news that Leigh has fled and the company has collapsed.
- September 18 2008: The JSE receives a complaint regarding Dealstream from client G Alpino, who says that funds that were supposed to be in the Investec trust account have been removed. Leigh responds, telling the JSE that it was a normal course of business and the funds were held in a pooled client account.
- September 19 2008: According to interviewed Dealstream employees, Leigh instructed them to make excuses for reasons why trades could not be executed and there were insufficient funds in their accounts.
- September 19 2008: The registrar of Securities Services and Financial Services Providers instructs Dawood Seedat to conduct an investigation into the affairs of Dealstream.
- September 22 2008: The JSE sends a member of its surveillance department to the Dealstream premises, who finds them locked up.
- September 23 2008: Seedat and his team arrive at Dealstream's Melrose Arch offices. They seize documents and meet Dealstream staff. Non-executive director Saul Cohen (who works for investor Argil, and is also an employee of auditing firm Ernst and Young) arrives at the Dealstream offices, and informs Seedat that Leigh has fled the country and has no intention of returning.
- October 6 2008: The FSB releases its report into Dealstream, and confirms that in its two-year trading history the business has never produced a set of audited financials.
  It is high time that some competent people were put in place in the FSB - there have been far too many scandals on their watch and there is nothing that we as the public can do because they are apparently immune from prosecution...enough already! |
Control takes Dealstream initiative
Granted provisional liquidation Sunday evening.
Moneyweb06 October 2008 09:31
A subsidiary company of Control Instruments (JSE:CNL) has been granted a provisional liquidation order against Dealstream Securities, the failed derivatives broker.
Control Instruments is one of two JSE-listed companies that lost money in an apparent case of fraud and theft which saw millions disappear from Dealstream clients' accounts.
Control applied for the urgent liquidation of Dealstream on advice from its legal advisers.
It has invited parties interested in being part of the investigations to contact it at dsenquiry@ci.co.za.
Control Instruments used Dealstream to acquire about 23m shares with a total exposure of approximately R10,4m.
Dealstream held about R3,4m of Control's cash, which the company believes to have been stolen.
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South Africa: Failed Dealstream Raided By FSB
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Business Day (Johannesburg)
8 October 2008
Posted to the web 8 October 2008
Renée Bonorchis
Johannesburg
DEALSTREAM, the derivatives trading firm that collapsed last month with its CE Russel Leigh allegedly fleeing to the UK, has had its offices raided by the Financial Services Board (FSB).
Russel Michaels, head of communications at the FSB, said action would follow the raid at Dealstream's Melrose Arch offices in Johannesburg.
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The FSB late yesterday recommended that Rand Merchant Bank (RMB) be investigated further for its role in the collapse of Dealstream.
In its preliminary report on the company, the FSB said RMB had failed to call up Dealstream on daily margin calls for three weeks before its collapse. The FSB said more than R134m in clients' money had been lost.
Authorised users of exchanges like the JSE are exempted from obtaining authorisation from the FSB in terms of the Financial Advisory and Intermediary Services Act. But Dealstream -- which was placed under provisional liquidation at the weekend after an application by a client, Control Instruments -- was trading in contracts for difference (CFDs), which are not covered by the JSE's regulations. It was also dealing in up to R1bn of single stock futures, which are monitored by the JSE .
The JSE was aware that Dealstream was trading in the risky CFDs and had entered into correspondence on the matter with it. But one insider said Dealstream lied to the JSE and the FSB about its activities.
Dealstream also appears to have lied to its clients. On its website it said all of its CFDs were "essentially" single stock futures held at the JSE, "thereby providing the client a secure instrument regulated by the JSE".
But Allan Thomson, head of derivatives trading at the JSE, was clear when he said CFDs were strictly between two parties -- the client and the CFD provider or writer.
"The CFD provider is always the counterparty and if the client wants to sell the instrument, he has to trade with the provider who originally sold it to him and cannot look to any other parties for trade.
Rudi Schmidt, MD of SEI Investments, said if a financial instrument was not regulated, it was a case of "buyer beware". But Schmidt, like other investors, wondered why the FSB had not played more of a role earlier+++
FSB reassures Dealstream investors
October 7, 2008
Johannesburg - The Pretoria High Court on Tuesday, at the instance of the Financial Services Board (FSB), placed the business of Dealstream Securities (Pty) Ltd into curatorship.
Dealstream, a brokerage that dealt in derivatives, closed its doors in September. Bernard Levenstein was appointed as the curator with certain powers and responsibilities, among others to report back to the High Court on November 18, the FSB said in a statement.
FSB spokesperson Russel Michaels said the order of curatorship was issued notwithstanding a provisional winding up order granted against the company by the Witwatersrand High Court late on Sunday evening.
"The return date of the provisional order of winding up is the same as that of the curatorship order, namely November 18 2008.
"The two orders will therefore run concurrently with one another until the matters come before court again.
"The FSB will in collaboration with the legal representatives of investors in Dealstream decide what will be best for investors when the matter will be heard by the court on November 18.
"Investors may rest assured that everything will be done in their interests by both the liquidator and the curator. As these officers will be occupied with an immense task of unravelling the affairs of Dealstream, they should be allowed to do so without interference. Investors are requested not to contact either the liquidator or curator.
"Further public communication with investors will be issued by the FSB following reports received from the curator," the FSB said.
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On Tuesday afternoon, the FSB released its preliminary report into the collapse of the firm; it said RMB had failed to call up Dealstream on daily margin calls for three weeks before its collapse.
The FSB said a total of R134 088 690 in clients' money had been lost by Dealstream.
Dawood Seedat of the FSB inspectorate wrote: "It is also evident that RMB allowed Dealstream to continue missing its margin settlements, and allowed the situation to continue for at least the last three weeks despite Dealstream being unable to meet its margin commitments."
The FSB also said that RMB should be investigated for contravention of the National Credit Act in terms of allowing Dealstream to extend credit to account holders, rather than calling in the margins daily.
Traders in contracts for difference (CFD) and single-stock futures have their instruments 'marked to market' on a daily basis to allow for fair valuation. At the end of each trading day, traders are expected to settle any margin calls due to them.
On September 22 2008, Dealstream abruptly closed up shop with clients and staff not sure where proprietor Russell Leigh had gone. On September 29, it emerged that he had left South Africa.
Dealstream was one of the largest CFD market operators in SA.
Shortly after Dealstream closed, RMB issued a statement saying that it was not responsible for the collapse of Dealstream, but that it would exercise the margin call on the Dealstream account.
