Barak Fund Management Financial Fraud Investigation

Steinhoff and Barak fund management (Barak) are two local examples.

Steinhoff, a family investor name in the South African market, has lost around US $ 7 billion amid allegations of serious accounting fraud,

four years later, no one in the Steinhoff scandal has been arrested and brought to justice.

Barak Fund Management recently made headlines as a classic Ponzi scheme, taking investor money, diverting it and replacing it with new money. The program is based on the idea that more new money would be raised than redemptions made by existing investors

Barak tried to do just that, they raised funds by promising investors attractive stable returns, citing a gap in the trade finance market as the core business model.

The money they raised, they lent to businesses primarily in the African space as trade finance and bridging capital.

Maybe their intentions were correct, but it quickly eroded into a myriad of financial frauds, loans to non-existent companies, housing nonperforming assets in different portfolios to cover up losses, fake returns and Corruption.

On April 6, 2020, the fund suspended all subscriptions and redemptions citing the impact of Covid -19 on the underlying trading portfolio.

The truth is far more sinister that the Covid-19 had virtually no impact. Professional misconduct fueled by personal gain had become the order of the day.

Inexplicable loans, completely without financial foundation, were given to companies that could never repay, the savanna group and several transporters in Kenya and a coal company in South Africa are examples of such reckless loans. The possibility of recovery from these entities is extremely low.

Corruption was rampant, allegedly Prior of Plessis the company’s investment manager received money and the use of a Mercedes Benz in exchange for a loan, Barak’s internal investigation resolved the case by issuing a warning, but no external investigation was carried out in this case which clearly had criminal connotations.

Barak’s institutional investors had a duty to ensure that proper due diligence was performed when making their investments. The man in the street who invested in Barak would have been reassured by the fact that institutional investors held capital in Barak and that it was therefore a safe investment. raise funds from institutional investors. No investigation was conducted to determine whether investor due diligence processes were flawed or whether other forces were at play.

The regulatory authorities did not detect the irregularities early on to avoid an escalation in this crisis. In addition, we must question the regulatory framework behind these institutions which are in fact governments and financial banking institutions.

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