Sunday, December 4, 2016

Fais continues with property syndication probe - SHAREMAX

Roy Cokayne

141010 Zambezi mall one of Sharemax by Simphiwe Mbokazi 453
Pretoria - The ombud for financial advisory and intermediary services (Fais) has resumed issuing property syndication determinations, including against schemes promoted and marketed by Sharemax, following a two-year hiatus.

The issuing of determinations on all property syndication schemes was suspended in 2013 while an appeal by former Sharemax directors against two determinations issued by the Fais ombud’s office was heard by the appeal board of the Financial Services Board. This led to a 2 000-plus complaint backlog building up at the office of the Fais ombud.

Sharemax Investments and four of its former directors – Gert Goosen, Willem Botha, Dominique Haese and Andre Brand – last year successfully appealed against two determinations by the Fais ombud that held them jointly liable to repay two investors who had invested in a scheme promoted and marketed by Sharemax.

The outcome of the appeal meant the Fais ombud could only issue determinations against the broker or financial adviser and could not place liability at the door of the directors of the property syndication schemes.

Read also: Judgment clips ombud’s wings

In a determination released yesterday, Juriën Jordaan, a financial adviser who assisted a teacher to invest in The Villa, an investment scheme promoted and marketed by Sharemax, was ordered by Fais ombud Noluntu Bam to repay the woman the R100 000 she had invested in the scheme.

No records

This is the first property syndication determination issued by the Fais ombud since the appeal was finalised. Bam found that Jordaan had failed to act with due skill, care and diligence and in the interests of the complainant when he advised her to invest in a product without first advising her.

She said Jordaan was unable to produce records to demonstrate the basis on which he had considered the high risk Sharemax Investments suitable to the complainant’s circumstances. Bam said Jordaan had also failed to disclose the risk inherent in The Villa investment.

The determination is the first issued by the Fais ombud against a financial adviser related to a property syndication scheme since the appeal was finalised. Bam confirmed last year that her office had launched a project to eradicate the property syndication complaints backlog.

Bam told Business Report in November that the administrative aspects of the “shelved” cases had been completed but had to be evaluated to make sure, for instance, they had not prescribed. She added that a decision would be taken on the merits of each case before a determination could be written.

“We have had to co-opt law firms to help us brief counsel for that because it was not possible for us to do it on our own, due to our limited resources,” she said. About 40 000 people invested about R4.5 billion in the various schemes promoted and marketed by Sharemax.

Read also: CIPC has no power over Sharemax rescue

Sharemax collapsed in 2010 after the findings of a registrar of banks investigation that Sharemax’s funding model contravened the Bank Act became public knowledge. This led to new investments drying up and Sharemax being unable to make monthly payments to investors. The registrar of banks laid criminal charges against Sharemax for alleged contraventions of the Banks Act in March 2012.


The Hawks confirmed in October 2012 that they were investigating allegations that Sharemax had committed fraud and were probing whether it had operated a pyramid or Ponzi scheme.

During 2012 in a court sanctioned scheme of arrangement, the schemes were taken over by Nova Property Group and Sharemax investors were issued with debentures or shares in Nova.

In the determination released yesterday against Jordaan, Bam highlighted what she called “a few interesting points”. She said about the time of the announcement of the scheme of arrangement in 2011, the executive directors of the Sharemax Group – Dominique Haese, Rudi Badenhorst and Dirk Koekemoer – held 43.2 percent of Nova’s issued shares and were currently listed as directors of Nova. She said the registered address for Nova Property was the same as the old Sharemax head office.

Bam added that Frontier Asset Management had provided a range of administrative services to Nova and Centro Property Group and managed the property portfolio on behalf of Nova. The directors of Nova were: D Haese, D R Koekemoer, CJ van Rooyen and RN van Zyl, who were also formerly directors of the Sharemax Group, plus M J Osterloh. The directors of Centro Property Group were E Grobler and M J Osterloh, she said.

Bam said Frontier Asset Management had sent out a communiqué dated August 6, 2013 warning investors that those who brought complaints to the office of the Fais ombud would “lose their right to have their Sharemax Investments converted into Nova debentures or shares”.



Claims against advisers shoot to R15mBUSINESS NEWS / 2016
Roy Cokayne

newly appointed Financial Advisory and Intermediary Services (FAIS) Ombud, Ms Noluntu supplied
Johannesburg - The amount financial advisers have been ordered to repay their clients whom they wrongly advised to invest in the Relative Value Arbitrage Fund (RVAF) has now escalated to more than R14.8 million.

This follows the ombud for financial advisory and intermediary services (Fais) Noluntu Bam ordering L Loxton Nel and Associates and/or Llewellyn Claudius Loxton to Teresa Karwowski the R120 000 they had advised her to invest in RVAF.