RMB then took delivery of nearly R1bn in equities listed on the JSE; these securities were the underlying equities that the Dealstream CFDs were based on.
| And RMB are trustee and custodians for so much money/instruments in the Collective Investment Schemes industry in SA. Hope these cracks open into gaping holes so we can see for real how marketing can can put blinkers over our eyes and hide the nature and behaviour of these big institutions. |
| RMB is laughting (all the way to the bank ) in house as they are also a creditor of dealstream. U coul dchallenge them for the amount they took over as any distribution must be done in cents to the rand |
| I am sure RMB is quaking in its boots. |
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Rand Merchant Bank Faces Probe for Dealstream Failure (Update2)
By Vernon Wessels
Oct. 8 (Bloomberg) -- Rand Merchant Bank, the investment banking unit of FirstRand Ltd., may be investigated by South African securities regulators for its role in the collapse of derivatives stockbroker Dealstream Securities Ltd.
Dealstream, which traded in derivatives called contracts for difference, was yesterday placed under administration by the Financial Services Board after an investigation by the regulator found it may have broken securities and credit laws, the Pretoria-based board said in an e-mail to Bloomberg today.
Rand Merchant Bank, which is responsible for clearing Dealstream's trades, allowed the broker ``to continue missing its margin settlements and allowed the situation to continue'' even though the company was unable to meet its obligations, the regulator said. RMB may release a statement tomorrow on Dealstream, it said in an e-mail.
The investment bank told inspectors it is owed 214.4 million rand ($23 million) by Dealstream after settling margin calls of 187.3 million rand, the regulator said. RMB also told the regulator's inspection team that it suffered mark-to-market losses of 234.6 million rand on Sept. 25 because of its obligation to unwind positions held by Dealstream, the regulator's report said.
Russell Leigh, the chief executive of Dealstream, fled the country and didn't respond to text messages sent to his mobile phone by inspectors from the Financial Services Board who raided the company's offices on Sept. 23 to seize documents, the regulator said. Dealstream's Johannesburg offices have been vacant since at least Sept. 19, the report said. Leigh didn't immediately return text messages sent to his mobile phone by Bloomberg.
No License to Lend
Dealstream hasn't met a margin call since Sept. 2 and on Sept. 23 defaulted on a margin call of 167.1 million rand, the regulator's report said. Brokerages provide margin loans to customers who want to borrow money to buy stocks. If the value of a company's shares decline below a certain level, the broker will issue a margin call. The customer must then pay down the margin loan or provide additional collateral.
The company may have traded in securities not listed on the Johannesburg stock exchange, which is against its mandate, and gave financial advice to clients without a license, the Financial Services Board, also known as the FSB, said. Dealstream also gave loans to clients without being a registered credit provider, it said.
Impression
``We were always under the impression that clients' positions were protected and their funds segregated,'' Saul Cohen of Argil Venture Capital Fund, which owns half of Dealstream, said by phone from Johannesburg. ``You rely on what you're told.''
Cohen said he last spoke to Leigh on Sept. 22, when Leigh told him he had left the country the previous night. He may be in Israel, Cohen said. Argil, which has 62 million rand invested across six companies, is ``standing in line with other creditors'' for repayment of a 3 million rand loan it gave to Dealstream, Cohen said.
The regulator's inspectors also found that the company pooled funds of its 2,500 clients into a single account instead of keeping separate individual trust accounts for each customer, as it had promised, the FSB report said. Clients are owed 134.1 million rand and there is only 15.6 million rand left in the account, it added.
Instructions Ignored
``Dealstream hasn't compiled financial statements since its inception'' in 2004, the FSB said. The company also ignored instructions from the Johannesburg stock exchange as far back as January 2006 to stop misleading clients by saying its products are regulated by the bourse, the regulator said.
Rand Merchant Bank on Sept. 23 said it took over Dealstream's portfolio of South African traded shares worth about 1 billion rand, which will be managed with its own investments.
So-called CFDs allow investors to profit from share-price movements by buying a portion of a stock's value, allowing them to leverage the amount traded. Inspectors for the FSB also recommended the regulator consider implementing new rules to regulate CFDs.
South Africa's High Court yesterday ordered the provisional liquidation of Dealstream after a request by Control Instruments Group Ltd. The administrator Bernard Levenstein will work with Dealstream's liquidator, Russel Michaels, a spokesman for the FSB, said by phone.
To contact the reporter on this story: Vernon Wessels in Johannesburg at vwessels@bloomberg.net
Last Updated: October 8, 2008 13:03 EDT___________________________________________
| Failed Dealstream Raided By FSB | |
| Date | Wed Oct 08 12:50:37 GMT |
| Source | Allafrica / South Africa |
| Summary | DEALSTREAM, the derivatives trading firm that collapsed last month with its CE Russel Leigh allegedly fleeing to the UK, has had its offices raided by the Financial Services Board (FSB). Russel Michaels, head of communications at the FSB, said action would follow the raid at Dealstream's Melrose Arch offices in Johannesburg. |
 VOX/CONTROL INSTRUMENTS Faith wrongly given  By Rob Rose and Larry Claasen | | ||
| "It's difficult to underestimate the ingenuity of complete fools." The words are from Douglas Adams, author of The Hitchhiker's Guide to the Galaxy. He might well have been speaking about the collapse of Dealstream, a broking firm that dealt in fancy derivative instruments like contracts for difference (CFD) and single stock futures (SSF). Dealstream's demise has left 2 700 investors up the creek, including companies like Vox and Control Instruments that should have known better than to sink shareholder funds into unregulated CFDs. With a CFD, one party agrees to pay another the difference between the opening and closing price of a stock without owning it. But, unlike investments on the JSE, CFDs aren't regulated - so when a broker fails, investors lose their shirts. It's anyone's guess how much Dealstream's investors have lost, though some estimates run to R300m. But the man best placed to answer this, founder Russell Leigh, has fled the country. Says JSE director Allan Thomson: "A CFD is like you and a mate making a bet in a pub - it's that unsafe. These things have never been regulated, and if one client defaults, it puts the broker and all other clients at risk." So why did JSE-listed firms like Vox and Control Instruments plough shareholder cash into Leigh's Wild West show?
