Sharemax was not a Ponzi or pyramid scheme – attorney

Sharemax was not a Ponzi or pyramid scheme – attorney ‘In the way it was constructed, there was always value.’ By Roy Cokayne 11 Feb 2021  00:01 Weavind & Weavind director Eckaard Le Roux, the attorney for Sharemax, has refuted suggestions that the property syndication company was a Ponzi or pyramid scheme. Giving evidence during an Independent Regulatory Board for Auditors (Irba) disciplinary hearing against the former auditors of Sharemax this week, Le Roux said media reports claimed that what Sharemax was doing was in contravention of the Banks Act. “It was unlawful, it was illegal. Some reports even went as far as saying it was a Ponzi scheme. I don’t think [that] is correct. “I don’t think it is a Ponzi scheme. The way in which it was constructed, there was always value. “It was a proper business operation in the sense that a property was bought as a going concern and it was constructed on the basis that the money paid by the PropCo to the developer were advance payments on the purchase price. “At all times, value was created because that money was used to construct the shopping centre,” he said. Read: Three former Sharemax auditors, 413 improper conduct charges Objection to witness evidence delays former Sharemax auditors’ disciplinary hearing Sharemax was the promoter of various property syndication schemes, including The Villa and Zambezi retail parks. Le Roux said Sharemax promoted 49 successful property syndication schemes prior to The Villa and Zambezi. “The Villa imploded but that was because of the intervention of the Reserve Bank. I personally never received any query from any investor as to the validity of the scheme. I never received any complaints from investors that they had not received the monthly interest that they were entitled to,” he said. Le Roux also rejected suggestions there was any dishonesty by the promoters, auditors or himself in The Villa and other syndications. He said each time a syndication was properly researched, and at all times the promoter tried to comply with whatever legislation was applicable at the time, as well as the advice he had given, and that there was compliance. Le Roux said prior to The Villa and Zambezi, Sharemax only syndicated shopping malls or office parks that were already completed, adding that there was a provision in the Companies Act that money that was accepted from investors should remain in trust until the minimum subscription had been achieved. He said Sharemax’s prospectuses from 2003 were drafted on the basis that the money raised would only be released from the trust account when transfer of the property took place. These prospectuses were used as a template for all the syndications that followed. However, Le Roux said The Villa and Zambezi syndications were different in that they were still in the process of being constructed and transfer would only take place once construction was completed, the tenants took occupation and the net rental could be used to determine the purchase price. Provision ‘inadvertently not changed’ Le Roux said the specific provision in the prospectuses indicating that the money raised from investors would be held in a trust account until transfer of the properties “was inadvertently not changed to make it clear that the money that investors invested would be used to fund the construction of the building. “Without those funds the scheme could not work. You could not fund the construction of the building,” he said. The charge sheet of the three auditors refers to the Consumer Affairs (Unfair Business Practices) Act of 1988 and Government Notice 459, which specifically relate to property syndication schemes and, among other provisions, require that money obtained for syndication schemes be kept in trust until the transfer of the property being syndicated into the syndication vehicle. Le Roux confirmed that he considered this notice, but it was his view that the definition of property syndication schemes in this notice was not applicable to Sharemax. He obtained the opinion of a senior advocate, which confirmed that the notice did not apply. Le Roux said three complaints were laid at the Law Society against him and Weavind & Weavind related to the Sharemax syndication schemes, but two of the complaints were subsequently withdrawn. He said he appeared before the investigation committee of the Law Society and explained the prospectuses and the way it worked, the Banks Act, the Harmful Business Practices Notice and compliance with all this legislation. “Subsequent to that, the Law Society decided that we would not be charged. To my knowledge, there was no criminal proceeding commenced against any of the directors [of Sharemax],” he said. Under cross-examination, Le Roux said he included the definition of public property syndications from the government notice in his correspondence with the registrar of banks at the SA Reserve Bank, despite his conclusion that the notice did not apply to Sharemax, because