Conflicts of interest extend to your guardians

Conflicts of interest extend to your guardians

December 9 2012 at 12:00pm
By Bruce Cameron
PF 8Dec camcol update2 IOL

PF

Illustration: Colin Daniel

Avoidable conflicts of interest in the financial services industry remain a major threat to your financial security.

The problem is even greater when there are conflicts of interest within the Financial Services Board (FSB), which should be a citadel in guarding your interests.

But it appears not to be the case. Rinate Goosen, the manager of the FSB’s Financial Advisory and Intermediary Services (FAIS) enforcement division, is a case in point.

Until last year, Goosen served as compliance officer for Unlisted Securities of South Africa (USSA), which allowed financial services providers with limited qualifications to use its licence to sell property syndication shares and debentures (see box, right).

Being a compliance officer at a company means ensuring the company adheres strictly to legal requirements.

Over the past year, Personal Finance has reported on serious cases of the mismanagement of savings, particularly of retirement savings, where the root problem has been avoidable conflicts of interest.

The fundamental problem with a conflict of interest is: which master is being served? For example, is a financial adviser who is paid sign-on bonuses to work for a different company, particularly when there are sales targets, going to act in your interests or those of the new employer?

This unacceptable practice was started by Discovery, but because the FSB failed to stop it, the practice rapidly spread through the industry. This has resulted in a substantial but unknown number of policyholders, particularly of risk assurance products, being switched around between companies, often to their detriment.

Many of these policyholders, who believe that they now have cheaper life assurance, will find that the products have been structured in such a way that as they get older the premiums will become increasingly unaffordable.

A major problem is that, all too often, the conflicted parties simply do not do their jobs properly – for example, by undertaking proper due diligence on product suppliers and their products.

In determination after determination, the FAIS Ombud, Noluntu Bam, has highlighted how product floggers – particularly when conflicted by things such as excessive commissions – have failed to carry out even the simplest of company and product checks, leaving investors exposed to major losses.

This is particularly the case with property syndications, where commissions can range from anywhere between six and 15 percent of your initial investment.

What far too many individuals and companies in the financial services industry fail to accept is that they are in the position of ultimate trust – they are looking after the possessions of others.

This is not their money. They never worked for the money. Their duty, a fiduciary one, is to handle the money with all due care and diligence.

The problem is that if the FSB cannot see and avoid a conflict of interest within its own ranks, how will it manage those of the institutions it must regulate?

The FSB knows that conflicts of interest are a problem. Financial service providers are obliged to avoid them, while retirement fund trustees should refer to a FSB guidance note advising them to avoid conflicts of interest.

National Treasury is considering making the trustee guidance note obligatory.

Yet too many retirement fund trustees treat the guidelines with absolute contempt by allowing their service providers to be totally conflicted.

The potential dangers of conflicts of interest should be avoided at all costs; and where they cannot, there must be full public disclosure so that everyone can see any potential pitfalls.

Personal Finance has been pointing out to the FSB for many years the problems that can be caused by fronting, an example of which is the USSA structure.

This problem was endemic with most property syndication companies. There is currently an FSB review of FAIS licensing of financial advisers. Hopefully this structure, which allows an adviser to operate under two licences simultaneously, will be banned to stop the clear abuse.

FRONT COMPANY RENTED LICENCE TO UNQUALIFIED FINANCE ADVISER

“This was nothing short of hiring out a licence for a small monthly fee,” financial advice ombud Noluntu Bam found in a determination in which she ordered Pretoria broker Marthinus Ras to repay R800 000 to a recently bereaved widow.

One of the reasons for Bam’s determination against Ras was that he and his company, Prefecsure Lewens, were unqualified and unlicensed to recommend and sell the debentures and unlisted shares of The Villa – a now-failed property syndication offered by Sharemax.

In October, Personal Finance reported that Bam provided evidence that Sharemax’s compliance director, Gert Goosen, had set up a company, FSP Network (trading as Unlisted Securities of South Africa, or USSA), that, for a fee of R150 a month, allowed unlicensed advisers to register as its representatives, enabling them to sell Sharemax shares and debentures.

The Financial Advisory and Intermediary Services (FAIS) Act requires a defined level of qualification for licensing people selling the shares and debentures that underlie property syndication schemes.

Ras was among 622 financial advisers who took advantage of the USSA structure.

