Friday, May 24, 2013

Sharemax and directors schemed to defraud public, says Fais ombud

Sharemax and directors schemed to defraud public, says Fais ombud
May 24 2013 at 08:00am
By Roy Cokayne




SHAREMAX Investments, its network of financial advisers and four of its directors – Gert Goosen, Willie Botha, Dominique Haese and AndrĂ© Brand – were involved “in a scheme calculated to defraud members of the public”, financial advisory and intermediary services (Fais) ombud Noluntu Bam said yesterday.

Bam reached this conclusion in her latest determination on a complaint lodged by a 73-year-old female pensioner from Heidelberg in the Western Cape against financial adviser Edward Carter-Smith after investing R490 000 in the Zambezi Retail Park on Carter-Smith’s advice.

Sharemax promoted and marketed the Zambezi Retail Park property syndication.

Bam ordered Carter-Smith, Sharemax Investments, FSP Network (a network of brokers set up to market Sharemax schemes), Goosen, Botha, Haese and Brand jointly and severally to repay the complainant.

Carter-Smith complained that he had been misled by the directors of Sharemax and called them “liars”.

In an earlier determination Bam said Sharemax was “nothing more than a Ponzi scheme” in which investors were paid interest out of their own funds.

Business Report confirmed in October last year that the Hawks were investigating allegations that Sharemax committed fraud and operated a pyramid or Ponzi scheme.

About 40 000 people invested about R4.5 billion in the various schemes promoted and marketed by Sharemax.

It defaulted on monthly payments to investors in August 2010 when a decision by the registrar of banks that Sharemax’s funding model contravened the Banks Act became public knowledge.

ACT Audit Solution told the ombud that it had concluded after seeking a legal opinion that the transfer of investor funds from the trust account of Sharemax attorneys Weavind & Weavind to the investment property companies in The Villa and Zambezi schemes, prior to the registration of transfer of the property to investment property companies, “may constitute a reportable irregularity on a proper interpretation of the prospectuses”.

However, Sharemax directors claimed no reportable irregularity occurred because a bona fide “copy and paste” mistake had occurred during the drafting of the prospectuses.

Bam said this claim by the directors of Sharemax was “disingenuous and against the probabilities”.

She said her office was in possession of promotional pamphlets produced and distributed by Sharemax in 2010 that also stated investors’ funds would be paid into the trust account of Weavind & Weavind attorneys until the property was ready for transfer into the investors’ names.

Bam said Sharemax, FSP Network and the four Sharemax directors on their own version knew at the time of producing this pamphlet that they were “wilfully and deliberately misleading members of the public” because of the “cut and paste error” and the prospectus was subject to rectification.

They failed to explain why this “error” was only discovered after the Reserve Bank intervened in 2010 and after the scheme had already collapsed. They also failed to explain why Weavind & Weavind, which allegedly made the mistake, did not file any papers or correspondence in support of the “cut and paste error” version.

Bam said Weavind & Weavind had further failed to explain why it did not inform investors there was an error before it started paying the funds out of its trust account.

She said Weavind & Weavind had never supported the notion of an error in the prospectus. The law firm was of the opinion that the government notice on property syndications did not apply to this scheme and it was therefore not illegal to pay the money from the trust.

Letters sent to each investor by Sharemax, acknowledging the investment and stating that their investment had been deposited into Weavind & Weavind’s trust account, and kept there until the investment amount was processed and the property was transferred, were “equally untrue and misleading” because on Sharemax’s version this was a mistake.

Bam said these letters of confirmation were still being written to investors after the “mistake” was discovered.

“The only reasonable conclusion to be drawn… is that the second to seventh respondents [Sharemax, FSP Network and the four Sharemax directors] were involved in a scheme calculated to defraud members of the public,” she said.



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