Over R400 million in funds was unaccounted for in Fidentia's books in 2006, a Financial Services Board (FSB) official told the Western Cape High Court.

Dawood Seedat, the FSB's chief financial officer, said it launched an investigation into Fidentia after receiving complaints of mismanagement of clients' funds from a former Fidentia employee.

The investigation spanned from June 2006 to the end of January 2007, and included an interview with former Fidentia boss J Arthur Brown.

Seedat was testifying in aggravation of sentence in the trial of Brown, who was recently convicted on two counts of fraud.

Seedat said one of the key findings was that there was a R406m discrepancy in Fidentia's funds.

He said Fidentia's auditors indicated in a report that they could not do an audit for 2004/05 because there were various outstanding documents and obstacles.

One of their findings indicated that the liability to clients exceeded their investments.

Brown took notes during Seedat's testimony and laughed when some more serious allegations were made about the way Fidentia handled investments.

Judge Anton Veldhuizen criticised the State for calling a witness whose testimony was unrelated to Brown's admissions.

"He hasn't been convicted of having stolen any money from Fidentia Asset Management, Fidentia or anywhere else... He hasn't appropriated any client's money. I don't understand this," the judge said.

"This is not correct. I think the State has mismanaged this. You accepted the plea of the accused on the basis of what he did; he saw potential prejudice."

Veldhuizen told Brown's lawyer that he would take into consideration only the evidence given by Seedat which was directly related to the convictions.

"I cannot sentence the accused for something more serious than what he has been convicted of," he said.