Wendy Machanik’s ‘missing millions’

2011-01-08 13:26

Top estate agent Wendy ­Machanik’s property agency was in such deep ­financial trouble, she had to dip into clients’ ­deposits to keep the business afloat and fund her lifestyle.

This is according to a forensic report obtained by City Press that formed the basis of a provisional court interdict prohibiting Machanik from touching money in her agency’s trust accounts.

The most extraordinary claim in the report is made by an ex-employee who claims ­Machanik spent R80 000 of trust account funds on earrings at a charity auction.

The forensic report by risk management firm Pasco shows how the chief ­financial officer of Wendy Machanik Properties (WMP), Bruce Bernstein, allegedly masterminded the scam by creating a fictitious ­account in the agency’s books called “Cross/Kline”.

Pasco was ­appointed by the Estate Agency ­Affairs Board (EAAB) – the regulatory body for the industry – to ­investigate WMP after receiving anonymous complaints through its whistleblower hotline.

The EAAB subsequently brought an urgent application against WMP and Machanik personally, and on new year’s eve Judge Margaret Victor of the South ­Gauteng High Court ruled there was a “substantial risk to the ­public” if Machanik continues to control her agency’s trust ­accounts.

Mervyn Swartz has been ­appointed provisional curator of the accounts.

On Friday WMP issued a statement in which the agency claims that there is no money missing from their trust accounts.

“WMP would also like to reassure anyone who has recently purchased or rented a property through Wendy Machanik Properties that there is no reason to fear losing their deposit. The company would also like to state that at no time in the past has it failed to pay anyone who was owed money that had been held in one of its trust accounts.”

The agency says it would legally challenge the findings of the Pasco report.

City Press has learnt that law enforcement agencies have also expressed interest in the matter.

Pasco was appointed as inspectors by the EAAB and seized ­numerous documents and computer drives from WMP’s offices.

Contained on Bernstein’s ­computer was a letter from him to Machanik written in 2006, ­explaining why they had to dip ­into trust funds.

The letter reads: “The business is under-funded and until August 2006 was loss-making by approximately R400 000 to R500 000 per month. As from September 2006, the business appears to be almost breaking even and may start ­becoming profitable depending on sales. The business remains ­under-capitalised even if the debt to the receiver of revenue is settled in full.”

To keep the agency “operating” while waiting for a big deal to come through, Bernstein wrote to ­Machanik that “the business has been forced to draw down part of its unearned commissions held in the trust account (rather) than on registration of transfer of the properties”.

In order to pay salaries, creditors, agents’ commission, bonds “and your personal expenses”, Bernstein created a fictitious ­account called Cross/Kline. “This narration stands for ‘Cross the Line’,” he wrote to Machanik.

Bernstein ends his letter by ­saying that the Cross/Kline “early drawdown situation needs to be rectified” from funds raised through a ­forthcoming property development, and that it was the “only means of keeping the business in operations and preventing it from going into ­liquidation”.

The scheme started operating in March 2007 with regular amounts of between R10 000 and R500 000 ­being transferred from the agency’s trust accounts to its business ­accounts or Machanik personally.

According to Pasco’s report, “not less” than R25 million was drawn from the agency’s trust ­accounts between March 2007 and ­February last year. In the same period, only R10 million was ­repaid into the trust accounts.

The forensic report, on which the EAAB’s urgent court application against WMP and Machanik was based, found: “These transactions and the naming thereof ­further demonstrates that it was an organised and well-developed practice with WMP to use clients’ funds held in trust to support WMP’s business and Machanik’s personal expenses.”

Pasco interviewed a number of former and current WMP ­employees, who claimed they were instructed by Machanik to cross-transfer money from the agency’s trust accounts.

According to former employee Matthew Kennedy-Smith, who was interviewed by Pasco, clients’ funds were used to pay the ­agency’s business expenses; staff salaries; Machanik’s personal ­expenses for the development of her house; and for her previous residence which has since been sold.

In one instance, Kennedy-Smith claims that Machanik bought ­earrings that were auctioned off at a charity dinner for R80 000.

“She instructed him (Kennedy-Smith) to transfer the money from the estate agent’s trust account to Wendy Machanik Property’s business account, as the funds available in the business account would not have been sufficient to cover the cheque written by her to pay for the earrings,” reads the report.

Other findings include:
» WMP’s business account was continually in overdraft between 2007 and last year, and ­significantly funded with cash from trust accounts;

» Various financial records were ­either absent, non-existent or not available when requested by ­inspectors;

» WMP’s financial records for trust accounts were “materially ­irreconcilable with its bank ­statements”;

» It remains “undetermined” who the “actual” auditors of WMP are; and

» Not less than R14 million from WMP’s rental trust account was transferred to the agency’s ­business account.

Pasco recommends that ­Machanik be charged with theft for using money “she was not entitled to”. Regarding the Cross/Kline transactions, Pasco recommends that WMP ­“either through Bernstein or ­Machanik” misrepresented the true nature of these transactions “in order to hide their illegal and irregular ­transfers”, which, according to Pasco, amounts to fraud.

In a statement issued this week, the EAAB said the matter would ­return to court on April 5, which will give Swartz “sufficient time to properly investigate the trust ­accounts and to report back ­thereon to the court”.

WMP has a national footprint and also operates an office in Tel Aviv, ­Israel. According to the agency’s website, it has over 300 agents and was built “upon pillars of integrity and professionalism”.

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