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Article VII: On the Ground in Africa: Not Much Better by Brian Ray Dinning, JD, LLM and social venture lawyer

Article VII:  On the Ground in Africa:  Not Much Better.

By:  Brian Ray Dinning, JD, LLM and Social Venture Lawyer

July 17, 2012

 

With social venture projects in Africa, there is generally a team of social venture partners on the ground who are responsible for managing the project and the day-to-day operations.  For example, I’m currently working with an organic farmer in community farming projects in Africa, where there is a local non-profit organization with six full-time workers (providing free seeds and education to the local community), a for-profit farm manager (providing oversight and management to the community farmers) and the local community providing land and workers.  These are the project managers and workers who run the project on the ground.  Every organization, including the United Nations, USAID and the World Bank work with local partners on projects in Africa.[1]

 

With the initial farming social venture, the mining project and the tourism project, our local project manager was Michael van der Merwe and his brother, Pieter van der Merwe.  Whenever funding is needed on the ground in Africa for the social venture projects, there is a team of people who become financial partners and others who generally work on the projects.  In our projects, the funding partners were part of limited liability companies in the United States or a United States non-profit corporation.  The funding project company was managed by Pure Africa and funds were loaned to the social venture project in South Africa.  Those loan funds were then managed by the social venture project manager and invested into the project or used to pay project fees and expenses.  Finally, the financial partners would receive loan documentation and social venture project ownership for their loan to the social venture project or, in the case of funding provided by a US non-profit corporation, like Earth Conservancy, the funding was sent in the form of a grant.

 

The loan funds would then be under the control of the local social venture project manager, who had the responsibility of managing those funds to complete the projects and then repay the loan.  At Hole in the Wall and on the Wild Coast of South Africa, our local partner was Bossie Bosman, who was one of the founders of the social venture work at Hole in the Wall and other projects.  Like with Michael van der Merwe, funding for the Hole in the Wall project was generally wired from the United States to Bossie Bosman, who had responsibility of managing those funds, completing the project and repaying the loan.

 

Although we had sent considerable funding to Michael van der Merwe to secure rights to the three projects and to conduct due diligence, purchase reclamation bonding for the mining project and scoping and other costs, the Pure Africa Sustainable Development Fund and Pure Africa along with our nonprofit social venture partner, Earth Conservancy, did not want to do any projects with Michael van der Merwe.  There was a lack of business reporting, a lack of accounting and most of all, Michael van der Merwe maintained close ties with Wextrust Capital.  As stated before, a private investigation report was later ordered for Michael van der Merwe, which confirmed that he was not a man to trust[2] as he owned seven or more luxury homes in Pretoria, Waterkloof, Waterkloof Ridge, Midrand and East London, an office building in Midrand, a dozen or more luxury automobiles, motorcycles and other toys and his brother, Pieter, built a 20,000 square foot mansion.  This list doesn’t include the assets, which were given to the girlfriends of van der Merwe and Shereshevsky.  The Fund and Pure Africa did not want to risk any further involvement with Michael van der Merwe.  Despite his claims of profitability and viability of these projects, the decision was made to drop them and it cost hundreds of thousands of dollars in loan capital sent to him that will likely never be recovered.

 

In 2009, after a lengthy private investigation to locate loan funds sent to Michael van der Merwe on behalf of our financial partners, my brother and I confronted Michael van der Merwe at his luxury oceanfront home in East London, South Africa.  I asked Michael van der Merwe,
“what did you do with our financial partner’s loan capital and my money?”  A nervous van der Merwe said, “I am in the process of selling the tourism project and I will repay all of your loan money to you and your financial partners.”  In blaming Wextrust Capital, he said, “Joe [Shereshevsky] was a thief and we all lost money.”  When asked directly about his luxury cars, luxury homes and his brother’s mansion that were all paid for with cash, he said that he “bought them with money given to him by Joe Shereshevsky and Wextrust Capital.”  With promises of repayment from van der Merwe, we left after an hour-long meeting.  Of course, we all waited for years for a promised repayment from Michael van der Merwe that never came.  Naturally, when I was asked by our financial partners about the repayment of our loans, I could only pass along what van der Merwe told us many times:  that the projects were being sold and that he would repay all of loan money to us.  This – we found out – was one of many lies told to us by Michael van der Merwe and his brother – Pieter.  The fact is – they stole the loan money of our financial partners (and of Wextrust Capital’s investors) and used it to buy an estimated ten million dollars of luxury homes, cars and other items for cash.[3]

