Cowan case: Law firm ‘was hoodwinked’ by conman
Lawyers say they thought it was perfectly legitimate legal practice - it turned out to be a Ponzi scheme
Disgraced Durban lawyer Colin Cowan kept all his business dealings in unusually coloured pink files.
And it was hundreds of these that Yvonne Boden, his colleague at law firm Garlicke and Bousfield, rounded up from his office and from a “kit bag” at his Innes Road, Morningside, home within hours of the news of his suicide in November 2010.
Cowan left two suicide notes in brown envelopes on top of his briefcase, which he left in the passageway of his home. One for Norma, his wife of 48 years, in which he admitted to a “series of gambles”, and another to the directors of the law firm in which he admitted to fraud, absolving them from any liability.In an ongoing court case before before Judge Jerome Mnguni, sitting in the Pietermaritzburg High Court, the full extent of what the law firm says was his “Ponzi scheme” is unfolding.
There has been evidence from an audit report that the scheme involved R656m – and just more than half of that money was channeled through the firm’s trust account.
“We have never denied this,” Boden said. “But this represented only 3% of the money which went through the account over that period. And we believed the funds were in respect of perfectly legitimate legal practice,” she said in her evidence.Respected SA businessman Meryn Stols was one of Cowan’s victims. Others have lodged their claims but are waiting for the outcome of his claim for R7m from the firm which has, so far, taken up 16 days of court time and will resume on Monday.
Stols’s claim is simple. He invested in Cowan’s bridging finance scheme believing it was endorsed by the “old, respected” law firm. It was an opinion bolstered by the fact that correspondence was on its letterheads, signed off by directors, and done with “the comfort” of an alleged “endorsement” by director David Ramsay, who was an old acquaintance.
Garlicke and Bousfield said the firm was also hoodwinked by Cowan – they had no idea what he was up to and the scheme was illegal so nobody could legally benefit from it.
Stols, in his evidence, described how he first heard about Cowan through financial advisor Patrick Robert.
“We were at dinner. He heard that I had sold one of my businesses and I had some available capital and he said he knew of a great investment opportunity.”
He then met Cowan “and I had absolutely no doubt about his credibility”.
Stols had one worry. The subsequent agreement for a R10m loan (on a G&B letterhead) – the first of what was to become 17 “deals” – reflected that the loan was not to be invested in the law firm’s trust account but directly to the third party.
“He said this was to save time. I told him I wanted to check it out first.”On Cowan’s suggestion, he called Ramsay and read the agreement to him.
“He told me to fax it to him, which I did. He said he was happy with it and said it’s normal to pay to a third party to save time.
“Cowan was offering about 30% interest over the period of the loan. I checked out the market rates and this was quite conservative for these types of loans.”
Stols continued to plough money into Cowan’s bridging finance scheme and it was profitable for him.
When it all crashed, Stols had just handed over R7m – R5 million of it went directly to a company called Topspec and R2m was deposited into the firm’s trust account and allocated to Espro Capital.
“I will never forget that day,” Boden said, of the day she got the news of Cowan’s suicide.
“We had a minute of silence for Cowan ... and then the calls starting coming in. People were just arriving at our offices. It was hostile and aggressive. I went to Colin’s house and picked up a kit bag of pink files. I also collected all the files from his office and locked them away in another room.”
The wheels of the “scheme” fell off two days before Cowan died when he applied to bridging financing company Rodel for finance. Rodel saw a red “fraud” flag and reported it to Ramsay.
Director Ramsay asked Cowan for a full report to explain what was happening.
“Will this be the end of it?” Cowan asked.
“Well that depends on what is in it,” Ramsay replied.
Two days later, Cowan took his own life.
Under cross examination, Stols was asked about Cowan’s suicide note absolving the firm from any blame.
“Well that is a desperate statement from a desperate man. If you ask every claimant they will say we parted with our money because we were under the impression we were dealing with the law firm. I knew Ramsay well. I had great respect for him.
“Quite frankly, the money is not the issue. It’s about lies and deceit," said Stols.