Scamsters’ helpers face tough action-Lawyers ,Auditors and Property Valuators

Scamsters’ helpers face tough action
March 13 2011 at 12:20pm
By Bruce Cameron

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More must be done to protect you
Professionals such as auditors, lawyers and property valuators – as well as financial intermediaries – who endorse, promote or sell high-risk or scam investments do so at their own peril.

This warning was made by Noluntu Bam, the Ombud for Financial Services Providers, in her latest determinations in favour of people who have lost their savings in collapsed property syndications.

Bam also wants the Financial Advisory and Intermediary Services (FAIS) Act to be tightened up to stop scamsters from side-stepping the Act’s provisions by registering unqualified intermediaries as their representatives.

In a determination related to the collapse of “fraudulent” property syndicator BlueZone, Bam has also recommended that:

* The conduct of the accountants and the property valuators involved in the failed syndication be investigated by their respective regulatory bodies; and

* The actions of BlueZone’s lawyers, Honey & Partners, be referred to both the Law Society and the National Prosecuting Authority (NPA). This is the second time that the ombud’s office has referred a firm of attorneys to the Law Society.

On the previous occasion, the ombud’s office questioned the legality of the so-called Leaderguard Recovery Unit and the role of law firm Sim Attorneys.

The referral was based on Sim Attorneys representing two intermediaries who advised clients to invest in the Leaderguard scam foreign exchange scheme and against whom complaints had been made to the ombud. At the time, Sim Attorneys was also offering to help recover money for investors who had lost money in the scam.

The Law Society has never issued a statement on the Sim matter, apart from confirming to Personal Finance that the firm was under investigation.

In her determination on the BlueZone case, Bam singles out Honey & Partners, naming HE van der Walt, GS Goodes and JJ van Zyl as directors/partners of the firm. Van Zyl was “one of the masterminds behind BlueZone” and one its directors, something he failed to disclose to investors, Bam says.

Honey & Partners “was a vital cog in the entire BlueZone investment scheme”, she says.

As the conveyancing attorneys for the Blue Dot syndication (a BlueZone development), the firm knew about the sham BlueZone valuations that were designed to swindle investors, Bam says.

Honey & Partners also started to pay interest on deposits to complainants and other investors (apart, to Bam’s knowledge, from one case) only after the ombud had raised the issue in a determination.

The firm was also supposed to return money held in its trust account to investors if a target of R425 million was not raised. Only R361 million was raised, which means “the investors may well have a claim against Honey & Partners and possibly the Fidelity Fund”.

She wants the trust account of Honey & Partners to be subjected to a full audit and for investors to be told to ask Honey & Partners for interest owing on their deposits.

In her determination in a successful complaint brought against Cape Town intermediary John Moore and his company, Johnsure Investments, who sold the BlueZone and Sharemax syndication investments, Bam has recommended that Moore be referred to the NPA, the Law Society and the Attorneys’ Fidelity Fund.

Generally, Bam says, the regulators rely on professionals, including attorneys and auditors, to carry out their functions professionally and independently, and to report suspicious and fraudulent transactions. “Unfortunately, the opposite seems to be true,” she says.

Attorneys and auditors are public officials who have assumed the duty to report fraudulent or potentially fraudulent conduct, Bam says. These professionals wittingly or sometimes unwittingly become involved in toxic schemes to the detriment of the public after being attracted by lucrative fees.

Addressing the issue of intermediaries who sell property syndication schemes, Bam says there appears to be a loophole in the FAIS Act that exposes the public to the risk of dealing with unlicensed financial services providers (FSPs) and their representatives.

Perpetrators of scams often use unqualified intermediaries to sell their products but register themselves as FSPs and name the intermediaries as their representatives. Many of the representatives are themselves FSPs, but they are not licensed to advise on or sell shares and debentures used in property syndications.

In terms of section 13 of the FAIS Act, a FSP that employs representatives is supposed to certify to investors that its representatives have the skills to represent the FSP and that they meet the Act’s fit and proper requirements.