 

Again, this was another significant negative action that made us change our entire business strategy and move on to other projects.  Thus, Hole in the Wall and the Wild Coast projects became our principle focus.[4]

 

The Fund managers, Rick, Lou and John, along with Pure Africa, wanted to have someone “on the ground” in Africa and since my brother, Steve, has a passion for missions work, I suggested that he go to Africa to watch over the developments.   Steve traveled to Africa in the summer of 2006 with promises of an annual salary plus living expenses.  With all of the interruptions, bizarre and criminal conduct and the aggressive bad press campaign, it was very difficult to locate funding partners.  Everyone was turned off by the negative press campaign.

 

One of the first issues Steve encountered was with our local social venture project manager, Bossie Bosman.  Shortly after arriving in South Africa, Steve soon discovered that Bossie Bosman has misappropriated funds designated for the Hole in the Wall project to buy a new Landrover LR3 for cash in his personal name at a cost of $100,000 – a devastating blow – as the funds that he misappropriated were supposed to be used to pay the contractual wages for the local community workers, for my brother and the project managers.[5]  It was six months worth of budgeted expenses stolen by Bosman to purchase a Landrover for himself.  Ultimately, Bossie Bosman was reported to the police in South Africa and he was voted off the Board of Directors of the social venture project.[6]  Angry, Bossie Bosman then became the ally of Dr. Batte and Dr. Stiner and they corresponding regularly in their bad press campaign and coup attempt, which commenced in April, 2007.

 

 

The beautiful oceanfront and riverfront project at Mdumbi Bay

 

As our projects on the Wild Coast were moving closer to launching, they had great potential and we received many assurances that the Hole in the Wall and Mdumbi Bay projects would lease out in quickly.  This meant millions of potential dollars of revenue for the social venture projects and for the local community.  With these funds, all investors could be repaid and the local community would receive a large windfall of profits that they could use to build schools, medical clinics and other needed facilities.

 

However, despite great potential projects, the intentional damage and interference by Batte, Stiner, Bosman and others killed the project at Mdumbi Bay (see photo above).  In June, 2007, the project at Mdumbi Bay was ready to commence marketing by Fresh Properties in East London, South Africa.[7]  There were multiple meetings and conference calls between the marketing company, the financial partners and Pure Africa.  The project would entail the long-term lease of 46 home sites and a small tourism lodge.  On or about June 14, 2007, Fresh Properties set a meeting to discuss the current status of the Mdumbi Bay Marketing Plan.  In this correspondence, Mark Trow of Fresh Properties lists “definite potential cash buyers” for 39 of the 46 lots, with names of the buyers listed next to the lot they had chosen, which represented over $6 million in social venture project revenue.[8]  However, several anonymous phone calls were made to the South African government claiming that we were trying to “sell” the land instead of “lease” the land to potential buyers.  This immediately stopped the marketing effort and in November, 2007, we switched real estate sale companies to Sotheby’s International Realty.  Once again, we were so close to a social venture project success before the proverbial rug was pulled out from under us by Bossie Bosman, Batte and others.[9]

 

Bosman, Batte, Stiner and others then began to utilize the blog of Jeff Brown, a hotel owner and opponent of any development (other than his) at Hole in the Wall.  Jeff Brown told my brother that he will do anything he can to stop the development at Hole in the Wall and he became the bulletin board for all of the aggressive bad press, libel, slander and false information against the social venture projects and me.  They coordinated with Jeff Brown because he could post all of their information anonymously and he has sent it by automatically generated email to our investors, donors and the general public to discredit the social venture projects and me.  They have even utilized the blog to post supposed messages from my children and others – of course – all anonymously.  The unfortunate consequence of the Internet is that it is practically impossible to stop someone overseas from posting false and defamatory articles about you.

 

Hole in the Wall was another social venture project with great potential.  Our professional team provided great endorsements of the project.  On May 6, 2008, Lofty Nel, a Principal with the firm of Sotheby’s International Realty provided a letter to the project, which reads:

“Lew Geffen Sotheby’s International Realty are extremely proud and honoured to be granted the exclusive mandate to market Pure Africa Development LLC Hole in the Wall project on the Wild Coast in South Africa.  Marketing of the project has commenced by word of mouth with the official launch of the project scheduled for the end of May, 2008.