Read: Adviser must pay R800 000 to RVAF client

Karwowski was a friend of Loxton’s wife.

The fund collapsed after its manager and trustee Herman Pretorius committed suicide in July 2013 after shooting dead his business partner Julian Williams.

Bam said no adviser would have recommended RVAF as a suitable component of any investment portfolio had they exercised the due skill, car and diligence required in terms of the Fais code of conduct.

She said the complaint was about being advised to invest in a scheme that “was not above board”.

Bam said L Loxton Nel and Associates and/or Llewellyn Claudius Loxton appeared to have blindly accepted whatever they were told about RVAF without any proper attempt to verify such information and this information was then recklessly conveyed to their client.

She said the fact was that they were out of their depth and therefore could not have had any understanding about the economic activity that generated the returns or the sustainability of the investment.

In a separate determination, Bam ordered Huis van Oranje Financiele Dienste and/or Stephanus Johannes van der Walt to pay Eduard Mostert of Gauteng the R267 000 he was advised to invest in Purple Rain Properties 15 trading as Realcor Cape.

The agreement constituted an application to purchase shares to the value of R267 000 in the Blaauwberg Beach Hotel, of which property holding company Midnight Storm Investments 368 was the registered owner.

After the completion of the hotel, the shares were to be purchased by the investment company for the benefit of the investor.

No losers

Mostert was allegedly told by Van der Walt that it was a good, safe investment with a healthy interest rate “in which there could be no losers”.

The investor concluded the agreement in December 2009 and continued to receive his monthly dividend until October 2010 when the payments suddenly stopped.

He was assured that the delayed payments were due to an administrative problem and payments would resume shortly but subsequently learned via Radio Pretoria that the investment scheme was experiencing financial trouble.

An inspection conducted in terms of the SA Reserve Bank Act concluded that Realcor Cape and/or related individuals obtained money by conducting the business of a bank without being registered as a bank and directed them to repay all money raised.

A business rescue process failed and an application for the liquidation of Midnight Storm Investments resulted in the hotel being sold in May 2013 for R50 million, dashing any hopes of investors recouping their investments.

A total of R616m was lost.

Bam said Van der Walt advised Mostert to make the investment without first assessing his financial needs and determining his risk profile, which was in contravention of the Fais code of conduct.

The Fais ombud said Van der Walt had also failed to maintain his records of advice, which was also in contravention of the code, and failed to provide financial services honestly, fairly with due skill, care and diligence and in the interests of his client and the integrity of the financial services industry.


Two more advisers must repay Sharemax clientsPERSONAL FINANCE / 21 May 2016, 07:05am

Laura du Preez

The financial advice ombud this week ordered two financial advisers who advised investors to invest in property syndications promoted by Sharemax to compensate them for the almost R700 000 they lost.

One investor, a 65-year-old KwaZulu-Natal widow, invested all her savings of R650 000 in the Sharemax Zambezi Retail Park in 2008. In June 2010, she received her last interest payment.

Noluntu Bam, the Ombud for Financial Services Providers, ordered her adviser, Johannes Mostert, to repay her the R650 000 after he failed to justify his investment advice to the ombud.

According to Bam’s ruling, Mostert initially paid the widow, Mrs L, her monthly payments himself, but he was unable to keep up the payments and reduced the amount.

Mrs L was forced to sell the home in which she had lived for 39 years to have capital to provide an income and rent a flat, the ruling says. She is worried she will be stranded when this money runs out.

When Mostert learnt that she had sold her home, he stopped his payments.

The second investor, also from KwaZulu-Natal, Mr R, invested R40 000 in Sharemax’s The Villa Retail Park in 2009, Bam’s second ruling reveals.

His adviser, Alida du Preez-Maritz of Bahati Yetu Brokers, was ordered to repay him what he lost, after she responded to Bam with “unpalatable statements and gratuitous attacks” on Mr R and said she did not have time to waste on “this rubbish” and the “stupidity” of having to exonerate herself.

According to the ruling, Mr R said Du Preez-Maritz had persuaded him to sell an Old Mutual policy to invest in The Villa in 2009 because he could earn better returns.

Mr R told the ombud he did not see anything untoward in the advice because he had invested R100 000 in another Sharemax property syndication, and was receiving regular interest.

But in September 2010, he read media reports that The Villa was bankrupt, and he has not recovered his investment.

In both cases, Bam found the advisers were responsible for the losses.

Mrs L was of the view that she should invest her money with Momentum, but she sought the advice of Mostert because she feared she was not knowledgeable about investments, the ruling says.

She told the ombud that Mostert guaranteed that her funds would be safe and that she would enjoy capital growth after five years, even if she withdrew the interest as a pension.

