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In a significant victory for the Financial Services Board (FSB), controversial Pretoria-based financial services company Dynamic Wealth, which has been mired in legal battles with the regulator and dissatisfied investors, closed its doors this week.
The closure follows a determination by the FSB Appeal Board to reject Dynamic Wealth’s appeal against a decision by Dube Tshidi, the Registrar of Financial Services Providers and the FSB’s chief executive, to withdraw the financial services provider (FSP) licences of two of its subsidiaries, Dynamic Wealth Management and Dynamic Wealth Stockbrokers.
An immediate consequence of the Appeal Board’s decision is that Metropolitan Collective Investments has taken control of the seven unit trust funds that Dynamic Wealth managed and marketed using Metropolitan’s collective investment schemes licence (see “Investors’ money in unit trusts ‘should be safe’”, below).
Commenting on the status of Dynamic Wealth, Cobus van Wyk, the company’s chief executive, says “we are for all practical purposes closed for business, as the company cannot do financial services business, and all assets that were managed have been (or are in the process of being) transferred”.
The FSB is still waging a court battle to place various Dynamic entities under curatorship.
Last year, Dynamic successfully challenged an application by the FSB to place the company under curatorship. The FSB has taken the High Court’s decision on appeal, which is still to be heard.
Dynamic Wealth initially attracted the attention of the FSB when one of its investment offerings started to go sour, which led to the curatorship application.
Some years before the FSB took action against Dynamic, Personal Finance had dealt with complaints from disappointed investors.
High-profile forensic investigator David Klatzow had taken up cases on behalf of investors, who claimed that Dynamic misled them into making incorrect investments.
Over the years, following reports and investigations into the company’s activities, Personal Finance received a number of what transpired to be hollow threats of legal action from Dynamic Wealth.
Among other things, Personal Finance revealed that Dynamic Wealth had a business relationship that involved property bridging finance with Attie du Plooy, who had run an illegal pyramid structure, Jean Multi-Management, which the Reserve Bank closed down.
Jean Multi-Management was the recipient of R200 million that was stolen by Angus Cruikshank, the owner of Ovation, the now defunct linked-investment services provider, from the unregistered and illegal Common Cents fund. Cruikshank committed suicide when the FSB moved in on him.
The FSB’s grounds for the curatorship application last year included the claim that a number of investment portfolios offered by Dynamic Wealth under the guise of investment clubs were in fact illegal collective investment schemes.
Among the “investment club” portfolios was a fund that was caught up in the collapse of Corporate Money Managers (CMM). The fund masqueraded as a unit trust money market fund, but in fact it pooled investors’ money to invest in failed property developments.
After the intervention of the FSB, the “investment club” port-folios were converted into com-panies, and the troubled money market fund became Specialist Income Ltd (SIL). SIL is likely to be the biggest loser in the collapse of CMM, with a potential loss of R230 million.
Converting the “investment club” portfolios into companies reduced the rights of investors, because they became shareholders rather than investors with a preferential claim to any assets.
Gerry Anderson, the FSB’s deputy executive in charge of market conduct, says the consequences of the FSB Appeal Board decision include:
* With immediate effect, Dynamic Wealth Management and Dynamic Wealth Stockbrokers are no longer authorised to do business or accept new business as FSPs.
* The two companies must immediately inform all their clients and product suppliers that their FSP licences have been withdrawn.
* The two companies must, without delay, repay all uninvested funds they have received from clients.
* Where the two companies hold scrip, participating interests, investment vouchers or any other form of proof of investment that belongs to clients, these must be accounted for in full and returned to the people who are entitled to the assets.
* Where appropriate, the com-panies are required, after consulting with their clients and product suppliers, to take reasonable steps to ensure that any outstanding business is transferred to another FSP, in the best interest of clients.
* Shareholders in SIL and investors in the former investment portfolios are to be regarded as investors in Dynamic Wealth Management. Directors of SIL who have no interest in the Dynamic Wealth Group are invited to meet with the FSB to discuss solutions.