 

The development comprises 51 Ocean front homes in a gated estate at the Hole in the Wall, a national landmark in South Africa.  Earth Conservancy have also been appointed to manage approximately 5000 acres of pristine land adjacent to the project as part of a conservancy.  This will ensure that the amazing views and natural beauty of Hole in the Wall will remain intact for guests and owners at the Hole in the Wall development.”[10]

 

The 51 lots were priced for long term lease at an average price of $120,000 for a total projected revenue to the social venture project of $6 million.  The project was on the verge of success.

 

 

On September 1, 2008, Russell Linde, South African real estate attorney of the law firm of Smith Tabata provided Dinning and Pure Africa, LLC with a legal opinion letter which states:

“We act on behalf of the aforesaid Pure Africa, LLC as majority shareholder of Incopho Wild Coast Development Projects (Pty) Ltd.  Incopho, in turn, is the majority shareholder of the project company, The Reserve at Hole in the Wall (Pty) Ltd.  Our firm has represented The Reserve at Hole in the Wall project on behalf of Pure Africa since 2007 as legal counsel.  We also assisted in the referral of the project auditor, Charteris &  Barnes, auditors.

Based upon a review of the documentation, The Reserve at Hole in the Wall is an oceanfront and oceanview real estate development consisting of 50 stands and a small hotel.  The Reserve at Hole in the Wall is being marketed by Lofty Nel of Sotheby’s International Realty in East London, South Africa.

The original documentation for this project dates back to September, 2004.  For this letter, I have reviewed the following:

The Final Scoping Report dated September, 2004;

The Review of Documents relating to proposed Coffee Bay and Hole in the Wall developments by East Cape Development Corporation and the Development Bank of South  Africa;

The Ground Lease by and between the Kwa Tshezi Community and Earth Conservancy dated February 6, 2006;

The Lease Agreement between The Government of the Republic of South Africa through the Department of Land Affairs, the Kwa Tshezi Community and Incopho dated February 2, 2006;

The Record of Decision from the Department of Affairs, Environment and Tourism dated August 10, 2005 authorizing Incopho “to construct 50 single storey chalets, a central restaurant, a curio shop and amenities and association infrastructure at Hole in the Wall, KSD Municipal Area.

The Lease Agreement between The Government of the Republic of South Africa through the Department of Land Affairs, the Kwa Tshezi Community and Incopho dated June 21, 2008 which is a 30 year renewable lease at the option of Incopho for up to 90 years and continuing thereafter.

It is also my understanding that Title Deed to the land comprising the Hole in the Wall development is forthcoming to the Community in the next 6 months or longer from the Government of South Africa and the Department of Land Affairs.

Based upon a review of this documentation, Incopho has a valid lease with the Government of South Africa and the Kwa Tshezi Community for up to 90 years or more.  Under South African law, Incopho through The Reserve at Hole in the Wall (Pty) Ltd. can sublease the 50 stands to interested sublessees for rental payments over the term of the lease or the rent and lease may be prepaid.  It is my understanding that sublessees can “purchase” or sublease one or more of the 50 stands for an up-front payment of rent or with 10% downpayment of rent and the balance of the rent payments over 10 years at 12% interest.

It is my understanding that Sotheby’s International Realty will be acting as estate agent in the “sale” of the 50 subleased stands to the general public.  A separate company,  Villager Homes, will be constructing homes on the 50 subleased stands under separate written agreement between Villager Homes and the stand “purchasers” or sublessees.

Finally, when Title Deed is ultimately vested with the Kwa Tshezi Community, it is planned that the 50 stand sublessees may have the opportunity to convert their lease to Title Deed ownership of their stand.”[11]

 

By June 2008, all architectural designs, engineering, lot layout, utilities and infrastructure plans were completed and a contract to install all utilities, roads and services to The Reserve at Hole in the Wall were completed.  These steps made it possible for marketing of long term leases for the 51 lots by Sotheby’s International Realty.

 

In May, 2008, Sotheby’s began to issue marketing materials for Hole in the Wall and in September, 2008, Hole in the Wall was listed as a “hot property” in Conde Nast Home in South Africa and Media Press Releases were issued.  Sotheby’s also went to great expense to create glossy brochures to begin marketing and they also launched a marketing website for the Hole in the Wall project.