This was all reported by Personal Finance in October, but what was not known at the time was that Goosen’s wife, Rinate, was the the compliance officer of USSA.

Rinate Goosen worked at the FSB as an analyst and a manager in 1991 and 1992. She rejoined the FSB in July last year after the collapse of both Sharemax and USSA.

As compliance directors at both Sharemax and USSA, the Goosens had a duty to ensure the requirements of the FAIS Act were being met – not side-stepped.

They allowed Ras to be registered as a representative of USSA without the required qualifications; Gert Goosen also allowed an R800 000 transaction to be effected a few days after his registration.

But there was an additional problem in that Sharemax allowed the transaction to take place in the name of Ras’s company, Prefecsure Lewens, and not USSA.

Nonku Tsombe, head of the FSB legal department, says Goosen has explained her role at USSA to the FSB.

He says Goosen told the FSB that USSA did not rent its licence out to unqualified financial advisers.

The USSA assessed a potential representative’s qualifications and experience in accordance with the prescribed requirements, and “USSA engaged regularly with the FSB to obtain clarity in respect of specific qualifications as and when required”.

“She further advised that USSA did not even consider mandating brokers or applicants who had no prospect of qualifying for a licence in terms of the legislative requirements,” Tsombe says.

Rinate Goosen’s direct boss at the FSB, Gerry Anderson, the deputy executive in charge of market conduct, does not believe she was or is conflicted.

Anderson is the same person who recently argued to the Parliamentary finance committee that the responsibility for controlling property syndications lay with the Reserve Bank and the Department of Trade and Industry.

This despite the fact that people selling property syndication investments are subject to the FSB and his department, and that most of the property syndication companies were also registered as financial service providers in terms of the FAIS Act.

PRONOUNCEMENT ON SYNDICATIONS

When Rinate Goosen was compliance director of USSA, she wrote an article published on the internet, of which the following is an extract:

“In South Africa [property syndication] is still a relatively young industry, having been in existence for more or less the past 10 years. It is an up-and-coming industry and it is inevitable that it will incur more regulation as it evolves. The important point is, however, to consider the regulation that applies in other parts of the world, but to ensure that if and when it is applied in South Africa, that it is cost-effective, efficient and suits the South African circumstances.”

The Liquidators Portfolio Introduction



Last Updated on Thursday, 12 November 2009 23:28 Written by Administrator Wednesday, 04 January 2012 19:38
Erly (Ernst) Bester
The Liquidators Portfolio

Over the past 6-years much has been written and said about property syndications. Property syndications if done correctly offer the investor a good opportunity and growth. However and by the same token if not done correctly or with the wrong intention, the investor can lose every cent he or she may have saved and invested for their ‘golden years’ – this ‘Portfolio’ is the saga about how the latter has occurred in the hope that it may serve as a warning to future investors inter alia to ‘do their homework’, carry out a thorough and detailed investigation into the credibility of the so-called professionals offering their expertise and to repeat an age old adage pertaining to returns: ‘If it is too good to be true, it can’t be true’! Read on: caveat subscriptor! for the first time ever we make available the entire portfolio of documents relating to DWJ Beleggings (Pty) Ltd (‘DWJ’), Oude Molen Properties no’s 1-6 Ltd (‘OMP’s’), DW Promotions CC (‘DWP’), Property Investment Company (Pty) Ltd (‘PIC’), Personal Finance Company (Pty) Ltd (‘PFC’), Sharemax Investments (Pty) Ltd (‘Sharemax’), Dawie Potgieter (‘Potgieter’), Willem Pretorius (‘Willem’), Louis Pretorius (‘Louis’)Durand Botha (‘Durand’), Willie Botha (‘Willie’) later referred to as the Botha Brothers and Gary Roberts (‘Roberts’) who all at one time associated with each other. During 1997 the Botha brothers commenced their dubious property syndication activities at DWP. DWP was the promoter of OMP syndications which was the precursor to Sharemax and PIC. According to Willie he advanced Durand R250, 000.00 to start the property syndication activities at DWP. At that time Gary, Dawie, Willem and Louis also joined them. Later Gert Goosen (‘Goosen’) also became involved. Goosen is Willie’s brother in law.

