According to Willia Bonyongwe, SECz Chairperson, Internet Securities (IS) and Interfin Banking Corporation went into an agency agreement on January 1 2009, under which IS could provide “services” including “arranging management of client funds within Zimbabwe.”
The agreement, which was meant to disguise the illegal activities, virtually made IS a bank and an extension of IBC. “This activity is outside the Securities Act, in terms of which a dealing firm is licensed. As you are aware, the licence is issued in terms of Section 38 (1) (a).
The commissioners were convinced that Interfin Securities was directly engaged in non permissible banking activities because all the deal notes and transactions were in the dealing firm’s name, not that of Interfin Banking Corporation,” Bonyongwe said.
At a meeting on 10 May 2012, Bonyongwe observed that IS money market dealers — Winnie Muvevi and Tinashe Mutowo — confirmed that it was the firm’s responsibility and not the bank’s to source deposits and conduct loan placements.
“Additionally, the firm earned net interest income on the banking activities, as reflected in its financial statements. (MD) Mr Rufaro Zengeni confirmed during the firm’s submissions meeting with commissioners held on 29 May 2012 aforesaid that the firm’s bulk income was derived from money market-related activities,” she said.
“Finally, Interfin Securities management admitted in interviews with SECz commissioners that the firm had an account with Stanbic Bank whose purposes were deposit taking and funds disbursements. This was in flagrant contravention of dealing firm’s licence.”
Bonyongwe also said SECz had found the IS and IBC agency agreement to be fraudulent, noting that there was a deliberate plan to conceal the agreement from regulators because the parties knew it would not be approved.
This was after SECz officials questioned the authenticity of the agency agreement after investigations showed that the document was signed 1 January 2009-a public holiday.
SECz also discovered that IS illegally and improperly secured the funding from institutions by using third party shares. “The inspectors’ report clearly shows a list of deposits from people and corresponding deal notes by Interfin Securities confirming the lodging of the shares to secure deposits. Further, the borrowings have been conclusively proven to have on lent to the same people and different other parties,” Bonyongwe said.
“Interfin securities treated these assets that did not belong to it as its own assets, lodging them as security and Kingdom Asset Managers instructions to realise the security.”
“Interfin Securities’ audited accounts do not reflect that in 2009 the securities company derived its income from money market transactions but largely from the securities dealings business,” Bonyongwe said.
She further noted that whilst the company posted a total income of US$ 1 744 359. A small percentage of the income was derived from brokerage fees, an indication SECz says shows IFS was playing the money market as far back as 2009.
As a result of evidence gathered from the investigations, SECz arrived at the decision that IFS was not “fit and proper” to hold a securities dealing license. In a related development, Zengeni’s dealing licence was cancelled for a period of four years after taking into account the fact that he was a first time offender and a family man, who had invested a “lot in his profession.”
Addington Chinake of Kantor & Immerman represented Zengeni.
A letter dated 7 June 2012 to Zengeni from Bonyongwe reads: “In a aggravation however, the commissioners found that there has been market disruptions following the seizure of the affected shares by the Deputy Sheriff, thus compromising the market’s intergrity and investor confidence. SECz is enjoined to promote market integrity and investor confidence, in terms of section 4 (1) (c) of the Securities Act (Chapter 24: 25).”
According to SECz, investors could have been prejudiced as much as US$5,3 million.