 

Then, the aggressive bad press campaign team started their bad press campaign in South Africa. This was the most difficult interference that resulted from the aggressive bad press campaign was the anonymous phone calls from this coordinated group to our real estate professional team.  At the launch of the Hole in the Wall project and then at the second marketing launch of the project at Mdumbi Bay, Sotheby’s International Realty received several anonymous phone calls from Virginia in the United States and from one or more individuals in South Africa stating that the projects were false, that they did not exist and that I was not someone to be trusted.  The callers also threatened to take the matter to the newspapers to discredit Sotheby’s and the social venture projects.  In discussions with Sotheby’s, we were told that a new development, especially a social venture development, is a delicate matter and you only want positive information for the general public to view when seeking to spend money on a new oceanfront resort.  The decision was made to halt the marketing campaigns and try to regroup under a new development company.[12]  This interference also cost us R25,000,000 or $4M from The Development Bank of South Africa.[13]

 

When another marketing project called The Wild Coast Explorer Club was preparing to launch in the Fall of 2009, similar anonymous phone calls were made to Pam Golding Properties, the real estate company handling the development and launch of this new project.  The callers again threatened to take the matter to the newspapers and to tarnish the name of Pam Golding Properties if they continued to represent the project.[14]  Sadly, again, this malicious, bad press campaign had succeeded in stopping a very promising project.  The Wild Coast Explorer Club had received endorsements from our law firm, accounting firm, real estate professionals, home builders and many others but marketing a new project cannot stand up to bad press – even if it is false.[15]

 

Each time a project was halted by the malicious and negative actions of Batte and his coordinated bad press campaign, we had to stop everything and try to work on a new project that hadn’t yet been attacked by this group.  However, each time the task grew harder and everyone on the social venture team was tired of the negative attacks and the disappointment and damage that resulted from the negative attacks.  In 2010, my brother had to return home penniless as he too was paid only a small fraction of the salary and living expenses he was promised by the social venture projects.

 

With regard to the negative attacks, there are emails, correspondence and witnesses to corroborate and confirm everything that I have said here today.  Additionally, in February, 2012, I filed a $30 million civil RICO lawsuit against Batte, Stiner and the group responsible for the aggressive bad press campaign in Suffolk Circuit Court in Virginia.  The goal is to recoup the social venture revenue lost to their libel, slander and interference and to complete one or more of the social venture projects, repay the financial partners and provide jobs and profits to the local Xhosa community.  It is no wonder that they have filed false reports and charges against me because they have to try to justify their negative actions and cover up their own wrongs.

 

Finally, many of you may say, the government is accusing you of using funds to buy a luxury home and cars.  In 2006, with my consulting contracts in hand from Pure Africa and Earth Conservancy, I was able to put a down payment on a nice home (along with significant financial help from my family) with a large mortgage.  In 2008, after learning that all of our money was stolen by Michael van der Merwe and Bosman and the interference by Batte and others, Pure Africa and Earth Conservancy were unable to pay me and my home was sold in a short sale per an agreement with the bank so that we could avoid foreclosure.  I sold or had two cars repossessed to pay the car loans.  The real difference between my compensation and van der Merwe’s and Bosman’s theft is that I was paid a fraction of the consulting fees promised to me by written consulting agreements and my home and cars were bought with bank financing like most people – not with stolen cash like the van der Merwes and Bosman.[16]

 

The next and final article in the series is: The Malicious Lawyers:  Lying, False Claims, Threats and Insa


[2] In the Investigation Report of Michael van der Merwe dated April, 2008, it is noted that the Lion’s Walk project was sold but the funds never went into the company nor were taxes paid.  We are still trying to recover our loan funds from Michael van der Merwe.

[3] There are many more sordid and salacious details to the stories about Joe Shereshevsky, Wextrust Capital and Michael van der Merwe and their rampant thievery and fraud but those stories will have to be told in another Article or series of Articles.  The real question is:  where are the Volvo loaders, trucks, excavators and other moveable equipment from all those mining projects?  Each mining project had approximately $5M of equipment and in my last conversation with van der Merwe – he said he and Wextrust Capital had seven mining projects.  That is perhaps $35M of moveable equipment that may be unaccounted for and likely liquidated by the van der Merwes at or about the time of the Wextrust Capital scandal.

