Fais Ombud exceeded her powers – Sharemax directors
Appeal against controversial Fais Ombud ruling is heard at the FSB offices.
Julius Cobbett |
31 March 2015
Sharemax, shareholders, offices, pretoria
JOHANNESBURG – Advocates acting for present and former Sharemax directors argued on Monday that the Financial Advisory and Intermediary Services (Fais) Ombud exceeded her powers when she issued a controversial determination against their clients.
The arguments were heard at the Financial Services Board’s (FSB’s) offices on Monday morning in an appeal hearing. Four Sharemax directors and Sharemax itself are appealing a determination against them issued by the Ombud more than two years ago, in January 2013. (See: Fais Ombud finds directors liable for investor’s loss)
Fais Ombud Noluntu Bam offers the investing public free recourse against financial advisers who provide bad advice. Bam has the power to order a financial adviser to reimburse clients their losses. However in two controversial Sharemax determinations, she found the advisers liable, and extended this liability to four Sharemax directors, Willie Botha, Dominique Haese, Andre Brand and Gert Goosen, and Sharemax itself.
The Ombud denied the directors leave to appeal the determination. However, their request for leave to appeal was granted by the FSB’s appeal board.
The Ombud has suspended all determinations relating to property syndications, pending the outcome of the appeal. This has created quite a backlog, with hundreds of complaints yet to be adjudicated.
The Sharemax investors whose complaints gave rise to the controversial determinations were not present at the appeal. The complainants were Gerbrecht Siegrist, 75, and Jacqueline Bekker, 76. Siegrist’s attorney Danie Goosen submitted a notice to abide by the chairman’s ruling. His client did not submit heads of argument. Bekker informed the appeal panel that she could not afford legal advice and her request for legal aid was denied.
Siegrist’s financial adviser, CJ Botha, and Bekker’s adviser, Eddy Carter-Smith, did not apply for leave to appeal the determinations against them.
Sharemax and its former and present directors had powerful legal representation at the hearing. Willie Botha was represented by Cedric Puckring. Dominique Haese was represented by JJ Brett. Willie van Zyl appeared for Andre Brand. Sharemax was represented by Lucas van Tonder. All are senior advocates. Only Gert Goosen did not have legal representation. However Goosen was supported by his wife, Rinate, a former FSB official.
Although the Fais Ombud was neither a respondent nor appellant, she was represented by former pension funds adjudicator Vuyani Ngalwana.
One of the main arguments made by the Sharemax directors was that the Ombud exceeded her powers when she pierced the corporate veil and found them liable. Brett pointed out that the original complaints were against the financial advisers, respectively Botha and Carter-Smith, and not against the Sharemax directors at all. The Fais Ombud took it upon herself to make Sharemax and its directors respondents.
Haese’s advocate Brett argued that the Ombud did not bring an application to court to get a declaratory order allowing her to pierce the corporate veil. He said a court needs to declare in what respects there is to be a piercing. “It can’t just be open sesame.”
Brett went so far as to ask for a costs order against the Fais Ombud. The chairman replied that this would not be possible, because it would be similar to imposing a cost order on a magistrate.
The Ombud’s representative, Ngalwana, told the panel that he was not there to defend the determination but to assist the proceedings. He said the Ombud was not bound by the rules of a court, and had the power to both investigate and adjudicate. He emphasized that the determinations against financial advisers CJ Botha and Carter-Smith were still valid because neither had applied for leave to appeal.
Moneyweb will report on the appeal board’s decision when it is announced.
South Africa
Fais Ombud finds Sharemax directors liable for investor’s loss
Scathing determination declares Zambezi syndication ‘nothing more than a Ponzi scheme.’
Julius Cobbett | @Moneyweb | 31 January 2013 00:57
JOHANNESBURG – Fais Ombud Noluntu Bam has found four Sharemax directors liable for an investor’s loss.
The determination is unusual because it is normally only financial advisers who are held liable for bad investment advice.
However, in a lengthy determination, Bam has set out why she believes the Sharemax directors should be held accountable. The determination was signed on Tuesday. It can be downloaded in two parts here: part 1, part 2.