Bam says that intermediaries, whether they are FSPs or FSP representatives, who fail to comply with the FAIS Act and the Act’s code of conduct will be “marketing those products at their peril and will be held responsible”.

She says: “To put it plainly, the attraction of quick profit may well result in permanent financial ruin (of the intermediaries).”


OMBUD GOES FOR THE MASTERMINDS

The perpetrators of financial scams have for the first time been called to account by Noluntu Bam, the Ombud for Financial Services Providers.

To date, the ombud’s office has targeted only the advisers who sell fraudulent and high-risk products. However, in a determination issued this week, Bam ordered that Jacob Johannes van Zyl and Hendrik Christoffel Lamprecht, two of the directors of the fraudulent BlueZone property syndication scheme, be held accountable and forced to compensate an investor.

A common thread runs through all the complaints she receives about failed investments, Bam says. Once a scheme has collapsed, the companies are placed in liquidation, the investors are left high and dry, and the directors “simply hide behind the liquidation process and successfully divert attention from the fact that they swindled members of the public”.

The directors of failed schemes are hardly ever affected; they escape unscathed. They are the masterminds and beneficiaries of these fraudulent schemes ... and “in most of these schemes the fraud appears to have been conceived from the inception of the company”, Bam says.

She says one way she can act to stop the rampant fraud and the way directors escape the prosecution net is to hold directors directly responsible – which she has done for the first time in a determination concerning the BlueZone syndication.

The latest two property syndication determinations by Bam are:

1. GWB, a pensioner from Diep River in Cape Town, assisted by his daughter, complained to the ombud that John Alexander Moore, of Kenilworth in Cape Town, and his company, Johnsure Investments, incorrectly advised him to invest R100 000 in BlueZone’s failed Spitskop Village syndication in Mpumalanga. Another complaint has been lodged against Moore for advising GWB’s wife to invest a further R250 000 in a troubled Sharemax property syndication.

In her determination, Bam referred to a fraudulent deal in which Blue Dot Properties, whose directors included Van Zyl and Lamprecht, bought the Spitskop syndication land for R1 057 000 and then sold it to Spitskop Village Properties for R118 million, giving them a handsome profit at the expense of investors. At the time, the property was unused agricultural land.

Bam says that even after the police sent a letter to investors warning that BlueZone was in contravention of a number of laws, Moore did nothing to advise GWB about the investment. The laws included the South African Reserve Banks Act, the Financial Advisory and Intermediary Services (FAIS) Act, the Unfair Business Practices Act, the Restitution of Lands Act and the Companies Act.

Bam found that Moore did not meet the requirements of the FAIS Act to advise on and sell the investment. She found that Moore:

* Falsely made himself out to be an expert on the product;

* Was not qualified or licensed to advise on or sell unlisted shares and debentures;

* Failed to make an independent and objective assessment of BlueZone/Spitskop, relying instead on glossy BlueZone brochures; and

* Failed to take into account that a risk analysis revealed that GWB was a “conservatively moderate investor”, whereas the investment was “high risk”.

Bam ordered Moore to pay GWB R100 000 plus interest of 15.5 percent a year from January 25, 2007 until the date of payment.

2. SPM, a database administrator at a mine at Mooinooi in the Free State, complained to the ombud that he had been ill-advised to invest R400 000 in the “fraudulent” BlueZone by Christian Johan Swanepoel, a former financial services provider (FSP) based in Somerset West whose FSP licence has been withdrawn, and Van Zyl and Lamprecht.

Bam found that Swanepoel:

* Had failed to conduct an independent and objective assessment of the syndication, instead relying almost exclusively on BlueZone brochures;

* Was not qualified or licensed to deal in unlisted shares and securities; and

* Had breached provisions of the FAIS Act.

Bam ruled that Van Zyl and Lamprecht were liable for SPM’s losses in terms of both the common law and the FAIS Act.

She ordered Van Zyl, Lamprecht and Swanepoel to jointly or severally pay SPM R400 000 plus interest of 15.5 percent a year from February 1, 2007 until the date of payment.