[4] See Status Report of Fund dated July 2007 and September 2007.  Article 7 FN 4 Fund Status Report July 2007

 [5] See Minutes voting Bossie off the Board and Bossie Crimes letter.

 [6] We were also told later by local community and governmental leaders that Bosman was a hated man in the local black communities because it was widely known that he was a mean and malicious police officer in the Apartheid era and treated the local people very harshly.  It was also rumored that Bosman was present and participated in the beating death of black student peace advocate Stephen Biko in Port Elizabeth.  See http://en.wikipedia.org/wiki/Steve_Biko

 [7] See Fresh Letter.  Fresh Purchasers are Waiting

 [8] See Fresh 39 Cash Buyers email.  Fresh Cash Buyers for 39 lots

 [9] The $6 million of revenue from the sale of the lease lots at Mdumbi Bay would have paid all project costs, paid back the financial partners of Mdumbi Bay project and generated a significant profit for the local community and our social and financial partners.

[10] See Letter from Lofty Nel of Sotheby’s International Realty.  Article 7 FN 10 Sotheby’s Endorsement Letter copy

[11] See Opinion Letter of Smith Tabata Law Firm.  Article 7 FN 11 Pure Africa (Opinion Letter for Hole in the Wall

[14] PGP Email

[15] Endorsement Letters  White and Case and Grant Thornton Endorsement

[16] The completely false and slanderous news articles written about me state that our financial partners invested or donated $2.9M and I kept $2M.  Actually, most of the financial partners were recruited by Dr. John O’Neil, Rick Lally, Lou Dommer, Granville Batte and Dr. McTavish.  Of the $2.9M, approximately $800,000 was sent to Michael van der Merwe, Bosman and our project managers as loans and was managed and spent by them presumably on project expenses, $900,000 to the law firm trust account of attorney Gerhard Dreyer for his mining projects with Granville Batte, approximately $250,000 was used to repay loans and settle disputes by financial partners and the balance was used to pay company expenses such as rent, consulting fees for me and others, travel, repayment of loans and other business costs and expenses.  From 2005 to 2010, I was paid less than half of the consulting income I was contractually promised by the social venture projects.  In 2011 and 2012, I continue to work with social venture community projects in Africa on a volunteer basis without any compensation.  I live off consulting income from tax consulting with energy companies, teaching them to utilize tax incentives to become more environmentally-friendly and emitting less pollution.

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Article III: Wextrust Capital and Social Ventures: The Good, the Bad and the Ugly by Brian Ray Dinning, Social Venture Lawyer

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.

.

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.

Article 3 Wextrust Departure Reasons

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Article II: Social Ventures in Africa: What Can Go Wrong? By Brian Ray Dinning, JD, LLM

Article 2:  Social Ventures in Africa:  What can go Wrong?

By:  Brian Ray Dinning, JD, LLM and Social Venture Lawyer

June 29, 2012

Sometimes committing your life to a worthy cause like social ventures comes with many challenges and obstacles such as:  differing world views, different goals and objectives (especially from banks and investors who have financial goals rather than the founders and social venture partners who generally have charitable and social goals as well as financial goals), the unpredictable nature of people and a limitless host of other complications and factors.  Business and social ventures are hard work – let alone business and social ventures in Africa, where resources, personnel and supplies can be scarce and corruption, violence and theft are rampant.

 

The US Government published that over 50% of all businesses started in the US fail within the first five years.[1]  New Venture Lab – Equipping Christian Entrepreneurs, quotes interesting statistics from Harvard Business School noting that the failure rate of businesses can be as high as 95% (depending on how you define failure).  Their website, quoting a Harvard Business professor, provides:

 

“Most companies fail. It’s an unsettling fact for bright-eyed entrepreneurs, but old news to start-up veterans. 

 

But here’s the good news: Experienced entrepreneurs know that running a company that eventually fails can actually help a career, but only if the executives are willing to view failure as a potential for improvement.

 

The statistics are disheartening no matter how an entrepreneur defines failure. If failure means liquidating all assets, with investors losing most or all the money they put into the company, then the failure rate for start-ups is 30 to 40 percent, according to Shikhar Ghosh, a senior lecturer at Harvard Business School who has held top executive positions at some eight technology-based start-ups. If failure refers to failing to see the projected return on investment, then the failure rate is 70 to 80 percent. And if failure is defined as declaring a projection and then falling short of meeting it, then the failure rate is a whopping 90 to 95 percent.