Many investors, especially retirees, were targeted by ostensibly dishonest purveyors of a variety of money making schemes, more often than not too good to be true. As the saying goes, ‘If it is too good to be true then it can’t be true’. However, as we all know from the recent Tanebaum investment scheme, even some big names and former ‘industrial giants’ (such as Sean Summers, former CEO of Pick & Pay) that should have known better got caught out. One of the favourite themes of such schemes is the age old wisdom ‘With property you can never go wrong’! This maybe correct if done in the correct manner but unfortunately that is often not the case, hardly ‘property’s’ fault!

However the OMP’s syndications the situation was the opposite. Over a period of 3-years the Botha brothers acquired 6 properties for R3.6m sold them onwards at often inflated prices to entities under their control and finally syndicated it to unsuspecting elderly investors by way of unregistered prospectuses for R23.5m. In most instances the elderly investors held listed shares that were traded on the Johannesburg Stock Exchange (‘JSE’). DWP acquired the investor’s information from Mercantile Bank and in turn proposed to them that if they sold their listed shares and invested in OMP’s they will achieve higher returns on their investments. As has been uncovered the OMP syndications ended in dismal failure and heartache for the investors.

For the reader to gain an understanding of what was at stake it should be remembered that during February 2005 an attorney the late Johan Johnsen (‘Johnsen’) applied for the final liquidation of OMP6Ltd. OMP’s was the precursor to the Botha brother’s syndication activities at Sharemax and PIC which today attracts billions of rands from investors. During 2005 the Master of the High Court (‘Master’) appointed Erly (Ernst) Bester (‘Bester’) from Omni-Vaal Trust Gauteng CC (‘Omni-Vaal’) and YM Seckle-Marupen (‘Marupen’) as joint liquidators of OMP6Ltd (in liquidation). According to documentation uncovered it was at about this time that Erly (Ernst) Bester hatched his plan to use the OMP6Ltd (in liquidation) insolvent estate as a vehicle to try and affect a run on Sharemax and PIC. Around April 2005 Erly (Ernst) Bester involved Hannes Muller (‘Muller’) a close business associate and liquidator from Tshwane Trust Company (Pty) Ltd (‘Tshwane’) and attorney Theunis Potgieter (‘Potgieter’). Later Erly (Ernst) Bester also involved his personal attorney and Conrad Brand (‘Brand’). Erly (Ernst) Bester informed stakeholders that the South African Reserve Bank (‘SARB’) had appointed Potgieter to OMP6Ltd (in liquidation). It was subsequently confirmed that the SARB had not instructed / appointed / nominated Potgieter to become involved at OMP6Ltd (in liquidation). During April 2005 Erly (Ernst) Bester appointed Patrick Herron (‘Herron’) who has been investigating the Botha’s since 1999 and Ian Fraser (‘Fraser’) a Chartered Accountant to complete the investigation and factual findings reports for the 417-enquiry proceedings and also instructed them to register complaints against Gerhard van der Bergh (‘van der Bergh’) from Venter de Jager accountants / auditors in terms of the Auditors Act with the Independent Regulatory Board for Auditors (‘IRBA’). On or about July 14, 2005 at a meeting convened by Erly (Ernst) Bester in Pretoria with Muller, Mpoyana Lazurus Ledwaba (‘Ledwaba’) an employee at Tshwane, Potgieter, advocates Tokkie van Zyl Jannie Greyling and others in attendance Herron became suspicious of Erly (Ernst) Bester’s intentions with OMP6Ltd (in liquidation) insolvent estate. Herron informed Fraser and their attorney van Zyl that he was of the opinion that Erly (Ernst) Bester was allegedly going to defraud the creditors and use this insolvent estate to try and affect a run on Sharemax and PIC. On or about July 19, 2005 the OMP6Ltd (in liquidation) 417-enquiry started. Herron and Fraser both testified at the 417-enquiry. During August 2005 the Botha brothers’ legal representatives made an R19m settlement offer to Erly (Ernst) Bester. Erly (Ernst) Bester declined the offer. During August 2005 Gerhard van den Bergh (‘van den Bergh’) Venter De Jager accountants / auditors also testified at the 417-enquiry. During a break in proceedings van der Bergh handed Erly (Ernst) Bester the unsigned draft financial statements for DWP. At this time Herron and Fraser also established that DWP did not pay the PAYE, STC, Company Tax and VAT over to SARS. Sometime during August 2005 attorney Donovan van Zyl (‘Van Zyl’) on instructions from Erly (Ernst) Bester and with the co-operation of Douw Gerbrandt Breytenbach (‘Breytenbach’) applied for the liquidation of DWP by virtue of the unpaid taxes and loan accounts in the CC. During August 2005 the High Court granted the final liquidation order for DWP. The Master appointed Erly (Ernst) Bester, Ledwaba and others as joint liquidators to DWP (in liquidation). On or about September 09, 2005 Erly (Ernst) Bester appointed Herron and Fraser to complete the reconciliation and report on DWP and attorney Eugene Kruger Inc (‘Kruger’) trust ledger.

