Article 3: Social Ventures: Wextrust Capital – The Good, the Bad and the Ugly
By: Brian Ray Dinning, JD, LLM and Social Venture Lawyer
July 1, 2012
My aunt and uncle were Christian missionaries in Africa and my family performed missions work in South Africa for over 35 years. Brought up in a dynamic faith-based household, I was always taught that we must care for orphans, widows and the poor – and that everyone is born with a purpose in life. As unlikely as it might sound, by the age of 10, I knew I wanted to be a lawyer, and I also knew that one of my purposes in life was to help people in Africa. It wasn’t until much later in life that I understood how I might combine those two ambitions.
I’ve been a practicing lawyer for 22 years and, up until recently, I’ve had a spotless record, full of accomplishments and commendations that have brought me and my family a great deal of pride. I have had the privilege of traveling to Africa over 60 times, and in 1992 through 1994, I helped my professor write a legal textbook on how nonprofit organizations can do for-profit social ventures, which is the foundation of the modern day social venture or social entrepreneurship project. This work resulted in the legal treatise entitled, “Michael I. Sanders, Partnerships and Joint Ventures Involving Tax Exempt Organizations” (Wiley & Sons 1994).
I started doing work for clients in Africa in 1994 and have been working on social venture projects in Africa ever since then. These were missions-type projects where we would help build a church or community center, help with clean water, renewable energy, organic food and more. In this work, I realized that the local people of Africa had dreams to become something more, to be connected to the world that existed beyond the boundaries they were confronted by – to also ensure that their children had a future.
So, I believe that I was blessed with the talents, ability and vision to look for innovative ways to help the local people in Africa to create jobs, income and a future. This was – plainly stated – to look at their natural resources (land, water, wildlife, mineral rights etc.) and help them locate the tools (people, money and education) to help them maximize those resources – by building a tourism lodge, starting a micro business or starting a minerals project. This way, the local people could achieve sustainability – meaning they could feed their families, afford to send their children to school and have clean water. More importantly, they could provide a future for their children.
In 2003 and 2004, Dr. William Brown, a Fulbright Scholar and Ph.D Professor, brought an innovative film crew to work with Earth Conservancy to produce two award winning HIV/AIDS education films with local actors in the local African language for audiences in Kenya and Tanzania. This was done in conjunction with the United States Department of Defense. The films focused on the true-life stories of soccer stars who helped promote the message of education, testing and awareness of HIV/AIDS. Traveling by jeep, from village to village throughout Kenya and Tanzania, these award-winning films were touchingly, often projected on bedsheets that had been sewn together by those eager to help. The films won awards at the Houston WorldFest flim festival and, more importantly, the films achieved the goal of education young people about HIV/AIDS.
The local people we were trying to reach in Africa were intelligent and kind, but also very isolated from the more sophisticated abstractions we’re accustomed to. At one point when the film was being shown to a Maasai community in Tanzania, there was a scene where a lion appeared on screen. The lion is the mortal enemy of the Maasai people who traditionally raise cattle. The crowd screamed in terror and one Maasai warrior jumped up and threw his spear through the screen in order to save his people from the lion, simultaneously comic and courageous. Earth Conservancy stills works in Tanzania and I am working on the establishment of proposed social ventures with Dr. Steven Kiruswa, Ph.D – a Maasai warrior himself.
In 2002, my law firm was sponsoring The Shakespeare Theatre season of productions in Washington, DC. I was asked to represent the firm at a gala banquet for the Shakespeare Theatre in Washington, DC. There I dined with Justice Ruth Bader Ginsberg, Justice Rehnquist and the newly-appointed Head of Africa at USAID, Constance Newman, now Assistant Secretary of State for African Affairs. Ms. Newman was fascinated by the social venture model of partnering for-profit and non-profit companies together to promote community-based projects in Africa. Ms. Newman asked that I meet with her staff at USAID and provide power point presentations and keep her updated with any progress. This was exciting, important people were interested in our work in Africa and I felt like I was making progress.
In 2003 and 2004, I was practicing law and working as a consultant for social ventures in Africa. Working in this capacity, helping the local people of Africa in stewarding their natural resources and talents for job creation is immensely fulfilling, indeed, a life-altering vocation. My job as a consultant for social ventures in Africa was similar to the work I did at law firms but I would be helping destitute people in Africa by helping to locate community projects, drafting business plans, helping find social venture partners, and assembling management teams to help implement projects. It was a big undertaking, but I was happy to take it on, and even now, I’m still happy I took it on.
Over the years, with Earth Conservancy, I met and worked with a hard-working group of people in South Africa who had three projects: a mining project, a farming project and a beautiful nature reserve. All three projects were structured as social ventures to provide jobs and a minimum of 10% of the income to the local community according to the business plans. All three social venture projects had great potential. The projects were organized under the social venture name of Sunpoints Southern Africa. The challenge was to find a financial partner who had similar values and charitable inclinations toward the local community who would be interested in funding these social venture projects. However, this was in the early stages of the social venture movement so venture capitalists and bankers did not necessarily have the best interests, or even any of the interests of Africans in mind – they would be looking purely at the profit-making potential of these social ventures.
In 2003, these three projects were presented to a venture capital firm based in New York and Colorado. After a short power point presentation, the venture capital firm agreed to fund the three projects for a total of $3.5 million. With this funding commitment and an excellent team of people working on the three social venture projects, the projects were started in January, 2004. Starting the projects meant that the South African social venture team had to sign contracts to purchase and develop the projects based upon the funding commitment, conduct due diligence, expend funds to acquire rights such as bonding of the mining project or a downpayment on the game reserve real estate, create business plans and start the operations and management of the projects. This was an exciting time as these projects were designed to create hundreds of jobs and 10% of the potential profits of these three projects were designated for the local people.