Vox said last week that, thanks to Dealstream, it will take a hit of "less than 5c/share". That works out to R58m, more than Vox's R43m profit at its half-year stage. Control Instruments' maximum exposure is R10,4m - four times its R2,6m half-year operating profit. Anger and disappointment fall short of describing the emotions of Vox executive chairman Tony van Marken. His company's stock has lost 50% of its value (now at R1,05) and R30m of its cash has vanished from a trust account. Several Vox managers, who were also Dealstream clients personally, are out of pocket. "I'm not happy with what happened here," says Van Marken. He is particularly angry, he says, that Leigh lied about the state of his company to Vox CEO Douglas Reed, hours before Dealstream imploded. And he is furious at how quickly Leigh scarpered after news broke that Dealstream was flailing, and disappointed that (he claims) neither the JSE nor the Financial Services Board (FSB) exercised any oversight of Dealstream. "If they suspected irregularities, what did they do about it?" he asks. Van Marken says Vox plans to lay criminal charges against Leigh, and will try to liquidate Dealstream. But is Vox not simply looking for a scapegoat, after putting shareholders' money into a risky, unregulated instrument? Shouldn't heads roll at Vox? Van Marken admits Vox was at fault for dealing with Dealstream in the first place, which it used as a broker to buy treasury shares in the market. H e points to Leigh's reputation, his appearance as a pundit on business shows, and the fact that he did business with Investec and Rand Merchant Bank (RMB). But t his last excuse is like saying someone has credibility merely because he has an account with one of the big retail banks. It seems Dealstream had a patchy record from the start. In 2003, Leigh and his wife Jeanne were drawn into a messy legal scrap with Global Trader, a larger CFD trading company where Jeanne had worked before. Believing its client records had gone missing, Global Trader got an Anton Pillar "search and seizure" court order against Leigh. Dealstream's only other director is Saul Cohen, who represents venture capital fund Argil. Argil invested R3m in Dealstream in exchange for 50% of the company, with Leigh owning the other 50%. Cohen told the FM he too feels betrayed. "For Leigh to absolutely drop us, I can't even tell you the sense of anger and betrayal we feel." As the only other director, Cohen is likely to feel a lot of heat. "My role was non executive, and I was lied to. Russell told me client accounts were segregated and [hedged] against single stock futures," he says. So what actually happened? Though the FSB is investigating (and a curator will be appointed soon), it's difficult to say whether Leigh got trapped on the wrong side of some wrong calls, or if there was genuine fraud. Some investors are convinced fraud was involved. Says Control Instruments MD Richard Friedman: "It was a highly sophisticated, fraudulent scam, I've got no doubt about it. It's clear that to cover Dealstream's losses, these guys were stealing money from trust accounts of individual clients." Worse, Friedman says, the online trading system showed "we had money in our trust account, when actually it had been pulled out weeks before". Cohen is less convinced there is fraud. "That would surprise me. It's more likely that under extreme pressure, a series of very bad decisions were made quickly. But I don't know if the client accounts were segregated, as they should have been." He says Leigh may have panicked, and "taken from Peter to pay Paul". As with every collapse (think Deel-Smith in 2003 or Fidentia), investors are rounding on everyone short of Leigh's grocer. But who is really to blame? Charles Savage, CEO of Global Trader SA, says the focus shouldn't shift from Dealstream. "It's unfortunate that we're having to defend the industry, when it looks like Dealstream was a failure of management, not of CFDs. The accountability for this sits with Dealstream and its risk controls." But the FSB, as the ultimate investment guardian, has also taken a lot of flak. As a trader of CFDs, Dealstream should have been registered as a financial services provider - but it wasn't. One investor says: "The FSB got complaints that Dealstream was pretending to be licensed, but they did nothing. They could have closed it down long before." Only after Dealstream collapsed did the FSB warn people to "proceed with caution". FSB deputy CEO Gerry Anderson says the organisation became aware of the problems only after the failure. Anderson says the FSB had contacted Dealstream, which said it didn't need to be registered as it only provided services that fall under the regulation of the JSE. Says Anderson: "Now that the facts have emerged as to what Dealstream's activities were, it is the FSB's view that Dealstream did require authorisation by the FSB." He says Dealstream's assurances "were incorrect". Others blame the banks: RMB, which cleared Dealstream's futures trades; and Investec, which held the client trust accounts. But, says RMB CEO Alan Pullinger: "Unfortunately we don't have the ability to look through' into the brokers' books to see the position of individual clients. The clearing member has no insight into the arrangements with clients." Investec investor relations head Ursula Nobrega says: "Dealstream deposited client money with us and we didn't see what the individual clients were trading. It's normal for money to run down in trading accounts anyway, and nothing happened to arouse our suspicions." Some client funds remain frozen in Investec trust accounts, which will obviously mitigate any losses. But as one investor says: "There must be a lot of people feeling quite stupid right now." |
POLICE- see russell leigh here
http://multimedia.johncom.co.za/view_video.php?viewkey=4094fe9e0bc1de3f94ed
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Gone AWOL
Dealstream was placed under curatorship last week, after it became apparent the company's founder, Russell Leigh, had fled the country. The company is also accused of misappropriating funds that had been deposited into a trust account, which were meant to cover the risk of CDF trading.Vox Telecom executive chairman Tony van Marken says the company supports Control Instruments' decision to pursue liquidation. However, he adds the outcome was inevitable. “The curatorship would have led to the same outcome, namely liquidation”He says Vox hopes the process will lead to some clarity on what happened at Dealstream and hopefully it will recover any funds it had lost. While Vox shares have been dramatically affected by the incident, CEO Doug Reed has issued a statement to reassure shareholders.He says the company has emerged stronger from the collapse of Dealstream Securities. "The open derivatives position that has been hanging over us like a sword of Damocles for the past six months is effectively gone."Reed adds that 90% of the derivatives have been taken out of the market and will be converted to shares. “With those cut out of the equation, we're actually better off because the exposure has been reduced drastically."The company says no changes have been made to operations and it continues to thrive in its local market position.Online tradersRand Merchant Bank (RMB) is the clearing member for Dealstream's South African Futures Exchange activities.The bank has followed JSE rules and taken over Dealstream's portfolio at a market value of around R1 billion, as well as the remaining initial margin. It has essentially become an RMB portfolio.The bank has also closed down Dealstream's online trading platform and made it clear that Dealstream's clients will not be able to retrieve lost funds from RMB.