there was no other definition of a public property syndication. Le Roux said that, on a strict interpretation of that definition, it held that an assembly of investors was to invest in a vehicle whose sole assets were commercial or retail property and where the investors share in the profits and losses in these properties. With an investment in a property syndication scheme promoted by Sharemax, the investors invested in HoldCo, but HoldCo did not own the shopping centre and the sale of business agreement stated that the sole asset was not the commercial property, he said. “It was not a property that was purchased, it was a business that was purchased,” he said. “And in the agreement, it was stated [that] you are buying the property and you buy the right, title and interest in the lease agreements and you buy fixtures and fittings. It is more than that [property],” he said. Le Roux admitted there were many other provisions in the government notice he ensured compliance with within the prospectuses. He said he picked those provisions he thought Sharemax could comply with and included them in the prospectuses. Advocate Kate Hofmeyr, appearing for Irba, referred Le Roux to several examples in The Villa 14 prospectus which conveyed to investors that their funds would not be used before registration of transfer of the property. Hofmeyr said they will argue in due course that the inclusion of a provision in the prospectus about investor funds remaining in a trust account until the transfer of the property was not simply an error that crept in from previous prospectuses. “It is a provision of the prospectus that is consistent with other parts of the prospectus,” she said. “It is consistent with the indication that was given to investors in their income plan attached to each 10 prospectuses that the funds would be retained in your trust account until transfer of the property. “It is consistent with the way in which the cash flow forecast was put together, with no cash flow movements being shown in the first two years. “And it is consistent with the statement in the pro forma financial information that explained that no income statement could be provided because funds would only be advanced to Villa Investments from March 1, 2011. “That degree of commonality in various parts of the prospectus, we will say, means that this was not just an error,” she said. Le Roux disagreed, stressing it was an error by him. He said Hofmeyr was ignoring the other parts of the prospectus where it was stated how the monies would be used. “Anyone that read through the prospectus would have understood that the development could not take place without the monies being used to finance the construction of the building, otherwise it could not work. “The deed of sale that was attached to the prospectus clearly showed how the payments would have been made. So no, I do not agree with you,” he said. The three audit practitioners – Jacques Andre van der Merwe, Danie Dreyer and Petrus Johannes Jacobus Bekker – are collectively facing a total of 413 improper conduct charges related to Sharemax. They were all directors of ACT Audit Solutions Incorporated at the time when they allegedly committed the offences. All three of them previously pleaded not guilty to all the charges against them. The hearing is continuing. COMMENTS: Illphil 10 months ago Le ROux – paid by, and possibly even schooled by the great Connie Myburgh – – – – – what a lovely bunch of people. What happened to Adv Jan Smit – is he still on the board? Has he resigned or is he also singing from the same hymn sheet as Le Roux? beachcomber 10 months ago With the same logic, one could say that VBS was a correctly structured bank, but then the directors looted the assets. ahem ahem 10 months ago Yes, Until the Villa and Zambezi did not work out as planned. If you looked at the prospectus for the 2, there was no income generated from operations and the only way that the investors could be paid was from investor funds…investor money paying investors returns = ponzi Then came the great switcheroo to try an bail the 2 projects out, where the other syndicated properties(each its own entity) were bundled into one entity under an “arrangement scheme” by implication that investors in the other syndicates were going to lose their money if they did not agree to this. Just prior to that some of the syndications were sold and there was a hard and fast marketing campaign to invest in he Villa and Zambezi with the proceeds of said sales. There were a lot of incentives offered to brokers to do this. This all compounded into the great switcheroo and there by sleight of hand…Nova was born. JW Botha, A Brand as directors at the time were complicit in facilitating this messy move and then left the new board of Nova to deal with the mess. They have since disappeared off the radar. The shareholding of Nova should also be investigated as no past, future or present directors should be entitled to any shareholding(by any means..eg trusts, companies