 

“Very few companies achieve their initial projections,” says Ghosh. “Failure is the norm.”[2]

 

 

While this is the reality for businesses in the United States, a University of South Africa study indicates that the rate of small business failure in South Africa can be as high as 80%.[3]  MIT and other business schools note that the failure rate of social ventures will likely follow that of other for-profit businesses.

 

The challenge is to continue working to improve the lives of the 400 million people living on less than $1.25 per day in Africa regardless of past failures or challenges.  As Nelson Mandela states, “The greatest glory in living lies not in never falling, but in rising every time we fall.”  Quoting Vinod Khosla, billionaire venture capitalist and co-founder of Sun Microsystems: “There needs to be more experiments in building sustainable businesses going after the market for the poor. It has to be done in a sustainable way. There is not enough money to be given away in the world to make the poor well off.”[4] Researchers on social ventures at Duke note that: “We live in an age in which the boundaries between the government, nonprofit, and business sectors are blurring. This blurring results from a search for more innovative, cost-effective, and sustainable ways to address social problems and deliver socially important goods, such as basic education and health care.”[5]

 

Furthermore, Dees and Anderson realize that social venture projects and social entrepreneurs focus on the social impact of social venture projects and business-minded people focus on the financial returns thereby creating complexity.  “It is extremely hard to make strategic decisions about resource allocation or practical cost/quality tradeoffs when the social impact of these decisions is nearly impossible to measure in an efficient, timely, and reliable fashion.  It can become all too easy to focus too heavily on the more familiar, tangible and straightforward economic measures of success.”[6]

 

Businesses including social ventures fail for many reasons.  A New York Times columnist notes the top 10 reasons for small business failure:

 

“1. The math just doesn’t work. There is not enough demand for the product or service at a price that will produce a profit for the company.

 

2. Owners who cannot get out of their own way. They may be stubborn, risk averse, conflict averse — meaning they need to be liked by everyone (even employees and vendors who can’t do their jobs). They may be perfectionist, greedy, self-righteous, paranoid, indignant or insecure. You get the idea. Sometimes, you can even tell these owners the problem, and they will recognize that you are right — but continue to make the same mistakes over and over.

 

3. Out-of-control growth. This one might be the saddest of all reasons for failure — a successful business that is ruined by over-expansion. This would include moving into markets that are not as profitable, experiencing growing pains that damage the business, or borrowing too much money in an attempt to keep growth at a particular rate. Sometimes less is more.

 

4. Poor accounting. You cannot be in control of a business if you don’t know what is going on. With bad numbers, or no numbers, a company is flying blind, and it happens all of the time. Why? For one thing, it is a common — and disastrous — misconception that an outside accounting firm hired primarily to do the taxes will keep watch over the business. In reality, that is the job of the chief financial officer, one of the many hats an entrepreneur has to wear until a real one is hired.

 

5. Lack of a cash cushion. If we have learned anything from this recession (I know it’s “over” but my customers don’t seem to have gotten the memo), it’s that business is cyclical and that bad things can and will happen over time — the loss of an important customer or critical employee, the arrival of a new competitor, the filing of a lawsuit. These things can all stress the finances of a company. If that company is already out of cash (and borrowing potential), it may not be able to recover.

 

6. Operational mediocrity. I have never met a business owner who described his or her operation as mediocre. But we can’t all be above average. Repeat and referral business is critical for most businesses, as is some degree of marketing (depending on the business).

 

7. Operational inefficiencies. Paying too much for rent, labor, and materials. Now more than ever, the lean companies are at an advantage. Not having the tenacity or stomach to negotiate terms that are reflective of today’s economy may leave a company uncompetitive.

 

8. Dysfunctional management. Lack of focus, vision, planning, standards and everything else that goes into good management. Throw fighting partners or unhappy relatives into the mix and you have a disaster.

 

9. The lack of a succession plan. We’re talking nepotism, power struggles, significant players being replaced by people who are in over their heads — all reasons many family businesses do not make it to the next generation.

 

10. A declining market. Book stores, music stores, printing businesses and many others are dealing with changes in technology, consumer demand, and competition from huge companies with more buying power and advertising dollars.