| Regulation alone no answer | ||||||||
| David Shapiro: Making Cents of High Finance | Published:Sep 30, 2008 | |||||||
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MY AMEX card expired recently. A month before that , though, Amex promised that a courier service would contact me to arrange delivery of the new card. The expiry date came and went with no word. After a number of frustrating calls to the Amex call centre, I discovered that the courier company had called me but had refused to leave a message on my phone — in case, by some far-fetched chance, villains intercepted the call and diverted the delivery of my card to a fraudulent address. After using some of the choice language that I have acquired over many years of trading on the JSE floor, I gently persuaded the call centre to arrange a meeting, at which I was ordered to have my ID and proof of residence available for inspection. Though the courier service duly arrived, the messenger stubbornly withheld my card, saying the telephone account that I gave as proof of residence was registered in the name of D Shapiro, not D H Shapiro, my full name. I was absolutely floored. It was only the threat of bodily harm that allowed me to pry my card from the obstinate courier. Bureaucratic box-tickers have commandeered the Financial Intelligence Centre Act 2001 (Fica), favouring form over common sense. Amex has been sending monthly statements to my present home address for more than 25 years. The size and frequency of the transactions could hardly have suggested that I was part of the dubious activity the act was designed to thwart. Nowadays, attracting new clients to a bank or financial services company is a nightmare, especially for wealthy individuals who conduct their business affairs through an elaborate warren of companies and trusts. Assembling all the documents necessary to activate a new account and comply with the minutiae of Fica is a mind-twisting exercise that can take weeks. The strict application of the act has forced financial companies into the heavy cost of building armies of compliance officers to ensure unqualified observance. But fraud and racketeering of enormous proportions continues to unfold under their noses. Last week, Dealstream, an operation that offered contracts for difference collapsed, purportedly with liabilities well in excess of R100-million. Russell Leigh, the chief executive and force behind the company, has reportedly fled the country. A contract for difference is an over-the-counter contract in terms of which the seller agrees to pay the buyer the difference between the value of an agreed security at an agreed date and the value on the purchase date. If the value is lower, naturally the buyer will pay the seller. The attraction is that the buyer has to lay out only a relatively small amount of margin money to cover the interest charges on the full cost of the underlying transaction. The downside, as Dealstream’s customers have found to their sorrow, is that the market in which they transacted was unregulated and so had no protection from supervisory bodies such as the JSE or the Financial Services Board. Their only claim is against Dealstream, which is hopelessly bankrupt. Talk is that Leigh plundered trust monies to finance his own sour trading positions. In the clients’ defence, Dealstream conducted its operation in full view of the authorities, hedging its exposure in regulated markets through dealings with reputable financial institutions that did little to limit the profitable trade placed their way. Individual losses are said to be huge and include JSE-listed companies that should have exercised more vigilance with shareholders’ funds. Compliance and fraud prevention sometimes require common sense. Customers, too, should be accountable for their own gullibility, particularly if they are risking large chunks of their personal wealth. Rather than succumb to the temptation of instant riches, they should carefully consider the trustworthiness of their counterparties. | ||||||||
Why endorse Dealstream?
Alec Hogg responds to a reader who asks why Moneyweb used the disgraced Russell Leigh as a market commentator.
28 September 2008 13:33Dear Alec
I remember you had Mr Russell Leigh of Dealstream as a market commentator on Moneyweb.
Now this man is being pursued by the police.
Did Moneyweb not also carry ads for Dealstream?
On Moneyweb (radio SAFM) a day or two ago, your commentators say WITH HINDSIGHT how could anyone have even considered dealing with this SA company Dealstream because it was not connected to (governed by) the Financial Services Board.
Therefore why did Moneyweb deal with this company? Simply having Mr Leigh on your programme lended credibility to Dealstream in the minds of listeners.
At least ensure that all your SA market commentators are from companies governed by the Financial Services Board.
Otherwise have them in their individual capacity with their personal opinion (make this clear) and do not mention their company or business interests at all (like your local gold expert). Ie, do not allow the promotion of any investment company in SA which is not connected to the Financial Services Board on Moneyweb by having someone as an expert commentator on your programme.
I am completely unaffected by companies like Dealstream, because in 1995 I decided to invest in shares directly. There was still the trading floor then and sometimes it took one or two weeks to get my tiny order dealt with. Now I can see my tiny order on the screen at home on the computer along with all the big orders or if I buy at the market price I have my shares in a split second. All the information I would ever want about a company is at my fingertips. In 1995 I would never have imagined it could be like this. I am not a trader, I buy for long term and the dividends. I sell just for cleaning up /or shares I paid too much for like the Investec I bought at R70 when it was a "screaming buy", well I got more down to R45, so the "R70" ones may have to go one day hopefully for just a tiny profit and some dividends paid.
Thanks for the programme.
Christopher Iveson
Dear Christopher,
Thanks for the mail which I picked up this morning on my return from a short break.
The Dealstream debacle happened while I was away so still need to familiarise myself about what actually went on. But you correctly point out that we did have Russell Leigh as a commentator from time to time, and that Dealstream was also an advertiser on Moneyweb.
My due diligence process was to check out Mr Leigh's partners and his background in the financial services field. On the first point, the shareholders in Dealstream were himself, Ernst & Young and the Industrial Development Corporation. One might easily presume, as I did, that these high profile organisations wouldn't associate themselves much less invest in a business without absolutely checking the credentials of its principal.
On the second point, Mr Leigh was a returning South African who had worked at and traded for some big international investment banks.
Given developments of the past couple of weeks this is no longer an automatic tick, but things were very different a couple of years back when Dealstream launched.
In my dealings with Mr Leigh he struck me as highly intelligent and innovative - a smart young man who had learnt his trade abroad and was bringing it back to South Africa to serve the local sector. There is no doubt that his software offering was also world class. His appreciation of the complex world of using single-stock futures to structure ways in which directors of companies could unlock the value in their shareholdings was also impressive.
What went wrong between his credible start and the disaster which unfolded in the past coupe of weeks is a reminder of the fallibility of human beings - and that when it comes to managing money, you can never be too careful.
Like you, we at Moneyweb look forward to discovering exactly what happened at Dealstream that caused the change in Mr Leigh, a man with a young family who has suddenly become unemployable. Be assured we'll be doing our best to provide all the information as it emerges.
Regards,
Alec
COMMENTS
View disclaimer| 30 responses to this article |
| Fin24.com At one stage you couldn't browse on Fin24 without running into a Dealstream pop-up. Maybe Koos can refund your cash deposits. by klip on September 28 2008, 15:09 Find this comment inappropriate? Report it |
| Dealstream, Fidentia,,etc The problem is that small things are overlooked/forgiven without prosecution and before anyone opens their eyes the monster has grown beyond a mere oversight. The gap has been found and taken....... New Yorks broken windows my boet. by Piet Pompies on September 28 2008, 17:39 Find this comment inappropriate? Report it |