etc) whatsoever as this was solely investor money from other syndications that floated this “Titanic” to try and rescue the white elephants of Zambezi and the Villa. The warning at the time. Change of auditors from Price Waterhouse Coopers to ACT solutions Bill123 9 months ago Eventually the truth comes out. It always amazes me how some people like to comment without facts. It is usually people who have a specific agenda and sometimes people who like to be seen or heard regardless of the truth. See below some facts that most people did not know: 1. Sharemax was founded and owned by Botha, Brand and Schoeman. They were the directors from inception; 2. Around 40 trading properties were promoted by Sharemax and bought and owned by the public before the SARB intervened; 3. The late journalist Deon Basson was constantly harrasing the group trying to make them out as crooks; 4. Basson was sued by Sharemax and two weeks before Basson had to disclose to the court who funded his legal costs he had an heart attack and passed away. The Sharemax group was confident that Basson was funded by liquidater Erly Bester. Basson also traveled to the different property projects with Bester before he passed away; 5. Basson wrote articles about various properies that were promoted by Sharemax to the public including “Die Bluff se Bluff” and “Groenkloof se Melk Kan”. Since Deon Basson passed away, all the properties that Basson wrote about were sold by Sharemax after approval by the public investors who owned these properties. of each of these properties that Basson wrote about, the investors received all the interest that was projected to them as well as capital growth on the syndication price that the investors invested initially. As an example, the investors who invested in the Bluff property payed R 76 million for the property. They received on average 10% interest that was paid to them monthly. 36 months later this property was sold for R 113 million and the investors received millions of capital growth in 36 months. A lot of people will now realise that Deon Basson’s assumptions were completely wrong as the properties that Deon wrote about were all success stories; 6. The reason why Sharemax imploded was because of the media and the SARB and you will just now realise why; 7. The SARB sent inspectors to investigate if Sharemax was contravening the Banks Act. The inspectors were sitting at Sharemax offices for weeks at a time since 2008 to 2010 inspecting the company and the products. Now the interesting part. The reason why the SARB stopped Sharemax from completing the Villa was due to the investment instrument that they were using. It was a R1 share and R999 loan account. As an example: the investor invested in the The Bluff Ltd. The Ltd held 100% shares in The Bluff Pty(Ltd). The property was bought and transferred into the Pty(Ltd). The simple reason for this was so that the investor could invest in a public company who loaned the money to the Private Companty to buy the property. The rental income in the private Company was paid to the Ltd who paid it as interest on loan to the investor for tax benefits for the investor as dividend tax was not payable — that is why the investor received an income of around 10% pa. The private company with the property was therefor owned by the public company who’s shareholders were the investors. The going concerns were all bought cash and free of any bonds; 8. The SARB inspectors could open any one of any prospectuses promoted by Sharemax to see on page two (in bold) the investment instrument which was a share with a linked loan. But no, they sat there inspecting right through 2008, sitting and observing how Sharemax signed an agreement for the Villa and sitting for another 18 months and 19 prospectuses before sending a love letter to Sharemax saying that they must stop the project as they now find that they contravene the Banks Act. I suppose is was a coincidence that the Villa project was exactly in the middle of the development and exactly half the funds needed were raised. It was said to be an adminestrative contravention; 9. Sharemax directors had a meeting with Mr Blackbeard of the SARB explaining to him the damage and chaos that will be created if they can not at least continue to complete the project and also disagreed with the finding of the SARB. Sharemax directors asked Mr Blackbeard to please go unopposed with them to court to get an declaraty order about their difference of opinion. Mr Blackbeard refused; 10. Sharemax was forced to change the Villa structure which they hastely did. Now the rest of the Villa would be promoted with only a Ltd and therefor the income from the property was only payable to the investors after dividend tax was deducted and paid to SARS and the investor would get around 2-3 % interest less per year, which was closer to the going bank interest rate of the time; 11. Sharemax was again allowed to carry on promoting the Villa. Unfortunately, after the next Villa prospectus were nearly fully