If your financial adviser promoted the Relative Value Arbitrage Fund (RVAF) to you or facilitated your investment in the scheme, and you subsequently lost your money, you should lodge a complaint with the Ombud for Financial Services Providers, also known as the financial advice ombud.
Ombud Noluntu Bam recently handed down a ruling against another adviser whose client lost money in the RVAF, which marketed itself as a hedge fund but has since been exposed as a Ponzi scheme.
Bam ordered Mark Alexander Eiserman, of Mark Alexander Investments in Somerset West, to pay Mrs GS R800 000 of the R1 million that she lost (the ombud cannot, by law. order compensation of more than R800 000). Mrs GS complained that Eiserman had failed to advise her appropriately and disclose the risks involved in investing in the RVAF.
In 2010, after receiving the proceeds of her late husband’s life policy, Mrs GS approached Eiserman, who had been recommended to her as an investment adviser, the ruling states.
On Eiserman’s advice, she placed her funds in a money market fund. But later that year, he recommended she invest all the funds from the policy – almost R3 million – in the RVAF. Not only had members of her church invested in the RVAF, but Eiserman told her that he and his family had, too. The fund had consistently provided above-average returns, in excess of 20 percent.
Instead of investing all the policy proceeds in the RVAF, Mrs GS invested R1 million.
The ruling states that when she went to sign documents at Eiserman’s office, there was reference to a “partnership agreement” that she was to have signed and read. When she asked for a copy of the agreement, Eiserman seemed surprised and said few clients insisted on seeing it. Despite not having read the agreement, she signed the application and paid her funds into the designated RVAF account.
About a week later, Mrs GS went back to Eiserman’s office for a copy of the partnership agreement. Initially, she was told she had to read it in the office, but she was able to persuade Eiserman to let her take it home for the weekend. It was complex and she did not understand the implications of signing it, nor does she recall any offer of assistance from Eiserman, the ruling says.
About a year-and-a-half later, Mrs GS was invited to a meeting with Herman Pretorius, the architect of the RVAF. Eiserman told her that he would no longer deal directly with the RVAF. The following day Pretorius took his life.
Mrs GS contended that, at the time of the investment and afterwards, she raised concerns about the investment. Having lost all that she invested, she wanted Eiserman held liable to the maximum amount within the ombud’s jurisdiction.
The essence of Eiserman’s response to the ombud was that clients who invested in the RVAF understood that they were dealing with a registered financial services provider, namely Abante Capital: “Clients were referred to Abante Capital at their request and … Abante provided the advice and explained the risk [of investing in the RVAF].”
Eiserman claimed that all clients were aware that he was “not the financial services provider on record” in respect of the RVAF, the ruling says.
In her determination, Bam says there can be no question that Eiserman both sold and actively promoted Abante/RVAF and, in so doing, rendered advice. At the time of Mrs GS’s substantial investment, Eiserman was her investment adviser. She was referred to the RVAF presentation by Eiserman; forms were completed at and submitted through his office, and he “owned” the client relationship.
Eiserman earned a referral fee of 6.75 percent of the sum invested, which he claimed was not for advice.
But Bam said the argument that there was no advice rendered was unsustainable. As Mrs GS’s adviser, Eiserman had a duty of care to “render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry”.
The ruling also notes that there was no record of advice, as required by the Financial Advisory and Intermediary Services Act.
When the funds were moved from the money market fund to the RVAF, on Eiserman’s advice, he should have disclosed fully to Mrs GS the actual and potential implications, costs and consequences of such a move.
“None of this is surprising, given that the respondent does not appear to have conducted a [financial needs] analysis for purposes of the advice, based on the information obtained.”
Bam says her office’s concerns with the RVAF were comprehensively dealt with in a ruling against Cape Town adviser Michal Calitz of Impact Financial Consultants. Calitz has been ordered by Bam to repay almost R7 million to a number of his clients who invested in the RVAF.
She says no adviser would have recommended the RVAF as a suitable component of any investment portfolio if they had exercised the required due skill, care and diligence.