Law firm liable for exec’s Ponzi scheme

Ten years after a Durban attorney’s suicide revealed he had been running a multi-million-rand Ponzi scheme, the firm he was running it from – one of the country’s leading – has been ordered to cough up for the crime.

KwaZulu-Natal High Court Judge Jerome Mnguni on Tuesday found Garlicke and Bousfield liable for the R7 million Durban businessman Merlin Stols ended up losing to what was originally punted as a “bridging finance scheme” by the firm’s former executive consultant, Colin Cowan. And Mnguni’s findings are now expected to open the floodgates for other victims to lodge claims against the firm too, with the amount they were collectively left out of pocket said to be in the region of R100 million.

Cowan shot himself in 2010, leaving a note effectively admitting to his crimes and absolving the firm of any responsibility.

In court, the firm claimed too, to have been duped by Cowan. But Stols put up letters of undertaking bearing the Garlicke and Bousfield letterhead. And Mnguni said this meant their contents constituted undertakings “given by Garlicke and Bousfield”.

“Garlicke and Bousfield cannot in law deny the binding effect of the letters of undertaking issued,” he said.

He found Stols invested with Cowan “bona fide and on the basis that he was contracting with Garlicke and Bousfield”.

“This was therefore not a case where the investors were in equal guilt,” Mnguni said.

“Mr Cowan operated his bridging finance scheme as an executive consultant of Garlick and Bousfield, who had an office in the Garlicke and Bousfield building and was allowed to practice without any supervision, publicly and openly as an attorney,” he went on.

“Importantly, Garlicke and Bousfield also allowed him to use its trust account for the payments in and out in connection with the scheme and to earn commission to the benefit of Garlick and Bousfield in relation to the bridging finance transactions”.

The judge was scathing of some of the firm’s witnesses in court – describing director David Ramsay as having been “entirely unsatisfactory” on the stand and saying he had been left with the impression Ramsay was “a stranger to the truth”.

Of Stols, meanwhile, Mnguni said he was “a very good witness, who did not wilt despite being subjected to intense and penetrating cross-examination”.

“He gave a succinct account of what transpired and impressed the court as a credible witness,” Mnguni said.

The judge ordered Garlicke and Bousfield to pay Stols back the R7 million he had lost to the scheme – with interest. He also slapped the firm with the costs of the suit.

Garlicke and Bousfield, meanwhile, said in a statement yesterday that it was “in the process of considering the judgment of the high court with a view to appealing this decision”.

“The directors of Garlicke and Bousfield were deeply disappointed at the judgement handed down today,” the firm said. “While the directors and staff of Garlicke and Bousfield respectfully acknowledge the finding of the high court, we are optimistic that another court may come to a different decision”.

The firm disagreed with some of the “key legal issues” outlined in the judgement and maintained that it had no knowledge of the Ponzi scheme at the time it was in operation.

“We would like to reiterate the fact that a forensic report conducted into this matter found no evidence that the directors at Garlicke and Bousfield were aware of Cowan’s scheme or complicit in the scheme in any way,” it said.

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