Zambezi Retail Park, the property syndication scheme promoted and marketed by Sharemax Investments, was “nothing more than a Ponzi scheme”, with investors being paid interest out of their own funds.
This was the conclusion of Noluntu Bam, the ombud for financial advisory and intermediary services (Fais), in a determination released yesterday in response to a complaint by an investor in the scheme.
Business Report reported in October last year that the Hawks were investigating allegations that Sharemax committed fraud and were probing whether it operated a pyramid or Ponzi scheme.
Bam said an investigation by her office had “pierced the corporate veil” of how Sharemax operated.
This followed a complaint lodged by Gerbrecht Siegrist, a pensioner from Tigerpoort in Pretoria, who invested R580 000 in Zambezi Retail Park but is now destitute and “survives on the charity of her children”.
Bam ordered Siegrist’s financial adviser, Cornelius Johannes Botha, trading as CJ Botha Finansiële Dienste, Sharemax Investments, FSP Network, Sharemax and USSA director Gert Goosen, and Sharemax directors Willem Botha, Dominique Haese and Andre Brand to jointly pay Siegrist R580 000.
She 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.”
FSP Network, trading as Unlisted Securities South Africa (USSA), was set up to market Sharemax products through a network of brokers and was responsible for the conduct of their representatives, who almost without fail “targeted pensioners”.
Goosen, apart from being a director of Sharemax and Zambezi, was also a director and the compliance officer of FSP.
Bam said FSP Network was nothing more than an “extension of Sharemax”.
Bam’s office recommended the Law Society investigate the trust account of Sharemax’s attorneys Weavind & Weavind to establish how and under what circumstances investors’ funds were paid out.
“We believe that it would be prudent to keep the fidelity fund informed. It is clear the attorneys did not comply with the Attorneys Act and the Law Society guidelines. Nor did the attorneys comply with investor protection provisions of the Government Gazette,” she said.
This is a reference to a government notice on property syndications gazetted in 2006 that made it illegal to release investor funds prior to the transfer of the properties into the syndication vehicle.
The Law Society of the Northern Provinces, after a disciplinary hearing in August 2011, dismissed a complaint on the release of funds from Weavind & Weavind’s trust account.
Bam said ACT Audit Solutions, the appointed auditor of Zambezi Holdings, must have known that investors’ funds were being transferred out of trust. “If this was an irregular transaction, then the auditor was under a duty to report the matter to the… regulators.”
Bam said the audit firm, which had since changed its name to Advoca Auditing, and its attorneys failed to respond to her letter seeking an explanation of their handling of the Sharemax account.
“This aspect… will be reported to the Independent Regulatory Board for Auditors for further investigation.”
About 40 000 people invested a total of about R4.5 billion in the various schemes promoted and marketed by Sharemax.
The registrar of banks decided in 2010 that Sharemax’s funding model contravened the Banks Act.
Sharemax defaulted on its monthly payments to investors in August 2010 when the registrar’s decision became public knowledge, resulting in new investments drying up.
The registrar only reported the alleged contravention of the Banks Act to the Hawks in March last year.