| New York windows reference. Fyi SSRN-Broken Windows: New Evidence from New York City and a Five ...14 Jun 2005 ... Keywords: broken windows theory, broken windows policing, New York City, policing, zero-tolerance, MTO, Moving To Oppportunity, disorder and ... papers.ssrn.com/sol3/papers.cfm?abstract_id=743284 - Similar pages by BE HARCOURT - 2006 - Cited by 24 - Related articles - All 4 versions . .less by Piet Pompies on September 28 2008, 17:43 Find this comment inappropriate? Report it |
| Alec bought the hype! Alec I hope you also learned a lesson: just because someone is making the most noise in town, are seen at all the right places, or because he is so slippery that he can slide uphill, does not make him credible. For what it's worth I think your assessment of the current situation is also wrong. You ask what happen to cause the change in Leigh. Perhaps he was always a crook. Perhaps you just didn't want to know that. So leave his "young family" out of this! Just like a lot of "smart" investors who invested pension money in CDS's, not because it was the right thing to do but because everyone was doing it, I think you bought Leigh's story because it sounded so nice. And then you sold it so your audience .... Any way, I don't think you're a bad guy. But you are inexperienced and your desire to market the next best thing contributed to your undoing. I suggest you consider the possibility introducing quality to your shows. And with that I don't mean running into the jaws of Investec or Old Mutual!! . .less by Chris on September 28 2008, 19:12 Find this comment inappropriate? Report it |
| not only should he be unemployable, he should be incarcerated....... a thief is a thief is a thief. at least the guy with the balaclava and gun makes his intentions clear and you can act accordingly. by GungetsTuft on September 28 2008, 19:23 Find this comment inappropriate? Report it |
| Developments of the Dealstream investigation Does anyone know where we can get more information of what is happening with getting the funds back to Dealstream clients? Or is RMB going to steal the monies that were on margin as well? There is a deafening silence on this front from the regulators and large institutions involved, are they all culpable? H . .less by Hannes Joubert on September 29 2008, 06:35 Find this comment inappropriate? Report it |
| Alec, you need to stand up and take accountability! You punted DealStream and now you need to admit your mistake. Thanks in advance by Milkshakes Mshabalala on September 29 2008, 08:42 Find this comment inappropriate? Report it |
| It saddens me that people lose money through their own greed and stupidity and then look to blame ot... Alec has brought some wonderful success stories to us, if it wasn’t for Alec few would know of Allan Grey, Piet Viljoen, John Biccard and many more who have brought brilliant and valuable insight to those who want to invest and not speculate. Take responsibility for your own actions if you cant then pay some one to invest for you. . .less by agnieman on September 29 2008, 09:09 Find this comment inappropriate? Report it |
| Dont apologise for anything Alec You cant take responsinility for every commentator in town. They ar just that - COMMENTATORS. If these retards want to follow their advice, that is their problem. by Donkie on September 29 2008, 09:23 Find this comment inappropriate? Report it |
| Unemployable... I guess he doesn't necessarily need employment since he appears to have helped himself to the funds of his investors. I was a Dealstream investor that divested some months ago when it became obvious that things were not all ok in the State of Dealstream. Dunno why or how anyone could have missed the obvious signs personally. . .less by Jarred on September 29 2008, 10:12 Find this comment inappropriate? Report it |
| Would Russell have been a commentator if he had not bought advertising? Huh? by Watcher on September 29 2008, 10:21 Find this comment inappropriate? Report it |
| dealstream i totally agree with some listerners , how can Alec be responsible for this ....how could he predict something like this would happen . It is up to the indiviual to do their own homework on who they invest with . Easy to blame someone else isnt it ??? . .less by robyn on September 29 2008, 10:33 Find this comment inappropriate? Report it |
| does it matter? One has a brain in order to decide for oneself or are you a robot if you cant think for yourself then investing is not for you and rather leave it to someone else today and get on with standard five!! by beepbeep on September 29 2008, 10:34 Find this comment inappropriate? Report it |
| advertising, what about fin24.com gambling advertising? Somebody has to opay the bills, you cannot vet every advertiser. I am sure most users of this site, also use 24.com. They run gambling advertising, I do not see to many people complaining about that. by subby on September 29 2008, 10:36 Find this comment inappropriate? Report it |
| @ Greed And Stupidity Ummm Im not sure what you mean by "It saddens me that people lose money through their own greed and stupidity"... IF you are in the market which I suspect you are, then you are also by your own definition "Greedy and Stupid" You need to differentiate between bad trading and stealing... What you are saying is that people lost their money because they were trading in Ssfs and Cfds when this is most certainly Not the case, conversely what you are suggesting is that people who buy underlying shares Never lose their money, which is quite laughable. What happened to Dealstream Clients is that their Trust accounts with Investec were emptied by Russel Leigh and existing Margins on Shares in Companies You probably also have shares in, dissapeared. This doesnt make Dealstream clients stupid and greedy, it makes Russel Leigh a thief. I hope when you lose money, and believe me you will, you are not surrounded by people like yourself... . .less by J on September 29 2008, 10:57 Find this comment inappropriate? Report it |
| Not Alecs Issue Many people start with the best of intentions and then things fall apart.This can happen to all of us,how you react is often unknown.Only when under pressure do you know how you will react.A good man/woman can become a gambler with other peoples money when things turn against them and finally when they lose it all they are thieves. How is Alec supposed to know things about people that they themselves don`t know. Of course you have thieves who premeditate their actions but even here it is difficult to pick up. The financial world is a jungle,trust seldom if at all and do your due diligence. . .less by aj on September 29 2008, 10:57 Find this comment inappropriate? Report it |
| @It saddens me... Ummm Im not sure what you mean by "It saddens me that people lose money through their own greed and stupidity"... IF you are in the market which I suspect you are, then you are also by your own definition "Greedy and Stupid" You need to differentiate between bad trading and stealing... What you are saying is that people lost their money because they were trading in Ssfs and Cfds when this is most certainly Not the case, conversely what you are suggesting is that people who buy underlying shares Never lose their money, which is quite laughable. What happened to Dealstream Clients is that their Trust accounts with Investec were emptied by Russel Leigh and existing Margins on Shares in Companies You probably also have shares in, dissapeared. This doesnt make Dealstream clients stupid and greedy, it makes Russel Leigh a thief. What you are also suggesting is that all companies who deal with these instruments are going to clear out your bank account and run away... which is also ridiculous. I hope when you lose money, and believe me you will, you are not surrounded by people like yourself... . .less by J on September 29 2008, 11:06 Find this comment inappropriate? Report it |
| gambling advertising But... If they had a commentator on how to play BlackJack???? by J on September 29 2008, 11:07 Find this comment inappropriate? Report it |
| get a life how was moneyweb supposed to know if he is credable or not... you dont stink if you have bad intentions... on that point you dont even know if russell is even guilty of any crime. Lets assume he is innocent, and see what the outcome is.. in the mean time... get a life! . .less by rob on September 29 2008, 11:19 Find this comment inappropriate? Report it |
| Commentry Vs Sanction Its not Alecs issue but it certainly is Moneywebs issue, moneyweb is an organisation, not just one man. Correct me if I'm wrong but moneywebs target ordience is the man in the street investor who wants to do it for himself. It is not a platform for advertising large funds and their fund managers. The advice given by moneyweb and its commentators is taken to heart... Moneyweb has on many an occasion told us "Stay away from company X" and guess what, we have. Once again you Have to diffirentiate between advice given by Commentators on the Show and Organisations they sanction... If David Shapiro says Investec is a steal at R70 (which he did) does by no means mean the company he works for is going to clear out your bank account., or that the 2010 fund is going to go bust. . .less by J on September 29 2008, 11:38 Find this comment inappropriate? Report it |
