The manager of a hedge fund that collapsed in 2007 after incurring a massive loss on a short-sell position on Sanlam has failed to have his prosecution halted.
The “unreasonable and inexplicably long delay” in his prosecution was one of the grounds on which Marc van Veen brought an application in the High Court in Cape Town for his case to be thrown out.
Van Veen was the director of Evercrest Capital (Pty) Ltd, which managed the Evercrest Aggressive Fund.
The Evercrest Aggressive Fund bet that the shares of Sanlam would fall, but they rose, and, in early 2007, the hedge fund lost about R146 million, apparently wiping out three-quarters of its R200m in assets. Evercrest Capital was shut down.
In the High Court proceedings, Van Veen contended that the fund’s losses were a result of an ill-timed decision by the fund’s institutional investors to sell off the stock held by the fund and thereafter to liquidate it. He alleged that if this had not happened, the investors would eventually have realised a profit. He said none of the investors brought civil cases against him or Evercrest Capital.
The then Financial Services Board (FSB) launched an investigation into Evercrest and Van Veen in July 2007 and issued a final inspection report in August 2008.
As a result of the investigation, Van Veen’s financial services provider licence was withdrawn, and he was prohibited from applying for a new licence for five years. He was also required to pay for the investigation, which cost exceeded R366 000.
Van Veen and Evercrest Capital have been charged with fraud and, alternatively, various other common law offences involving dishonesty, as well as with having contravened the Financial Institutions (Protection of Funds) Act, the FAIS Act, and the Inspection of Financial Institutions Act.
The allegations against the accused involve conduct that occurred between 2005 and 2008. The summonses were issued some 11 years later, in August 2019. They required Van Veen, in his personal capacity and as the representative of Evercrest, to appear for trial on 27 September 2019. But the trial did not start on that date. Since then, the proceedings have been postponed repeatedly.
Van Veen’s application for a permanent stay of prosecution was founded on the infringement of his rights to a fair trial in terms of section 35 of the Constitution. This was based on three grounds: unreasonable delay; mental or intellectual incapacity because of the effects of a brain tumour; and that the prosecution’s case relied on unlawfully obtained self-incriminatory evidence.
High Court agrees that the delay is unreasonable
Judge Ashley Binns-Ward said, “no nicely measured calibration exercise” was required to conclude that the delay in bringing the case to prosecution was “manifestly inordinate and palpably unreasonable”.
Counsel for the applicant said the FSCA laid a criminal complaint against Van Veen at the end of March 2014, nearly six years after the completion of the FSB’s investigation. The Director of Public Prosecutions said the matter was referred to the police in 2009.
Counsel for Van Veen said the police docket showed that no further substantive investigation was undertaken after the criminal complaint was lodged. He said no reasons had been provided for the unreasonably long delay.
Judge Binns-Ward was scathing about the state’s delay in preparing the case for trial.
“The state’s explanation for the delay between 2009 and the end of 2018 in getting the case against the applicant trial ready is sadly redolent of the ineptitude and lack of diligence that media reports suggest were all too prevalent in many of our public institutions at the time. The deponent to the answering affidavit ascribed the delay to ‘systemic failures’,” he said.
“A succession of investigating officers failed to provide the prosecutors with the documentary evidence identified in the Financial Services Board investigation report. The answering papers do not give a satisfactory explanation for this failure or the prosecution’s response to it.
“The most recently appointed investigating officer, who took over the matter at the end of 2018, reportedly approached her work ‘with much more vigour and zest’ than her predecessors, which enabled the eventual enrolment of the matter for hearing in September 2019. The excuses offered by the first respondent [Director of Public Prosecutions] for the delay are weak and perturbing.”
But, Judge Binns-Ward said, the unreasonableness of the delay was not by itself sufficient for a stay of prosecution to be granted. Van Veen had to show that the delay prejudiced his case materially.
Remedy lies in the Criminal Procedure Act
The only resultant prejudice identified with “any particularity” in Van Veen’s founding affidavit was the effect of his intervening medical condition, the judge said.
Van Veen was diagnosed with a pituitary adenoma (a type of brain tumour) in April 2021 and underwent neurosurgery for the partial removal of the tumour.
Judge Binns-Ward said the uncontroverted medical evidence suggested that Van Veen’s medical condition has resulted in his being intellectually disabled to the extent of not being able to participate in the criminal trial in a way to make a proper defence.
The Director of Public Prosecutions contended that the situation should be dealt with in terms of section 77(1) of the Criminal Procedure Act. This section provides:
“If it appears to the court at any stage of criminal proceedings that the accused is by reason of mental illness or intellectual disability not capable of understanding the proceedings so as to make a proper defence, the court shall direct that the matter be enquired into and be reported on in accordance with the provisions of section 79.”
Judge Binns-Ward said the respondent’s contention raised the question whether it would be appropriate for the court, in civil proceedings, to grant the relief sought by the applicant, drawing directly on section 35(3) of the Constitution and the common law, whereas the legislature has specifically provided in the Criminal Procedure Act how the situation should be addressed within the context of the criminal proceedings in which he was involved before the institution of the current application.
To this end, Judge Binns-Ward enquired into the application of the principle of subsidiarity in the current matter.
Subsidiarity provides that where legislation is enacted to comprehensively give effect to a constitutional right, a litigant cannot bypass the relevant legislation and rely directly on the Constitution or on the common law, without challenging the constitutional validity of that legislation.
Judge Binns-Ward held that in the context of his finding that Van Veen has not made out a case based primarily on being prejudiced by the delay, and that the only basis for finding that Van Veen should not be tried was his reported medically related intellectual disability, application of the principle of subsidiarity dictated that Van Veen’s remedy lay in sections 77 and 79 of the Criminal Procedure Act, not in a civil application for a permanent stay of the prosecution.
The judge said he would not grant Van Veen’s application even if he were wrong about the application of the principle of subsidiarity.
An order staying a prosecution prohibits the prosecutor from exercising his or her power to institute and pursue criminal proceedings. An applicant seeking a permanent stay of prosecution is therefore, in essence, applying for a final prohibitory interdict. Sections 77 and 79 of the Criminal Procedure Act would provide Van Veen with an adequate alternative remedy, Judge Binns-Ward said.
Other evidence would exist
The court also dismissed Van Veen’s contention that the prosecution’s case relied entirely on unlawfully obtained self-incriminatory evidence.
Judge Binns-Ward said that, considering the nature of the alleged offences, it was improbable that objective evidence would not exist, and the testimony of other witnesses would not be available to the prosecution.
Indeed, Van Veen’s founding affidavit averred that the case against the applicant “is extremely complicated and it would be unfair on the witnesses, as well as the applicant. to expect them to remember the complex events that occurred some 15 years ago”. The founding affidavit also stated that the case involved “numerous parties”.
“One would expect that such parties should be in a position to give evidence independently of any self-incriminating admissions made by the applicant during the investigation by the regulatory authority,” Judge Binns-Ward said.
