Ovation curators to sue Metropolitan
Curators and Metropolitan argue over who is liable for stolen funds. mCubed could also be sued.
Tue Oct 30 00:51:26 SAST 2007
The curators of Ovation Global Investments plan to sue Metropolitan Life, a subsidiary of Metropolitan Holdings (JSE:MET) for an amount of at least R47m. This amount was stolen from Metropolitan clients as part of a broader scandal involving theft and fraud at Ovation and Fidentia.
Ovation had sold Metropolitan annuities to 451 investors. It is unclear exactly how much money was invested, but it is known that of the total amount, R47m was stolen. Metropolitan had "outsourced" management of these annuities to Ovation.
There was also an amount of R3,9m that went missing, which was received by Ovation shortly before being placed under curatorship. The money was for Metropolitan policies, but the paperwork had not yet been completed when the curatorship was ordered.
The curators of Ovation argue that Metropolitan is responsible for this loss. In their latest report, which was made public last week, they claim to have received advice that Metropolitan owns the assets that were misappropriated and has a contractual obligation to investors to make good the losses that arose from the theft at Ovation.
However, Metropolitan is denying responsibility for these losses and will let the matter go to court for a ruling.
Metropolitan spokesman Willem van Schalkwyk says that since the Metropolitan annuities were "linked" as opposed to "guaranteed", the case against his company is not clear.
Linked annuities are linked to the performance of an investment in underlying assets whereas with guaranteed annuities, the insurance company promises to pay a pre-determined amount.
Van Schalkwyk says that linked annuities as administered by Lisps (linked investment service providers) are extremely complex and technical.
"Furthermore, whilst the curators’ investigations are still ongoing and not all the facts pertaining to the fraud are known, it is impossible to arrive at a definitive view on the matter," he notes. "That is why we have accepted the decision to get clarity on it by going the legal route."
"In the end a court will decide [whether Metropolitan is liable], having heard all the facts," says Van Schalkwyk.
In a similar situation to the one described above, 175 clients of insurance company m Cubed Life stand to lose R6,3m. This is the amount that was stolen from investments made with mCubed that were outsourced to Ovation.
In their report, the curators said they planned to sue Metropolitan to recover the amounts that were stolen at Ovation. They said that they were in negotiations with mCubed. "If not successful, will join mCubed in the application being brought against Metropolitan," they warned.
The curators say that if the applications are successful, this will result in the losses suffered by investors on the Ovation platform being reduced by R57,3m. They estimate that a total amount of R216m was stolen at Ovation.
The curators’ claim against Metropolitan amounts to about 8% of last year’s profits. The company has a market value of R8bn.
However, Metropolitan also faces a potential cost to its reputation, because if the curators win their battle, it would mean the insurer had failed to honour its policies.