| from the gul on 88 You asked about the differences between Dealstream and a normal Safex broker, like DWT Securities. I always ask people to just be aware of the extra risk when dealing with a CFD company like Dealstream or GT247. With a CFD company, your money is deposited directly into that company`s bank account, and the derivative transaction`s obligations are between you and that company. Your money is pooled with all other client`s money. So there is always the risk of the CFD company not being able to pay you out any profits, or even paying back your margin amounts. This is not just a theoretical risk, but very real when we know that GT247`s British concern, and now Dealstream, going bankrupt, with clients losing their money. In the case of a Safex broker, this is not possible to happen. Because: The counterparty to all transactions is the JSE - Safex. and not DWT. Your margin deposits are held by our Clearing bank, Absa, in your own name - never are the money part of DWT`s accounts. I the unlikely event that something happens that places DWT as broker in default with Safex, your Safex account will just be transferred by Safex to another broker, and you will carry on as normal . .less by surething on September 29 2008, 11:44 Find this comment inappropriate? Report it |
| Who is all too blame Reps Haras you till you buy their Trade analising software, They open the acount for you at Dealstream. You trust them as they asure you that your money's safe as it is in an investec acount. So who is really to blame for many of the clients losing their money. Its companies like Capital Equities. If they do not follow it up and fight for their clients we will and must take them on as individuals. You can not invest about seven hundred peoples money without checking if the company your investing it with is creditable. Most of the customers do not have a clue about trading when they open these acounts. Yes you are told that you could lose money if your trades go against you but not that you could lose it due to a fly by nite company. . .less by "P'd" of Trader - Durban on September 29 2008, 14:15 Find this comment inappropriate? Report it |
| Alec - can you help us out in understanding all of this? I still like the idea of investing in CFD's, since they give divident exposure that an SSF doesn't. It seems though that they are inherently more risky for the companies offering them. Why is this? Is it because someone has to take a contrary position or hedge themselves when I go long on a share? If there is a risk for the companies, should we be concerned about some of hte bigger name players like Nedbank, STB or PSG? Regards . .less by Jack on September 29 2008, 14:52 Find this comment inappropriate? Report it |
| Barings Bank vs Dealstream This appear to be another Barings Bank and Nick Leeson escapade. Only difference is that Russel had far more power over controls in Dealstream than Nick ever had. Whilst Nick went to jail, his initial actions wasnt so much theft but more of a cover up in the hope that the markets will turn and he can restore the whole position. We all know what happened to Barings subsequently. Russel most likely did exactly that! With the past few weeks volatility he most likely used the customers cash resources to fund the companies counterparty obligations in the interim with the intention of making it right when it turns (By no means defendable!). As with Nick, Russel most likely did not set out to defraud his customers but ended up still committing fraud. For his actions Nick went to jail, wrote a book and became a celebrity. Has anyone checked with the Saxon to see if Russel's there busy writing his book? Hope Russel gets prosecuted, and no, I wont be buying his book..... . .less by JohnnyCash on September 29 2008, 14:54 Find this comment inappropriate? Report it |
| Lodge your details of Loss on WWW.TROUBLEATDEALSTREAM.CO.ZA HI ALL, PLEASE VISIT THE FOLLOWING WEBSITE WE HAVE REGISTERED WE FOR PERSONS WHO HAVE SUFFERED A LOSS: WWW.TROUBLEATDEALSTREAM.CO.ZA ONCE WE HAVE SEEKED LEGAL ADVICE IF THERE IS A WAY FORWARD LEGALLY, WE WILL REPRESENT THOSE . .more WHO HAVE PROVIDED THE WEBSITE WITH THERE DETAILS. THNX . .less . .less by Louis Fitz-gibbon on September 29 2008, 14:55 Find this comment inappropriate? Report it |
| Louis Fitz-gibbon Louis you are vermin scum. stop praying on people who have already lost their savings. There will be 1c in the R in a liquidation and here you are trying to get these poor people to cough up for your benefit. back off. Have you even considered that there may be so little left that the parties to the liquidation have to pay in? Duh... . .less by liquidation lawyer on September 29 2008, 16:15 Find this comment inappropriate? Report it |
| CFD's how does it really work? I think that if we knew how CFD's really worked we wouls have maby thought twice about how much money we would like to trade. I enjoy trading CFD's and know that you kan make money or lose money if your not disiplined enough. The problem is that we were not told that it worked like a big Casino. Everything looked real , but there were no real trades done. The trades were just between us and Dealstream. They just promises to pay the difference if your shares went up. They never really bought the shares. They could buy whatever shares they want as long as they made money to pay us. The problem is we were never told this. Do you think they really wanted us to make money , no they would have had to pay us not from out shares but from their trades. If I knew that I would have traded smaller and moved my profits out into my personal acount so if anything happened I proberbly wouldnt have lost any of my own money. I feel that investec should have had us sighn a form informing us that our money has been put int 'another' companys gambelling account. They can not tell me that they did'nt know how Dealstream worked. . .less by P'd off Trader - Durban on September 29 2008, 16:32 Find this comment inappropriate? Report it |
| @ Piet Pompies My boet, you should READ your own reference re "Broken Windows": "[The] experiment provides NO SUPPORT for a simple first-order disorder-crime relationship as hypothesized by Wilson and Kelling, NOR that broken windows policing is the optimal use of scarce law enforcement resources. " Dumb, dumber, pompies... . .less by Zee on September 29 2008, 16:57 Find this comment inappropriate? Report it |
| Response to liquidation lawyer Hi, 1stly i myself have lost lots of money in this ordeal. 2ndly no funds are being requested from any party in order to assess the way forward. 3rdly there may be no way forward but if there is, we wont be swayed by persons with your type of thinking. We want persons who will collectively want to see and ensure that the relevent parties answer for what has happend and the truth be revealed. Whoever that relevent party is i do understand that you may not fall into this category of person. . .less by Louis Fitz-Gibbon on September 29 2008, 19:06 Find this comment inappropriate? Report it |
_______________________________________
Sigh - FSB / Dealstream...
12:58PM, Wednesday, 24 Sep, 2008
Get a cup of coffee or a Spice Gold and Coke because this is going to be a LONG rant...
When I originally wrote the piece about the FSB's role in the Dealstream saga, I wrote it from the perspective of an insulted financial journalist.
I felt it was very inappropriate for a head of department at the FSB not to have all the details of the Dealstream collapse to hand - especially if it was his department that was supposed to be investigating the company's licence and it subsequent collapse.
What it says to me is that there are executives within the Financial Services Board that don't read the financial press and don't actually know what is happening in the financial sector...
If that is the case, then they can't complain when the industry they are supposed to regulate turns around and keeps calling it 'toothless'.
Since Monday, traders and financial services professionals have begun pointing fingers at various parties including the JSE (read CFDs not to blame), the CFDs market-makers, Rand Merchant Bank (as the counterparty to Dealstream's trades), Investec as the bank holding the funds of Dealstream clients and the FSB for its lack of regulatory oversight.
A large part of the FSB's mandate is to assist participants in various financial markets - including investments - to make informed decisions about identifying reliable and trustworthy custodians of their money.
Earlier this year, the FSB acted very quickly following an investigation from Fin24.com to shut down a "one-man band" trader who was offering unbelievable returns using a combination of sports betting and futures trading instruments and asking for investments of a few thousand rands from 'clients'.