The determination could pave the way for thousands of other investors to claim losses from Sharemax’s directors.
In her latest determination, Bam is scathing of the Sharemax directors, who she accuses of “violating the law.” Bam’s determination was received after close of business on Wednesday and the Sharemax directors were not immediately available for comment.
Bam writes: “The facts before this office support the conclusion that the investment, as promoted and executed by Sharemax, was nothing more than a Ponzi scheme. The directors of Sharemax violated the law and on this basis [they too] must be held liable for the investors’ loss.”
The complaint in question was laid by pensioner Gerbrecht Siegrist, 73, who is now destitute after investing her capital in two Sharemax-promoted syndications: Zambezi and The Villa.
The complaint was initially laid against her financial adviser, CJ Botha. However, the following six respondents were added to the complaint: Sharemax Investments, FSP Network (trading as Unlisted Securities South Africa), and the following four Sharemax directors: Gert Goosen, Willie Botha, Dominique Haese and Andre Brand.
Siegrist’s late husband left her an amount of money which was intended to provide her with an income. This money was placed in conventional investments, but on Siegrist’s broker’s advice, she invested R460 000 in Zambezi on April 2, 2008, and a further R120 000 in The Villa on July 15, 2008.
Siegrist’s broker, CJ Botha, claims that Siegrist instructed him to invest in Sharemax. But, says Bam, in the same breath Botha “admits that the complainant wanted an investment where her capital would be safe.”
Bam notes that Zambezi was a risky investment unsuitable for pensioners. Yet she notes that brokers who sold Sharemax products “almost without fail targeted pensioners.”
Bam found that the directors of Sharemax and FSP Network “were aware of the fact that the scheme [Zambezi] was both illegal and not commercially viable and yet they recklessly took investors’ funds. Investors whom within their knowledge were almost without exception pensioners who could ill afford the inevitable loss.”
Key to Bam’s determination is the finding that Sharemax and its directors were ultimately responsible for advice rendered by CJ Botha.
Bam links Sharemax to Botha through FSP Network, which traded under the name Unlisted Securities South Africa (USSA).
USSA provided many financial advisers with the necessary Financial Services Board (FSB) licence necessary to sell Sharemax products. The business was described by Bam in a previous determination as “nothing short of the hiring out of a licence for a small monthly fee.”
For more on USSA, see: the following articles: Broker offers widow costly Sharemax advice, FSB linked to Sharemax “licence for hire” scheme, and FSB official’s husband pays 13% return.
At its peak, USSA had 1376 representative brokers, all of whom sold Sharemax products. Bam notes that all of USSA’s registered brokers were only allowed to market Sharemax products.
What’s more, Sharemax director Gert Goosen was also USSA’s sole director and key individual.
Bam writes that Sharemax and USSA were “joined at the hip.”
“What Sharemax attempted to do was to create a buffer between itself and the brokers and the investors,” notes Bam. “This was a futile exercise as in law, Sharemax and its directors will, ultimately, be responsible for the conduct of their section 13 representatives.”
Bam says that Sharemax director Dominique Haese “gives no explanation as to why Sharemax stood by and took money from investors, via their ‘supervised’ broker network, who were clearly investing in a product that was not suitable for them.
Bam says that Haese must have known that the majority of the investors brought in by the representatives were pensioners.
Bam ordered all seven respondents, jointly and severally, the one paying the other to be absolved, to pay Siegrist the amount of R580 000. If the respondents comply with the order, they are entitled to Siegrist’s share certificate.
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FSB stands by Sharemax-tarnished official
Rinate Goosen was compliance officer for a company accused of Fais Act breaches.
Julius Cobbett | @Moneyweb | 6 February 2013 13:01
JOHANNESBURG – The Financial Services Board (FSB) has stood by an official linked to the failed Sharemax investment scheme.
Rinate Goosen, wife of former Sharemax director Gert Goosen, is a manager in the Financial Services Board’s (FSB’s) FAIS enforcement department. This is ironic because Rinate Goosen used to be compliance officer for a company that has been accused by Fais Ombud Noluntu Bam of failing to comply with the FAIS Act.
