Saturday, March 12, 2011
Leaderguard: broker must pay up again
Leaderguard: broker must pay up again
February 13 2011 at 12:10pm
By Laura du Preez
A broker who recommended that an elderly investor move money out of a money market fund and into failed foreign currency trader Leaderguard has been ordered to repay the man. This is the financial advice ombud’s second ruling against the broker.
Johan Stander, who trades as Johan Stander Makelaars, was this week ordered to repay Johannes Lategan, of Hartenbos in the Western Cape, the R263 000 he invested in Leaderguard late in 2004.
The Mauritian foreign currency trader, Leaderguard Spot Forex (LSF), and its South African arm, Leaderguard Securities, collapsed in 2005, resulting in 1 850 investors losing about R350 million.
In October 2009, the ombud ordered Stander to repay pensioners Willem and Elma de Lange the almost R600 000 they invested in Leaderguard on his advice.
According to this week’s ruling by Noluntu Bam, the Ombud for Financial Services Providers, Stander advised Lategan to take R263 000 out of an Old Mutual Guernsey-based money market account and place it in Leaderguard.
Lategan, who was 66 at the time, says Stander told him the investment was safe and would offer higher returns than the money market investment. But LSF and Leaderguard Securities were both placed in liquidation soon after he invested, and Bam says it is unlikely any of the money will be recovered.
Lategan’s loss from his Leaderguard investment was on top of substantial losses from earlier investments he made on Stander’s advice, including a R220 000 loss in Jack Milne’s PSC Guaranteed Growth Fund scam. The ombud could not investigate these losses, however, as the advice was given before October 2004, when her office was established.
The ruling says Stander admitted he did not perform a financial needs analysis, as required in terms of the Financial Advisory and Intermediary Services (FAIS) Act, to determine if Lategan needed the Leaderguard investment.
Stander told the ombud he did not need to do a financial needs analysis because the investment with Leaderguard was a cash one, replacing the cash investment Lategan already had.
He told Lategan the Leaderguard investment had a guarantee on 80 percent of the capital, whereas the money market investment did not have a guarantee, but Bam says the LSF guarantee was not in fact a guarantee.
Bam says Stander moved Lategan from a low-risk money market investment in British pounds and into LSF, and it is obvious that he did not appreciate the difference in risk between money market and forex investments.
“As an experienced provider of many years, [Stander] surely knew, or ought to have known, that forex trading is volatile, subject to the vagaries of almost daily fluctuations in value, and is inherently a high-risk investment,” Bam says in her ruling, which echoes the one issued by former ombud Charles Pillai in the De Lange case.
Bam says there is no valid reason for Stander to have recommended the product “other than his own misunderstanding of the nature of the product and self-interest, or commission to be earned”.
In terms of the FAIS Act, Stander should have advised Lategan of the actual and potential financial implications, and the costs and consequences, of switching his money market investment into LSF, she says. There is no evidence that Stander did this, Bam says.
The ombud says that at the time that Stander recommended the investment to Lategan, he had not yet obtained a licence from the Financial Services Board (FSB) to act as a financial services provider (FSP) able to recommend foreign currency investments as required in terms of the FAIS Act.
He was operating under a blanket exemption from the need to obtain the licence. Stander should have disclosed this to Lategan, because, if his licence had subsequently been rejected, he would have had to return the money his client had invested, Bam says.
Stander told Bam that he had informed the FSB on his licence application that he would be dealing with LSF. He says because the FSB licensed him, by implication it had approved LSF.
Stander told the ombud that in November 2004 he had received a copy of an email from Rod Lowe, then of Leaderguard Securities, saying that Leaderguard Securities had obtained its licence to operate as an FSP.
In fact, Leaderguard Securities had also obtained an exemption from its licence requirements, and its application was declined in April 2005. LSF never applied for a licence, the ruling says.
Stander should not have assumed that LSF was licensed on the basis of the email in which Lowe “falsely” stated that Leaderguard Securities was licensed, Bam says.
Lowe, now a director of InvestOnline, which offers unit trust investments online, told Personal Finance he was informed by Leaderguard Securities’ compliance officer, attorney and the head of the Forex Investment Association, Chris de la Guerre, that Leaderguard Securities had obtained a licence, and he saw a letter from the FSB to this effect that did not mention the exemption.
Lowe says Stander was not one of the brokers he consulted and Stander obtained the email from a third party.
Bam ordered Stander to repay Lategan the R263 000 he invested plus interest of 15.5 percent a year from January 2005.
Stander’s case has been sent to the FSB, but the FSB’s deputy executive officer in charge of market conduct, Gerry Anderson, said this week that no further action would be taken.
WHERE TO GET HELP
The Ombud for Financial Services Providers is Noluntu Bam.
Telephone: 012 470 9080
Fax: 012 348 3447
Post: PO Box 74571, Lynnwood Ridge, 0040