* The approved auditors of Dynamic Wealth Management and Dynamic Wealth Stockbrokers must oversee the above process and report to the FSB on their progress, any problems or delays.
Anderson says that investors in Dynamic Wealth who need legal assistance to pursue claims against Dynamic should consult their financial advisers or seek redress through the Ombud for Financial Services Providers, because the FSB is not equipped to help with individual civil claims against financial institutions or former institutions.
Apart from supervising the winding down of Dynamic Wealth’s remaining business, the FSB will continue to pursue legal action against Dynamic, he says.
The FSB’s decision to withdraw the licences of Dynamic Wealth Management and Dynamic Wealth Stockbrokers has been vindicated by the Appeal Board’s decision to dismiss, with costs, Dynamic Wealth’s appeal against its decision, Anderson says.
INVESTORS’ MONEY IN UNIT TRUSTS ‘SHOULD BE SAFE’
Your money should be safe if it is invested in one of Dynamic Wealth’s seven unit trust funds, according to assurances by the Financial Services Board (FSB) and Metropolitan Collective Investments.
Metropolitan has taken over the administration and management of the funds with immediate effect after the FSB Appeal Board approved the decision by the Registrar of Financial Services Providers to withdraw Dynamic Wealth’s financial services provider (FSP) licence.
But in a strange twist, the funds might eventually be managed by the same asset management team that was employed by Dynamic Wealth and that recently resigned from the company en bloc.
Metropolitan has been forced to intervene, because – in terms of a white-label arrangement – Dynamic Wealth used Metropolitan’s collective investment scheme licence to market the seven unit trust funds.
Robert Walton, the chief executive of Metropolitan Collective Investments, says the R900 million of investors’ money in the unit trust funds is not in danger. The funds have provided good returns for investors, Walton says.
Bert Chanetsa, the FSB’s deputy executive for financial institutions, says the FSB is in talks with Metropolitan to ensure that investors’ interests are protected.
Metropolitan was obliged to take over the management of the Dynamic Wealth portfolios in terms of an arrangement with the FSB, he says.
In terms of the legislation that governs white-label arrangements, the FSP licence-holder – in this case, Metropolitan – is responsible for the proper administration of a white-label collective investment scheme and is answerable to the FSB if anything goes wrong.
The seven unit trust funds are: the Dynamic Wealth Accumulator Fund of Funds, the Dynamic Wealth Creator Fund of Funds, the Dynamic Wealth Optimal Fund, the Dynamic Wealth Preserve Fund of Funds, the Dynamic Wealth Property Fund, the Dynamic Wealth Real Income Fund and the Dynamic Wealth Value Fund.
Walton says that Metropolitan will appoint GAMC Securities (Pty) Ltd (to be rebranded as Clarus Asset Managers) as the investment manager of the seven unit trust funds and will apply to the FSB to rebrand the portfolios. Until this happens, Momentum Investment Consulting will manage the portfolios.
However, investors in the funds were confused by a letter sent to them by John Bernard (JB) Smith, who headed the Dynamic asset management team, the members of which resigned from Dynamic.
Smith joined Dynamic Wealth in 2007 and was appointed chief investment officer in 2009.
Smith, in the capacity as a director, claimed in the letter that the unit trusts had been taken over by iBenefit and Valuevest Multimanager.
Gerry Anderson, the FSB’s deputy executive in charge of market conduct, says neither company has been licensed as an FSP and therefore Smith’s claim was untrue.
Walton says that once he was informed about the letter, he told Smith that iBenefit and Valuevest Multimanager cannot take manage the portfolios. Smith was not involved with the problems at Dynamic Wealth, Walton says.
The core of the former Dynamic investment team now works for GAMC Securities, which means that the seven funds could again be managed by the same investment team, albeit under a different brand.
Walton says that Smith would first have to obtain an FSP licence from the FSB to manage the assets. If this does not happen, Momentum will continue to manage the assets.