subscribed, Jacques Pauw wrote in the Sunday paper Rapport “Sharemax Beleggers Dalk Al Hulle Geld Kwyt”, telling the public that Sharemax was contravening the Banks Act. Needless to say the investments immediately dried up and the Villa project were sterilised. You can decide who caused this trauma for the investors, financial advisors and Sharemax; 12. Obviously there were liquidaters who saw a carcas to feed on and the SARB then rushed in and signed a directive onto all the property companies and the directors to repay the investors; 13. The directors took the decision of the SARB on review; 14. There was a hold on the review while everyone tried to save the Villa; 15. Some big shots were called in to help, including Dawie Roodt and Connie Meyburg; 16. The one founder of Sharemax, Mr Schoeman sold his shares and left in 2006, the other two founding members and directors Botha and Brand decided to part ways and did not go along with the 311 schemes of arrangements. They sold their Sharemax shares in 2010 and left for good; 17. Meyburg and two of the existing Sharemax directors, Haese and Koekemoer went along with the setup of the 311 arrangement and Nova and Sharemax. The other two existing Sharemax directors Viljoen and Goosen also decided to resign as directors and left and so also Dawie Roodt after sanctioning of the 311; 18. Since then Sharemax had new shareholders. Haese is still with Nova and Koekemoer resigned from Nova in 2018; 19. Attorney Eckaard Le Roux has never had any dealings with and never did any work for Nova or Meyburg. Le Roux’s involvement also stopped around the time that Botha and Brand sold their sharemax shares and left; 20. The same time that the SARB stopped Sharemax, their inspectors inspecting Realcor in the Western Cape instructed Realcor to change their investment structure to a share and linked loan, the same structure that they stopped Sharemax for. After Realcor changed around R400 mil of investments to this structure the inspectors instructed Realtor to change the instrument again; 21. The investors who invested in the Sharemax promoted projects decided to cancel their investments for a new instrument in the Nova 311 Schemes of Arrangement. This was approved and sanctioned by the High Court after more than 95% of investors voted for this; 22. Sharemax was always operating with an FSB license and received regular inspections. The Sharemax license was never suspended and eventually lapsed after it stopped operating; 23. Botha and Brand were instructed by the Fin Ombud about 5 years ago to repay an investor and after taking the case to court the Ombud lost and had to pay Botha and Brand more than R500 000. I wonder what IRBA will have to pay the Auditors if they don’t settle and this hearing goes to court; 25. A very interesting fact is that the SARB retracted the directive that they issued against the companies and Botha, Brand, Goosen and Viljoen and therefor, as we speak today, there is no finding of any contravention, not even an administrative one against the founders of Sharemax or the companies. 26. Another interesting fact is that PIC were also investigated by the SARB and the SARB sent a letter to a PIC investor in 2011, one year after they stopped Sharemax, confirming to the investor that there are too many different opinions and they can therefor not find that PIC contravened the Banks Act. PIC was also using the same instrument as Sharemax; 27. My conclusion is that the origional Sharemax sharelolders and directors did not do anything wrong. They were tried and “found guilty” by the media. They have since end 2010 had no involvement with Sharemax and Nova. All investors decided to swop the instruments that were promoted by the origional Sharemax for instruments in Nova in 2010/2011; The Villa was structured in the following way. The development was to be done by the developer. The purchase price was determined by a cap rate against the rental income to be determined on completion of the property. The agreement stated that the investors raised the money and pay, less the promotors fee, the money to the developer AS PART OF THE PURCHASE PRICE. At completion the exact purchase price would have been determined and the balance of the purchase price would have been paid to the developer on date of transfer of the property. There were bonds registered against the property on behalf of the investors as security. The developer agreed to pay the interest to the investors. As the investor received the purchase price, which included the development funds as well as his profit, he was in any case in position to pay the interest. The developer already bought and demolished 30 houses with his own funds and also got the development rights. By the time that the SARB stopped Sharemax from completing the project around 60% of the lettable space was successfully let, including a 10 year lease with Checkers for 14 000 m2.  12  Bill123 9 months ago Correction, the Checkers lease was signed for 1 400 m2 and not 14 000 m2