Because circumstances generally change, by March, 2004, the venture capital firm told Sunpoints Southern Africa and the social venture project partners that they were delayed in their funding commitment, which was potentially disasterous because funds had already been committed and contracts signed. Sunpoints then began to search for a replacement financial partner and in April, 2004, Sunpoints and the social venture partners were introduced by a lawyer to Joe Shereshevsky, COO of Wextrust Capital.
Wextrust Capital was, at that time, a company that claimed to have approximately $1 billion of real estate and assets and it purportedly owned and/or managed large office buildings around the United States. After discussing the funding predicament, Joe Shereshevsky stated that Wextrust was interested in becoming the funding partner for the social venture projects after a due diligence trip to see the projects firsthand. After visiting the projects and meeting the South African social venture partners, Wextrust Capital committed to providing bridging capital to fulfill the failed funding commitment from the first venture capital firm. At that time, on or about June, 2004, I was asked to work in the office of Wextrust Capital to help oversee these three initial social venture projects as the liaison between Wextrust Capital and the social venture partners in Africa. The social venture partners and I were happy because the projects were saved and could now proceed with a new funding partner.
Unfortunately, our celebration was short-lived. By the end of 2004, I had witnessed enough of Wextrust Capital to know that they were not the appropriate financial partner for the social ventures and I had to separate myself completely from them. When I told the Board of Directors of Wextrust Capital that I was not going to work with them anymore, Joe Shereshevsky was furious and he began to bad-mouth me to my business contacts and the social venture partners in Africa. I asked Joe Shereshevsky if Wextrust Capital was going to honor their commitment to the local community and Joe Shereshevsky stated, “No, we are the major shareholder and we do not agree with giving 10% to the local community.” Devastated, I said, “the 10% to the local communities is in all of the written business plans, financial projections and was discussed in all of our meetings.” I was told, “Wextrust has millions of dollars in the bank and you can try and sue us but you will lose.” Because of the significant financial, tax, legal and social transgressions I witnessed by Wextrust Capital, I told all of the South African social venture partners that it was better to give up everything including all ownership rights and projects to Wextrust Capital because you do not want to be in business with them now or in the future.
In March, 2005, after resigning from Wextrust Capital at the end of 2004, I was asked to fly to Chicago to meet with the Board of Directors. At that meeting, they offered me a seat on the Board of Directors, up to 10% ownership in Wextrust Capital and increased compensation and benefits. I immediately refused. I sent my feelings on this debacle to Joe Shereshevsky via email. [1] Although I very much wanted to share my reasoning with the world, I was obligated not to disclose this information, even though it hurt me dearly not do so, through attorney-client confidentiality rules.
After the Wextrust Capital scandal erupted, I asked the Virginia State Bar if I could disclose the information so that the investors could possibly recoup some of their investment. I was told that I could only disclose the information if requested pursuant to a court order. I would have gladly given the information to the government but I was never asked to testify or provide any information or documents. Most of the social venture partners in South Africa including myself and many other innocent parties lost everything in those three projects including our time, money and ownership. The local community was also robbed of their benefits of the three projects.
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It was an immensely difficult and often acrimonious time, and after being ridiculed by Joe Shereshevsky, losing three social ventures that were near to my heart, and in which I had staked my time, reputation, effort and money, my parting words to Joe Shereshevsky were: “I expect to see you in five years on trial for $100M of fraud.” Joe Shereshevsky laughed at me and insulted my capacity as a lawyer. He also likened the South African social venture partners to “stupid monkeys” and the local community as “useless and deserving of their station in life.” It could hardly have been an uglier situation. Later, I would learn that thousands of other people would lose up to $255 million to the fraud and malicious actions of Joe Shereshevsky and Wextrust Capital.
It is well documented that the substantial fraud of Wextrust Capital occurred from mid-2005 to 2010 or so – thankfully after my departure. In reflecting on that time, I wish that someone would have asked me about those times as my testimony along with the good social venture partners in South Africa may have been able to help in the Wextrust Capital investigation. Furthermore, I may have been able to shed some light on where or with whom some of the assets were held as a group of us hired a private investigator to follow up on the fraud committed by Wextrust Capital against us in April, 2008. However, I was never asked to provide any information and I could not offer the information under the guidance of The Virginia State Bar and attorney client confidentiality rules.
In order for social ventures to work properly, the financial partners must have some social motivation for helping the local communities wherein they work. Furthermore, social venture policies, procedures and goals for helping the local people should be agreed upon and documented by all social venture parties. Social responsibility is not only good business but it is an absolute must if we are to help the 400 million poverty-stricken people of Africa who live on less than $1.25 per day.
In my experience, the social venture partners and the local community are the “good,” Wextrust Capital and Joe Shereshevsky were the “bad” and the terrible acts of fraud, deceit and thievery done to the general public by Wextrust Capital are the “ugly.” I wish I could say that this was the only bad experience I had with financial partners for social ventures in Africa but that is, unfortunately, not the end of the story.
Article 4 is entitled, “Cocaine, Ecstasy and Swingers, Oh My: Social Ventures in Africa.”
As a footnote, the name “Pure Africa” was created by the first venture capital firm and me. It was taken by Joe Shereshevsky and used without our permission. The “Pure Africa” entities that were established by me and others in 2006 and beyond have no affiliation or relation in any way to Joe Shereshe
[1] See email dated March 27, 2005 from me to Joe Shereshevsky, COO, Wextrust Capital detailed my basic reasons for separating myself from them, which is attached hereto at the link below.
Social Entrepreneurship in Africa 