Bam found that both Mostert and Du Preez-Maritz could not have followed the general code of conduct under the Financial Advisory and Intermediary Services (FAIS) Act, which requires financial advisers to recommend an investment that is suitable for you given your financial needs and the risk you can afford and are willing to take.

Mrs L was a pensioner who relied on her investment for an income and therefore could not take the risk of losing it.

In his complaint to the ombud, Mr R says Du Preez-Maritz did not tell him that the Sharemax investment was a high-risk one.

Bam wrote to Du Preez-Maritz stating that property syndication investments are high-risk ones because they are unlisted companies and the way in which the properties are valued is never disclosed. The ombud asked the adviser to provide evidence that she had made Mr R aware of the risks. Du Preez-Maritz did not respond.

Bam also says in her ruling there was no evidence that Du Preez-Maritz had followed the FAIS Act requirements for replacing one investment (Mr R’s Old Mutual investment) with another: the Sharemax property syndication.

Bam found in both cases that the advisers had failed to conduct a due diligence on the Sharemax investments and there was no evidence that either of them knew how the investments would fund the interest they promised to pay the investors, given that the properties were still being constructed and therefore had no rental income.

Bam says in both rulings that there was no evidence that the advisers were aware of the risks involved in Sharemax.

“These include the lack of apparent safeguards to protect investors against director misconduct; the lack of visible governance arrangements; and the complicated structure of the investment itself, which left the investors with no protection,” she says.

Bam also found Mostert contravened the FAIS Act because he was 
not licensed to give advice on shares 
and debentures.


Adviser berated for ‘product peddling’PERSONAL FINANCE / 2016
Angelique Arde
The ombud for financial services providers this week ruled that a financial adviser whose client lost R100 000 in a Sharemax property syndication investment repay his client her capital.

Jurien Jordaan, of Jurien Jordaan Advisory Services in Wonderboom, Pretoria, was ordered to reimburse Mrs MN, due to his failure to provide appropriate advice and because he was guilty of “product peddling”, according to ombud Noluntu Bam.

In early 2009, Jordaan executed a request by Mrs MN’s father, who had invested in Sharemax, to invest R50 000 on his daughter’s behalf, in a Sharemax investment known as The Villa Retail Park Holdings. In June 2009, Jordaan contacted Mrs MN and persuaded her to make a further investment of R50 000 in The Villa. He had been approached by a client who no longer wanted his shares and was willing to sell them at less than the original price.

Mrs MN says no disclosures regarding the risk associated with such an investment were ever made to her.

In his defence, Jordaan maintained that, at the time, he was a representative of Unlisted Securities South Africa, established by Gerhardus Rossouw Goosen while he was a director of Sharemax. It has since been liquidated.

Regarding the first investment, Jordaan said he never interacted directly with Mrs MN; he dealt strictly with her father, who had invested in Sharemax and was familiar with it. He also said he didn’t advise Mrs MN to invest. “Sharemax is often bought by the investor, not sold by the adviser,” he contended. He conceded that he had sold her the second investment, but said the circumstances should have alerted her to the risk of losing her capital.

In her determination, Bam says being a representative of a financial services provider doesn’t absolve Jordaan of responsibility; both the provider and the representative are duty bound to comply with the provisions of the Financial Advisory and Intermediary Service (FAIS) Act and code of conduct.

Bam says Jordaan also can’t hide behind the veil of “no advice rendered”. In terms of the code, a provider must know their client, assess their needs and circumstances, and keep a record of advice. Jordaan did none of this. Since he failed to establish Mrs MN’s tolerance for risk, he was not able to assess whether or not the investment was suitable for her.

“Simply offloading shares or strictly executing the instructions of the complainant’s father without any application of the mind or attempt to properly undergo the financial planning process beforehand, is in a violation of the Act and code.”

According to the ombud’s ruling, Sharemax was a public property syndication company, started in 1989, purportedly engaged in renting, operating, and managing commercial properties for shops and offices.

Investors were told they would receive a return of 11.5 percent in the form of income and this was further guaranteed for the first year of the investment term.

In September 2010 a newsletter was issued outlining the difficulties the various property syndications under Sharemax were experiencing in paying out the promised income, mentioning The Villa, but asking investors to be patient because “several new proposals” were promising “excellent rental agreements, which will make the product valuable”, the ruling says.

During October 2012, a request was made to the regulator to lapse the FAIS license issued to Sharemax.

Sharemax and its syndication companies were investigated by the registrar’s office and it was concluded that the funding models were in contravention of the Banks Act.

Directives were issued to Sharemax for the repayment of funds collected from individual investors in September 2010.

In 2012, in a court-sanctioned scheme of arrangement, the schemes were taken over by Nova Property Group Holdings (Nova), and Sharemax investors were issued with debentures or shares in Nova, the ruling says.

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