On or about October 13, 2005 Erly (Ernst) Bester accepted a revised offer of settlement at OMP6Ltd (in liquidation) to the value of R1.4m without consulting all known creditors. To this day the Erly (Ernst) Bester has not adequately account for the R1.4m.

On or about November 15, 2005 at the behest of Erly (Ernst) Bester, Herron attended another meeting with Erly (Ernst) Bester and handed him the DWP (in liquidation) and Kruger draft report. Whilst discussing the content of report the late Deon Basson (‘Basson’) a prominent investigative journalist joined the meeting. Erly (Ernst) Bester then handed Basson the DWP (in liquidation) and Kruger draft report. On or about November 30, 2005 the late Basson published his article titled “Oude Molen fiddle uncovered – Investigation now moves to attorneys trust account”. At this point Willie’s attorney’s Botha Willemse Wilkinson (‘BWW’) threatened Basson with legal action. Erly (Ernst) Bester and van Zyl contacted Herron and instructed him to prepare his affidavits to confirm that he was the source of Basson’s information. Herron completed the draft affidavit but refused to sign it as it contradicts the content of Basson’s article.
During February 2006 again instructed by Erly (Ernst) Bester, Herron verified details pertaining to Sharemax. Herron discovered the dubious circumstances relating to the liquidation of Sharemax renamed WSA Property Investments CC. Herron handed Erly (Ernst) Bester the information. Again Basson used information acquired by Herron to published an article titled “Sharemax liquidated entity earns millions”.

It was around this time Bester uttered the remark: ‘Now that I have all the information this estate is going to become my retirement policy’. What Bester did not realise was that Herron and Fraser did not provide him with all the information and documentation as they suspected that Bester had ulterior motives.
During April 2006 at the request of Bester and van Zyl Herron attended meeting at the office of advocate Greyling. At one point during the meeting adv Greyling asked Herron if the Botha brothers’ have the means to pay and will they make payment to the DWP (in liquidation) insolvent estate. Herron realised that if he provided them with the relevant information that it would complicate matters and instead informed Greyling that money was Willie’s god and therefore he won’t make the payment.

On July 27, 2006 Erly (Ernst) Bester convened a meeting at the offices of Van Zyl Du Plessis attorneys and instructed Barnes and Herron to attend. At this meeting Erly (Ernst) Bester instructed Barnes to provide him with a letter of instruction to make payment to van Zyl and adv Greyling to the amount of R300, 000.00. Barnes without having the necessary authority verbally consented to the payment and on August 01, 2005 ratified the verbal undertaking and provided Erly (Ernst) Bester with the letter of comfort.

On August 01, 2005 Bester contacted Herron and informed him that he just received unsigned amended financial statements for DWP (in liquidation). Bester made request to Herron that he and Fraser must again render further assistance and complete a report on the financial statements. Herron declined the invitation. Not long after Bester’s call Basson contacted Herron and made the same request. Again Herron declined the request. Later Herron contacted Fraser who informed him that he received a similar call from Basson but had informed him that he was unable to assist.

Erly (Ernst) Bester did not take kindly to Herron and Fraser’s responses and on August 01, 2006 he faxed the DWP (in liquidation) unsigned amended financial statements to Fraser with the request ‘please provide your comments’. On or about August 02, 2006 Fraser in the presence of Herron contacted Erly (Ernst) Bester and Barnes to inform them that he was unable to assist. It would appear that Erly (Ernst) Bester was becoming more desperate as he instructed van Zyl to schedule a meeting with Herron at his offices on August 08, 2006. Herron attended the meeting with van Zyl when Erly (Ernst) Bester made his appearance and again asked Herron that he and Fraser must to complete a report on DWP (in liquidation) unsigned amended financial statements. Again Herron declined the request. From this point onwards until approximately September 06, 2006 van Zyl and the late Basson at regular intervals contacted Herron* and time and time again made the same request that he and Fraser must assist Erly (Ernst) Bester. On September 06, 2006 Herron mentioned his suspicions to Basson and requested him not to contact them again as he and Fraser would not assist Erly (Ernst) Bester.