 

In life, you may have forgiving friends and relatives, but entrepreneurship is rarely forgiving. Eventually, everything shows up in the soup. If people don’t like the soup, employees stop working for you, and customers stop doing business with you.  And that is why businesses fail.”[7]

 

 

Aside from the ten reasons noted above, in my experience with social ventures in Africa, the ventures did not work out as planned because of differences in goals and objectives between the partners, tension between the profit-making side and the social aspect of helping people and outlandish, intentional and unprofessional (and sometimes criminal) behavior and actions of others which interfered with, delayed or handicapped the social ventures.

 

Of all the reasons for small business and social venture failure noted above, it would be the outlandish, intentional and unprofessional (and sometimes criminal) behavior and actions of others, which caused our social ventures in Africa to either fail, be delayed or become handicapped.  In order to fully illustrate this point and to tell my side of the story, I will publish this seven part series complete with documents, video, photos, letters and email.

 

In addition to documents, video, photos, letters and email, there are also witnesses to most or all of this outlandish behavior including from the perpetrators themselves.  While some of these people are looking forward to a day in court against me, they will have to take the witness stand (under penalties of perjury) and answer for their outlandish behavior and actions and, hopefully, they will understand how their actions harmed the social venture projects, other investors and donors and the local people of Africa.

 

 

Article 3 is entitled:  Social Ventures in Africa:  Wextrust Capital – The Good, the Bad and the Ugly.

 

 

 

 

 


[1] Small Business Administration

[3] Mabaso, NR, University of South Africa (March 2008).

[4] MIT Entrepreneurship Review: From the Lab to the Land: Social Entrepreneurs Explore Appropriate Technology Dissemination (Nov. 26, 2010).

[5] Dees and Anderson, Duke Social Entrepreneurship: “For Profit Social Ventures,” (2003).

[6] Id.

[7] Goltz, J., “Top 10 Reasons Small Businesses Fail,” New York Times (Jan. 5, 2011).

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Moringa Production as a sustainable agricultural model by Ray Dinning, social venture lawyer

In March/April, 2012, I had the opportunity to work with and interview the agricultural social entrepreneurs in the sustainable farming model for Moringa Production in Africa.  The social entrepreneurs at IRDI, a Zambian-based NGO which helps local communities reach the proverbial first rung of the economic ladder to sustainability through Moringa (superfood) production.  Hailed as one of  the most nutritious super foods in the world, Moringa production can aid in fighting malnutrition and other ailments in Africa while providing an economic windfall to rural communities.

IRDI spokesperson, Jacqui Wintle, introduced me to local schoolchildren, rural communities and farmers who were creating sustainability in their sphere of influence with Moringa farming.  This is truly one sustainable agricultural model and product that can aid Africa now and in the future.

 

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Social Entrepreneurship in Africa named Top 30 Social Entreprenuership Blogs for 2012

Ray Dinning, social venture lawyer, and his blog “Social Entrepreneurship in Africa” have been named One of the Top Social Blogs to Watch in 2012.  See http://www.socialentrepreneurshipinafrica.com.

To view the article, please click on the link below:

http://www.evancarmichael.com/blog/2012/04/10/the-top-30-social-entrepreneur-blogs-to-watch-in-2012/

 

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George Clooney Arrested: Comment by B. Ray Dinning, Attorney and Social Venturer

 

George Clooney on Sudan and Crisis in Africa

Call it a publicity stunt – but George Clooney put his life and reputation  on the line to help those in need in Africa.  Because of his activism more people know about the humanitarian crisis in Sudan today than they did yesterday, because of George Clooney’s arrest during a protest outside the country’s embassy in Washington.

George Clooney arrested

George Clooney arrested Photo: REUTERS
Like George Clooney, I have dedicated my life to those in need in Africa.  My belief comes from my dedication to the service of God and to my beliefs from the Bible which tells us to care for the orphans, the widows and the needy.  So, like George Clooney, I, Brian Ray Dinning, will work to help as many people in need in Africa as I can – even if this means the loss of reputation, the loss of liberty or imprisonment by an injustice system or people or the loss of my life.  
Because some things are more than a belief.  Our great Nation and its Founding Fathers believed this to be true.  Nelson Mandela, the great freedom fighter from South Africa, believed this as well.  The care of the poor, the widows and orphans of Africa is a fight worth fighting for.  The life of a child is precious – whether in the US, Europe or Africa.  Hats off to George Clooney and his father for their convictions and sacrifice.  I only hope and pray that I can help the needy children and people in Africa with the talents, gifts and abilities that God has given me and I hope that others join with us in making our World a better place for all.
B. Ray Dinning