Yet in Dealstream's instance, the company was a highly publicised operation sponsoring a number of high-profile financial portals and regularly being asked to provide market commentary on radio shows. They advertised freely and had nice offices in larny Melrose Arch, so they certainly weren't ducking and diving. The company was also holding far larger sums of money, including R30m of Vox Telecom shareholder and staff funds.
According to Fin24.com's discussions with various players - including the JSE's director of trading Allan Thomson, Global Trader CEO Charles Savage and the local stockbroking community - there are two core areas where the FSB was responsible for reviewing an operation such as Dealstream.
Firstly, to operate a trading and investing platform, you need to be a registered financial services provider (FSP) with the FSB. There is no question that Dealstream has an FSP number (29 541 according the FSB website).
The record has, however, been marked as "cancelled".
The FSB knew about Dealstream - unquestionably.
Thomson of the JSE also confirmed that the bourse had been in regular correspondence with Dealstream for nearly two years regarding Dealstream’s misrepresentation that the 'unregulated' CFD products were backed by the JSE's 'regulated' single-stock futures instruments.
As the body supposedly regulating the operation of both Dealstream and the JSE, the FSB could have intervened in such a dispute. At this point, questions could have been asked about Dealstream's operation.
Personally, I don't buy this line. If Fin24.com was to run a big banner across the top of the site saying "endorsed by the JSE" based on the fact that Russell Loubser happened to have invited us for some sarmies at one of his presentations, David and Hayley would be fielding lawyers letters demanding we change it.
Surely the JSE and/or FSB would have been alerted to the fact that Dealstream was not registered over that period of time?
Then again, maybe not... If the regulator's members don't read the financial press, perhaps their knowledge IS limited to the place they bank at and the insurance company they use.
The inability to identify that Dealstream was not in fact a regulated FSP led to a second issue which was potentially more damaging - the segregation of client funds from proprietary trading accounts and operational cash flow.
Both Thomson and Savage confirmed that it was industry practice to segregate client funds from other activities to prevent them losing should the trading company go under.
With Vox CEO Doug Reed telling his staff they can assume that any funds they held at Dealstream are "gone", Investec telling Dealstream customers that they cannot withdraw funds from the account it held on behalf of Dealstream and counterparty Rand Merchant Bank placing the entire Dealstream book in default on Tuesday, this would not appear to be the case.
Now that I'm on a roll, I'd like to conclude with three other questions:
1. Is anybody going to take Vox management to task on the fact that at least R30m of shareholder and staff money was sitting with an unlicensed financial services firm? Vox is a telecommunications company - NOT a derivatives trading business - and shareholders should ask why they should carry the can for this decision and why they should see 35% of their equity price get wiped out.
2. I THINK I understand Investec's role in this and we need to be very clear that the commercial relationship is between Dealstream and Investec, not Investec and Dealstream clients. HOWEVER, the client money in these accounts didn't just dry up in a day - it was purposefully removed; surely a flag was raised if this account was serving as a "trust" account.
3. Ernst and Young (a highly reputable auditing firm) - through Argil - was a primary investor in this business. If you are telling me that an auditor approved the structures discussed above then I'm worried. As the venture capitalist, E&Y may argue that it was its money to lose. Unfortunately, as Vox and many other clients will tell you, it wasn't. UPDATED - 2008/09/27: My criticism of the FSB drew a few grumbles which will probably be covered somewhere else. However, to the FSB's credit they have acted to address the 'flaw' that I mentioned. They have now changed the FSB system for cancelled licenses to now read = "This FSP number has been cancelled and therefore the entity is not allowed to render financial services in terms of the Financial Advisory and Intermediary Services Act".... Chalk one up for the good guys??UPDATED re point 3:I believe that Ernst & Young have distanced themselves from Dealstream and Argil saying they sold out of their minority interest in this business. I don't' totally buy this response either because Saul Cohen who was being quoted in the press regarding Argil's investment in Ernst and Young. Saul Cohen and Paul Dixon both continue to have e-mail addresses linked to Ernst and Young. I notice that the Argil site has been taken down in the interim.
Traders to sue Dealstream
Sep 26 2008 5:27PM
Marc Ashton
Johannesburg - Traders who have been hit in the pocket by the demise of derivatives trading company Dealstream are banding together to take legal action against those involved in the company's collapse.
This was confirmed to Fin24.com by Louis Fitz-Gibbon, a former client of the failed derivatives trader.
He and other traders have opened a website, troubleatdealstream.co.za, inviting former clients to record their details and to help them "get the answers we as investors deserve".
Fitz-Gibbon said he had received correspondence from other former clients adding that some of the e-mails received in which the monies lost had been outlined "are really cause for concern".
Following "technical difficulties" experienced by clients last week, the Melrose Arch-based derivatives trader closed its doors.
In the process, clients found their accounts had been pilfered, and listed companies such as Vox Telecom and Control Instruments confirmed that they had suffered financial losses in both professional and private trading capacities.
Rand Merchant Bank (RMB) - the counterparty to the transactions - found itself in possession of R1bn worth of listed equities.
It is believed that the decline in Vox Telecom's share price is a result of RMB unloading Vox shares onto the open market to clear its position.
Vox Telecom's share price has more than halved since last Friday; since hitting a high of R2.25 it has declined to R1.05.
- Fin24.com
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Comments
warren on 2008/09/27 04:23:44 PM - dealstream stole my dream Great, lets get all the thiefs at Dealstream and Investec see www.dealstreamfraud.blogspot.com too for all your info. Its very informative too
(Report this comment)
Giacomo on 2008/09/27 12:21:31 PM - Investec in cahoots with Dealstream I HAve trust money banked at INVESTEC and this was a account opened with them also through dealstream in my own name with a segrigated account nunber given to me by investec THEY HAVE NO MANDATE ON THIS ACCOUNT to transfer any kind of money out of it.as this was purely a savings account and only deposited money here to get the interest earned. I CHALLANGE investec to get passed this one , SHOW ME A MADATE that gives dealstream or Investec permision to move money on my behalve from this account. I signed no mandate for this account INVESTEC GIVE BACK MY initial deposit of 1 million plus interest and savings
(Report this comment)
Kevin Yeh on 2008/09/27 08:56:10 AM - Dealstream Action Group Affected clients are also welcome to email to me, kyeh@worldonline.co.za, for further information. Currently we have 10 people in our group.
SAFEX website...
Notices and Circulars
23 September 2008 - F1847 - Default of Member - Dealstream Securities (Pty) Ltd
ie they were a member
________________________________
Wheelin and Dealstreamin
Market volatility claimed its first South African victim when Dealstream, a brokerage that dealt in derivatives, closed its doors.
The collapse of Dealstream will not pose a risk to the South African banking system, but investors with accounts at the brokerage may lose their cash.
The problems started late last Friday when Dealstream's clearing member for single stock futures, Rand Merchant Bank (RMB), realised Dealstream had outstanding margin calls.