Erly (Ernst) Bester et al ignored Herron and Fraser’s refusal to co-operate and on November 07, 2006 Mariaan Sieberhagen (‘Sieberhagen’) ex-employee of Sharemax contacted Herron and requested him to meet her in Parktown. Sieberhagen was accompanied by a lady friend and a gentleman who she introduced as being her new employer. During the meeting Herron realised that the gentleman in question wasn’t who he purported to be and decided that this was just another attempt by Erly (Ernst) Bester et al to involve him and Fraser with their ‘nefarious’ activities. The gentleman extended the same request to Herron that they should continue to assist Erly (Ernst) Bester. After the meeting Herron broke off all contact with Sieberhagen as he suspected that she may well be an agent for Erly (Ernst) Bester et al.

Not one easily to accept defeat Bester summonsed Herron to a meeting in Midrand. At this meeting Bester made his intentions clear and resort to threatening Herron by informing him that he will get all the information and documentation in his possession whatever it may take. Bester made good the threats by applying dubious strategies but he did not manage to acquire the information and documentation from Herron and Fraser.

Confirmation of Herron and Fraser’s suspicions of Bester can be found at the 1st and final Liquidation and Distribution (‘L&D’) account for OMP6Ltd (in liquidation). According to documentation Bester et al allegedly misappropriated the R1.4m and made the elderly creditors victims for a second time.

On or about June 23, 2009 at a disciplinary hearing conducted at the IRBA van der Bergh pleaded guilty to a number of unspecified charges relating to OMP’s.

Thousands of investors poured their hard earned savings into these property syndications and if Erly (Ernst) Bester et al would have been successful to liquidate these entities and again apply their questionable practices they would have generated millions of rands in revenue for themselves to the detriment of unsuspecting creditors. With a degree of certainty it can be said thatErly (Ernst) Bester et al’s ‘nefarious’ activities was the single most important contributing factor that allowed the Botha brothers to evade total exposure.

A key role player in the saga was the said Bester. With the benefit of hindsight it is clear that Bester’s involvement with the OMP6Ltd (in liquidation) and DWP (in liquidation) Insolvent Estates was motivated not by restitution, but by pure and simple greed – it can be said without fear of contradiction that Bester had delusions of grandeur and pure self enrichment. However that was not to be. Why? Well fortunately precautions were taken to safeguard stakeholder’s interests. One of the things Bester et al were unaware of was that certain parties who had the real interest of the investors at heart were monitoring their nefarious activities which benefitted Herron and Fraser when they made their decisions. The documentation in this portfolio will provide insight into how certain questionable liquidators go about their ‘nefarious’ activities. The incidences uncovered here are not limited to only these insolvent estates during 2004 Parliamentary investigations into the activities of insolvency practitioners concluded that the industry was beset with corruption and fraud.

Much has been written about the OMP6Ltd (in liquidation) and DWP (in liquidation) insolvent estates but has all the facts been presented? Probably not. Many questions remained unanswered. What however will become evident is that Erly (Ernst) Bester was never responsible for uncovering the ‘nefarious’ activities of the Botha brothers. The investigation reports and documents in this portfolio dispel that notion.

We display a number of carefully selected documents on the website which you, the reader can download, study and pose questions. Once you have been empowered with knowledge as to who was responsible for the Botha brothers avoiding total exposure and want to know more, please feel free to order additional documents from the portfolio or send us your questions and any factual contribution you would like to make, bearing in mind that it can be anonymous or if you wish to reveal your identity rest assured that it will be treated in the strictest confidence. We don’t purport to know everything or that we are familiar with all the ‘victims’ and our search for the truth, revelations and exposure continues unabated!

It is recommended that readers and requesters of documents cross-reference back to the property syndication collection as much of the information forms a nexus thereto.
Source: Confidential