Adviser told to refund pensioner’s Sharemax investment

The ombud for financial advisory and intermediary services (Fais) has ordered a financial adviser to repay a pensioner R815 000 after he advised her to invest in property syndication schemes run by Sharemax Investments.

This is the seventh determination by the Fais ombud against brokers for advice given to their clients to invest in Sharemax schemes, most of which to date have involved D Risk Insurance Consultants and/or financial advisor Deeb Raymond Risk from Edenvale.

Risk claimed that the Fais ombud should not entertain the complaint because the claim by Jannet Ann Schott Bujok exceeded R800 000.

However, Fais ombud Noluntu Bam said the complaint related to three investments made on the advice of Risk on three different occasions and were in effect three different “causes of action”.

“Each claim in respect of each cause of action is less than R800 000. Therefore, all three claims fall within the jurisdiction of this office.”

Bam said Bujok had invested a total of R815 000 in two Sharemax schemes, had not been paid any income since August 2010 and by all indications had lost her capital.

She ruled that Risk had failed to comply with the code of conduct for providers of financial advisory services in advising Bujok, a pensioner from Westdene, Johannesburg.

Bujok said she had first met Risk in September 2008 and was an inexperienced investor.

She said Risk, who had invested her money in Sharemax-syndicated Zambezi Retail Park and The Villa, told her the investment was low to medium risk and promised there would be “high gains” when the centres were sold in mid-2010.

Bujok moved money from existing investments with Stanlib, Momentum and Glacier International and signed forms for an investment of R575 000 in Zambezi Retail Park.

In November 2008 she invested a further R20 000 in The Villa. She met Risk again in May 2010 after deciding to dissolve her offshore trust, which led to another R220 000 investment in The Villa in June 2010.

Bujok said that no other financial products had been discussed or offered by Risk.

“Alarm bells rang” at the end of August 2010 when Sharemax failed to pay her monthly interest and Risk was unable to offer any plausible explanation, Bujok added.

Bam found that Risk was negligent because he had failed to apply his mind to how much risk Bujok could tolerate and failed to recommend a product appropriate to Bujok’s risk tolerance and financial needs.

She also found that by marketing the high-risk Sharemax schemes as low- to medium-risk investments, Risk had failed to act with due skill, care and diligence in the interests of his client and the integrity of the financial services industry.

Bam said Risk contended that a decision could not be made on the question of his negligence until a decision had been made on the legality of Sharemax’s funding model. However, she stressed that none of the issues ventilated in this determination were dependent on that inquiry.

She said Risk’s contention that the complaint was premature must also fail because the issue was not whether Bujok would recover some monies in the future, but whether the advice was appropriate given Bujok’s circumstances.