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Virginia lawmakers unanimously pass “social venture” legislation with B Corporation by Ray Dinning tax lawyer

Passing unanimously in the Virginia House of Delegates is the new “social venture” vehicle called the “B Corporation” or “Benefit Corporation” which is a vehicle designed to promote the social ventures that I and others have been promoting in Africa and elsewhere around the world.  With the structure of a corporation and some unique characteristics of tax exempt charitable organizations, this is the wave of the future with six States adopting similar legislation and up to 18 other states with laws in the works.

Interestingly, this movement stems back to a lot of original work by nonprofit guru, Michael I. Sanders.  In helping him with research on “Partnerships and Joint Ventures Involving Tax Exempt Organizations (Wiley & Sons 1994), I learned the foundational work on social ventures which has culminated in the need for structures like Virginia’s B Corporation.

Please read the exempt from the Squire Sanders law firm website below:

As of July 1, 2011, Virginia becomes one of the early adopters among states that will permit social entrepreneurs to legally create a new corporate form known as a “benefit corporation.” This new form of corporate entity is intended to permit social entrepreneurs to codify their missions in their corporate charters. This permits the board of directors and management of a benefit corporation to pursue and take societal benefits and social goals into account in exercising their fiduciary discretion instead of being required to act strictly in the best interest of shareholders, a change that eliminates concerns over liability for breach of fiduciary duty under existing corporate law.

Pursuing Public Benefit

The law is modeled on a similar statute enacted by Maryland in 2010, and similar proposals are pending in a number of other states. Virginia’s legislation improves upon Maryland’s statute and makes Virginia the preferred jurisdiction for social entrepreneurs. Virginia’s benefit corporation statute, which is codified as Sections 13.1-782 to -791 of the Virginia Stock Corporation Act, requires that the corporation’s purpose include pursuit of “general public benefit.” The legislation broadly defines “general public benefit” to mean “a material positive impact on society and the environment taken as a whole, as measured by a third-party standard, from the business and operations of a benefit corporation.” However, it also allows benefit corporations to pursue specific public good purposes, including any benefit that serves one or more public welfare, religious, charitable, scientific, literary or educational purposes, or another purpose or benefit beyond the strict interest of the shareholders of the benefit corporation, such as:

Providing low-income or underserved individuals or communities with beneficial products or services;
Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;
Preserving or improving the environment;
Improving human health;
Promoting the arts, sciences or advancement of knowledge; or
Increasing the flow of capital to entities with a public benefit purpose.

The statute allows entrepreneurs to commit their for-profit ventures to a specific public good, requires directors and officers to take specified public good interest into account in corporate decisions and actions, and requires them to report on contributions to that goal and submit to auditing of their impact. The statute includes remedial provisions for shareholders to take action against directors and officers who fail to consider the specific public benefit in their decision making and actions. Having official “benefit corporation” status allows entrepreneurs to consider stakeholders such as employees, communities or the environment in business decisions.

Eliminating Risk of Lawsuits and Reducing Costs

Under existing corporate law, company directors may face lawsuits for acting on social objectives if contrary to the financial interest of shareholders, but this statute eliminates that risk. Social entrepreneurs have often faced difficulty fitting their hybrid missions of making money and doing good into existing business entity forms. The variety of arrangements historically utilized (e.g., nonprofits controlling for-profits) can be costly to set up and operate, and often limit the ability to raise money from outside investors. By allowing for the adoption of the “benefit corporation” form of entity, Virginia has permitted its economic institutions – in this case the laws that govern corporations – to keep up with the growing interest in the social enterprise sector.

Many expect that the new legal designation will unlock new capital for social ventures from investors who want to park their money in mission-driven companies.

Enacting the Law

Virginia Gov. Bob McDonnell (R.) signed the bill on March 26, 2011 at the end of Virginia’s legislative session. The bill, sponsored by Democratic state delegate Jennifer McClellan, passed Virginia’s Senate unanimously and passed the House of Delegates by a vote of 97-0.

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