NDH investors fleeced?

PEOPLE who have placed their money with the National Discount House Ltd (NDH) have effectively lost it.


Against a background of mismanagement and dishonesty, with

no statement coming from the Reserve Bank, irregularities have seemingly been brushed aside.


Directors and senior management who should be facing criminal and regulatory charges on a number of counts are apparently being allowed to walk away with impunity.


Through its intelligence network, the Reserve Bank is clearly aware of what has been going on at NDH, yet to the best of my knowledge, it has done nothing to either draw public attention to the situation or to bring an aberrant executive to account.


I suspect the reason for this is because the central bank itself has been questionably involved in one way or another.


For example, after NDH had unwisely over-exposed itself to ENG, it was advanced billions of dollars by the Reserve Bank from the politically-expedient, and to my way of thinking, quite farcical Troubled Banks Fund which raises questions:


l Why were NDH shareholders not required to make good some, if not all, of the deficit before exposing other funds and investors to risk?


l What action did the Reserve Bank take to actually protect investors as opposed to throwing NDH a greasy lifeline?


l What is the purpose of the statutory reserve which I thought all financial institutions were required to have in place with the Reserve Bank?

l Was NDH operating without this and if so, why?


l Was the loan made to NDH prudent and in accordance with sound banking practice, or was it made to an insolvent company whose liabilities exceeded its realisable assets?


l Given the nature of this loan, where did the Reserve Bank expect a struggling NDH to meet repayment from in the short-term? and

l Was pressure applied by the Reserve Bank to have its own advance repaid ahead of other creditors? If so, would this not neatly fit into the definition of “insider trading?”


Whatever answers might be provided, I’m moved to say that if the authorities at the Reserve Bank had exercised due care they just might have noticed that the Troubled Banks Fund had not been repaid from either profit or shareholders’ funds but by monies placed with NDH on trust by investors – and misappropriated.


The onus was on the central bank to do this. A legal parallel exists where a person accepts goods knowing them to have been stolen. I would not draw the comparison but qualified legal opinion might not be so charitable.


What is clear enough is that on the other side of the coin, theft by conversion occurred at board level in NDH with investment funds being employed to preferentially repay the Reserve Bank loan at the expense of the investors themselves.


Ironically, the central bank is charged with protecting these in so far as its capabilities allow it to.


It has always carried out the duty of monitoring the operations and ethics of various financial institutions operating under licence.


In the case of NDH, it has failed in that duty and has in turn become a creditor. Had it looked at NDH’s exposure in any depth it would surely have uncovered a good deal on which to ponder and act.


The Reserve Bank obviously does not have to be told that the role of a discount house is to judiciously place a client’s money where it is needed in the marketplace and it goes without saying that this would not normally be into NDH’s own pocket – as has happened here.


Pursuant to that observation, it would be of interest to learn what percentage of paper NDH issued in its own name throughout this year against how much was invested at a discount elsewhere.


In other words, how much was employed solely to keep NDH open for business and how much was being genuinely placed in the market place for the benefit of its investors? In the latter stages, I would suspect that these were entirely disproportionate amounts.


I do know for a fact that until very recently, dealers employed by NDH were instructed, without due warning to investors, to continue receiving investments and strike agreements on rates during a period when the principals must have been well aware that company liabilities exceeded assets by a huge margin. That is a criminal act, actionable in law.


There is another pertinent matter too. According to Zanu PF records, NDH made a donation of some $200 million to the party over the first nine months of 2003.


Common-sense tells me this was either investors’ money or, on the off chance, it wasn’t, it was money which should properly have been held in reserve for the protection of those investors.


The size of this donation begs the question of what on earth was the NDH board thinking of in massively funding a political party when the viability of a discount house has always been dependent on the slim margins over which it traditionally operates?


This unbecoming largesse became contributory to NDH’s illiquid position and in the longer-term was certainly prejudicial to its creditors.


Against all this background, investors have been forced into a situation of converting what might well be their life savings to a currently near valueless shareholding in the very institution that may have ruined them.


A committee of luckless creditors is handling that and no doubt doing its very best in an unenviable situation. One can only wish it well.


Pro Lege,

Borrowdale.