Rinate’s husband, Gert Goosen, and three other Sharemax directors, have been accused by Bam of operating a Ponzi scheme. In a recent determination, Bam found Goosen and his co-directors directors jointly liable for the loss suffered by a pensioner who invested in two Sharemax products.
Rinate Goosen was the compliance officer of a company called Unlisted Securities South Africa (USSA). USSA has come under severe criticism by Bam in recent determinations.
USSA was established by Gert Goosen in 2004. Its purpose was to provide financial advisers with the licence necessary to sell Sharemax products.
For more on USSA, see: the following articles: Broker offers widow costly Sharemax advice, FSB linked to Sharemax “licence for hire” scheme, and FSB official’s husband pays 13% return.
Last year, the FSB’s Gerry Anderson told Moneyweb that at its peak, USSA had 1 376 brokers. This number was reported by Moneyweb last year, and was also used by the Fais Ombud in her determination. However this week, Anderson told Moneyweb that USSA had at the most approximately 620 individuals on its register. Anderson says that the figure of 1 376 refers to the total number of brokers registered over USSA’s lifespan.
But even if the lower number of 620 is correct, it raises questions about USSA’s ability to supervise so many financial advisers. USSA had only one key individual, Gert Goosen, and one compliance officer, Rinate Goosen.
In her determination, Bam wrote that it was “plainly impossible” for any company, with one compliance officer – in this case Rinate Goosen – to train and supervise well over 1 000 representatives spread throughout the country
Last year Bam described USSA’s business as “nothing short of the hiring out of a licence for a small monthly fee”. In her latest determination she went even further, describing USSA as “nothing more than a marketing arm of Sharemax”. USSA’s brokers were contractually obliged to sell only Sharemax products, and in 2010 Sharemax became a 60% shareholder of USSA.
Furthermore, Bam wrote that USSA “was under a duty to train representatives that Sharemax was not suitable for pensioners or any other investor who cannot afford to lose any part of their capital. Equally, there was a duty on USSA to inform their representatives to persuade pensioners that Sharemax was not for them. None of this was done; on the contrary it appears that the representatives were encouraged to target these vulnerable pensioners with promises of income between 10% and 12%.”
Bam wrote: “The directors of Sharemax and [USSA] were aware of the fact that the scheme was both illegal and not commercially viable and yet they recklessly took investors’ funds. Investors whom within their knowledge were almost without exception pensioners who could ill afford the inevitable loss.”
In light of these findings it is reasonable to ask whether Rinate Goosen is the right person at the FSB to enforce compliance with the FAIS Act.
Rinate Goosen was employed by the FSB from 1991 to 1999. She left the FSB in 1999 to join Liberty Collective Investments (which later became Stanlib) where she spent five years in a compliance officer position. Goosen later joined USSA where she spent at least four years as that company’s compliance officer.
Goosen was re-employed by the FSB in 2011, after the collapse of Sharemax’s two largest syndication schemes, Zambezi and The Villa.
Last year the FSB’s Gerry Anderson defended Goosen’s re-employment. Anderson described Goosen as “well qualified and extremely competent.”
Said Anderson: “At the time of her re-employment, it was known to the FSB what the position of her husband was. It is not believed that there is a conflict of interest. Rinate was employed on her own merits and despite being married to Mr Goosen, based on career history.”
In light of Bam’s most recent determination, Moneyweb once again asked Anderson to comment. The following questions were posed to Anderson:
· The latest Fais Ombud determination does not paint Rinate Goosen in a very good light. Considering its contents, do you still consider Mrs Goosen to be fit and proper to hold the position she does?
· Has the FSB initiated any review of Mrs Goosen’s position?
Anderson’s responded: “The FSB’s position is unchanged in this regard.”
Prior to publication, a draft copy of this article was sent to Anderson and Rinate Goosen with the invitation to correct possible factual errors and to offer additional comment.