Not enough in account
This means Dealstream did not have enough money in its account with RMB to honour the trades it was putting through the market. Because RMB is a JSE member and trades in single stock futures are guaranteed, RMB's exposure is not material."We're covered in terms of the initial margins. We'll use that to close positions," Braam van Heerden, head of equity trading at RMB said yesterday. "We will limit the blow as much as possible for Dealstream's clients."
RMB had ensured no new trading contracts could be opened with Dealstream and the JSE and the Financial Services Board (FSB) moved yesterday to investigate the matter and protect investors.
Allan Thomson, a director at the JSE said part of the problem was that Dealstream had been trading contracts for difference (CFDs). A CFD is an over the counter trading instrument that allows people to trade on a stock without delivery of that stock.
"Bet between two guys at the pub"
Trading CFDs is "like a bet between two guys at the pub", according to Thomson, and those bets are neither regulated nor guaranteed."Dealstream must make good its losses to RMB and transfer what it can if there's any surplus cash from winding down RMB's exposure. I don't know if there will be sufficient money for Dealstream to give any back to clients," Thomson said. "But we keep telling the market to please be aware that when you take on a CFD you are taking on that company's credit risk."
The JSE had tried to communicate with Dealstream about onselling CFDs. On Dealstream's website the company says all of its CFDs were essentially single stock futures held at the JSE, "providing the client a secure instrument regulated by the JSE", but this statement appears to have been untrue.
Thomson was clear yesterday that neither the JSE nor RMB would bear any of the liability.
Thomson said if Dealstream's clients had just registered their respective positions as single stock futures contracts with the JSE, the contracts would have been transferred to a another member and their positions and funds would have been secured.
"Not many people are aware that Lehman Brothers held very large single stock futures positions on the South African Futures Exchange. Because these contracts were registered on the JSE, the clients were simply transferred to another member and did not lose their positions or their investment when Lehman Brothers went under," Thomson said.
Elmarie Kruger, manager of capital markets at the FSB, said yesterday the FSB's investigation into Dealstream would not take long. She said that the brokerage's failure was not directly related to the subprime debacle.
Business Day
South Africa: Trouble at Dealstream
23 September, 2008, Extracts from MoneyWeb and Miningmx
Dealstream is one of South Africa’s largest Contracts For Differences ("CFD") traders and, in this capacity, it has concluded many over-the-counter ("OTC") CFD’s with its clients.
Clients of Dealstream are concerned after the company's trading system went down last week. Calls placed to the derivatives broker and its CEO Russell Leigh went unanswered Monday morning. A visit to Dealstream's offices in Melrose Arch confirmed there was no one there.
The company is run by Russell Leigh, a regular market commentator for many of the financial publications. The company includes Argil Venture Capital (Argil) as an investor. Argil is a fund manager owned by auditing firm Ernst & Young Southern Africa and Worldwide African Investment Holdings. Argil's first fund is an innovation and technology fund, which was launched with R100m in investment capital.
"As the contracts signed were over-the-counter contracts between Dealstream and its clients that are neither concluded on the JSE nor regulated by the JSE in terms of its rules, neither Rand Merchant Bank nor the JSE will be liable for Dealstream's failure to meet its commitments to its clients," Allan Thomson, the JSE's head of derivatives trading, said in a statement.
"What is disconcerting is the lack of information from the company," said one investor who contacted Miningmx.
According to one investor, warning flags were raised last week: "Last Wednesday afternoon the system was online but trades were not going through. Dealstream said it would enter them for us but one could not see if trades went through or not. Thursday was the same. By Friday afternoon, the system went offline 'due to technical difficulties' and this morning the site remained offline."
Rand Merchant Bank (RMB), a division of FirstRand Bank Ltd, is the clearing member for the SAFEX activities of Dealstream Securities (Pty) Ltd. In terms of this relationship, Dealstream is required to post margins with RMB in respect of their open trades.
In terms of the JSE Derivative Rules, RMB has placed Dealstream in default as they are unable to fully reinstate their minimum margin requirements. Dealstream's transactions on the JSE were for their own account. Dealstream does not have any clients registered on the JSE and did not conclude transactions on the JSE on behalf of clients. As a result of this, Dealstream's clients do not have any recourse to RMB in respect of their transactions with Dealstream.
Clients familiar to the situations are claiming that money that was deposited into Investec trust accounts was used by Dealstream improperly. Dealstream had power of attorney over trust money. This money was meant to be used to fund clients' losses when trades moved against them. However, clients say that money was removed from the trust accounts by Dealstream even when there was no need to access it. This means that clients stand to lose millions. Reed estimates that he and fellow employees have together lost about R112m in their personal capacities.
What the money was used for remains uncertain. However, it has been speculated that it was being used to fund positions held by Dealstream in Vox Telecom and Simmers & Jack Mines (JSE:SIM). Investec head of investor relations Ursula Nobrega said she could not confirm the balances were zero. She cited client confidentiality. Since 8 September 2008, Simmers & Jack Mines has lost 33% of its market value, falling from a high of 399c to 260c. The share price has subsequently rebounded 5.6% or 15c during trade on Monday on the back of stronger equity markets. Over the same period, the Vox Telecom share price has moved significantly. Since the 8th, the share price has moved from a low of 198c to hit a high of 225c. On Thursday last week the share traded down around 5% (10c) and lost another 9% (20c) on Monday to trade at 200c.
Nobrega said at all times Investec was acting on behalf of Dealstream. She says Dealstream clients were not clients of Investec. Reed recounts how he met with Dealstream CEO Russell Leigh on Sunday after he heard rumours of troubles at the derivatives broker.
"We actually believed him," said Reed. "He convinced us that everything was absolutely safe." Leigh apparently showed Reed printouts of trust accounts, reflecting that his money was safe. However, when news of Dealstream's problems broke on Monday morning, Reed realised he had been fed false information.
He says he managed to confirm that most of the trust accounts held by Dealstream with Investec had zero balances. Leigh appears to have gone to ground. He is not answering his cellphone. Saul Cohen, a spokesperson for Argil, a shareholder in Dealstream, says its offices were vacated after a client threatened employees with violence.
Alpino says he contacted Investec last week, who confirmed that certain trust account balances were zero. Dealstream's clearing house RMB has assumed responsibility for its open trades on the JSE. This happened after Dealstream failed to meet its obligations to RMB.
Has nobody blamed the JSE who firstly didnt follow through. It was too late for the FSB to react once defaults and cracks started. Anyway a question I would like to ask is how can an investor (individually, or through intermediaries) not be actively involved by asking for quarterly reports? Or is it typical of the new age brokers/advisors who take their cut to just disappear and move on to the next investor to rip off. Its also sad how these businessmen can just leave and not get punished. I see this as worse than murder because you have changes the socio-economic wellbeing of thousands. Anyway Im just here to be informed by these forums (and Mark's and fin24 journalists)