Anderson responded:
Ms Goosen advised that USSA did not rent its licence out to unqualified financial advisers. According to her the concept of “renting a licence” did not exist. She has explained as follows: The FAIS Act came into operation on 30 September 2004 and when it did so, not all the applications for licences that had been submitted by brokers in the industry had been finalised by the FSB. In order to strike a balance between regulation and continued economic activity, the FSB exempted applicants who had submitted licence applications to the FSB prior to 30 September 2004, and such applicants were allowed to operate under the exemption until such time as the FSB had rejected or granted the licence application.
Ms Goosen advised that the purpose of USSA was to enable brokers who were not rendering financial services under the exemption that existed, to continue to sell Sharemax related unlisted investments and obtain the necessary experience in respect of financial products 1.8 (securities) and later 1.10 (debentures), until such time as they could submit an application to the FSB to obtain their own FSP licence. It also provided other brokers who already had the necessary experience but did not fall under the exemption because they had not submitted their licence applications timeously, to continue to sell Sharemax related unlisted investments while FSB attended to their licence applications. When the industry realised in 2006 that category 1.10 (debentures) was a product that required licensing, certain brokers who already had product 1.8 (securities) licensing came onto USSA’s register while they were waiting for the FSB to attend to their applications to have financial product 1.10 added to their own licences.
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Sharemax appeals halt ombud rulings
December 17 2013 at 08:00am
By Roy Cokayne Comment on this story
Johannesburg - The Ombud for financial advisory and intermediary services (Fais) has suspended the issuing of determinations on property syndication schemes.
This follows the appeal board of the Financial Services Board (FSB) granting leave to appeal to the respondents in two determinations issued this year by the Fais ombud. The appeal board said it wanted to consider “a number of procedural and substantive issues”.
In a letter received this month by an investor in a Sharemax scheme, the case manager at the Fais ombud said the appeal board’s decision on these issues could affect complaints related to property syndication investments and the manner in which they were dealt with by the Fais ombud.
“As a result, the ombud has taken a decision to suspend the issuing of determinations in respect of property syndication matters at this stage until the appeals in the matters of Siegrist and Bekker have been finalised,” it said.
It estimated the decision of the appeal board was likely only after July next year.
The letter said the Fais ombud had received “thousands of complaints” related to Sharemax and other property syndications, including Pickvest, Realcor Cape and others.
It stressed that the office continued to accept and investigate complaints related to property syndication investments “but cannot determine after such investigation until the ruling in the two matters has been delivered”.
These determinations both involved complaints by investors about financial advice given to invest in Zambezi Retail Park, a scheme promoted and marketed by Sharemax.
Apart from the financial adviser in each complaint, the following were jointly and severally held liable to repay the complainants: Sharemax Investments; FSP Network; Sharemax and Unlisted Securities South Africa director Gert Goosen; and Sharemax directors Willem Botha, Dominique Haese and Andre Brand.
In the Gerbrecht Siegrist complaint determination, Fais ombud Noluntu Bam said her office had “pierced the corporate veil” of how Sharemax operated and had concluded that Zambezi Retail Park was “nothing more than a Ponzi scheme” with investors paid interest out of their own funds.
Bam said the directors of FSP Network and Sharemax must be held “personally liable” for Siegrist’s loss and could not “hide behind the corporate veil”.
“The directors of Sharemax and FSP Network were aware of the fact that the scheme was both illegal and not commercially viable and yet they recklessly took investors’ funds,” she said.
In the Jacqueline Bekker complaint determination, Bam ruled that Sharemax Investments, its network of financial advisers and four of its directors – Goosen, Botha, Haese and Brand – were involved “in a scheme calculated to defraud” members of the public.
Caroline da Silva, the deputy registrar for Fais at the FSB, said the appeal board was a tribunal that was independent of the FSB and comment should come from the judge of the appeal board.
However, Da Silva said comment could not be provided at this stage about the nature of the procedural and substantive issues to be considered because the appeal was a legal process and subject to the sub judice rule and confidentiality provisions of the legislation.
Sharemax collapsed in 2011 after a registrar of banks decision that its funding model contravened the Banks Act became public knowledge, leading to new investments drying up. - Business Report
