Fast little loans
The legal challenge to the authority of financial advice ombud Noluntu Bam to intervene cheaply and quickly on behalf of aggrieved consumers who believe they have been advised inappropriately is going ahead despite a comprehensive finding by the Appeal Board of the Financial Services Board (FSB) that Bam has the right to hear complaints about financial advice.
And Gauteng-based financial adviser Deeb Risk – who advised pensioners to invest in high-risk property syndications and whose High Court application to block Bam is supported by insurance giant Santam – is now threatening to sue a pensioner couple for defamation because they lodged a complaint with Bam. On Risk’s advice, the couple invested R300 000 in a Sharemax property syndication.
Bam this week issued yet another determination against Risk, ordering him to repay R300 000 to Lionel and Catherine Oldacre of the Village of Happiness in Margate in KwaZulu-Natal (see “Compensation orders top R3m”, below).
At the end of this month, Risk, with a heavyweight legal team appointed and paid for by Santam, will challenge Bam’s right to issue a determination that ordered him to pay back money to a number of pensioners whom he advised to invest in property syndication schemes that subsequently imploded.
Instead of challenging the determination on its merits by taking an appeal to the FSB Appeal Board, Risk is asking the High Court to rule that Bam was not authorised to hear the complaints.
Santam is backing Risk because, as the company that provided Risk with professional indemnity insurance, it has to fund his legal costs and faces having to pay back the money lost by the pensioners who took advice from Risk.
Challenges to the authority of the ombud have become almost standard practice by financial services providers (FSPs) who are found wanting by Bam.
When Risk and Santam first challenged her authority, Bam said that if their High Court challenge were to succeed, it would nullify the advantages of her office for consumers, who, in general, would not be able to afford to take on insurance companies, which have extensive cash and legal resources, in the High Court.
Bam said many of the complainants were pensioners who had lost a large portion of their assets and therefore did not have the money to take their complaints to the High Court.
The ombud’s office was established in terms of the Financial Advisory and Intermediary Services Act to provide consumers with a cheap and easy way of obtaining compensation when they are ill-advised on their investments.
Last month, the FSB Appeal Board rejected an appeal by First National Bank (FNB) against a determination in which Bam ordered FNB to repay R340 000 to a complainant, “Ms FN”.
Ms FN, on the advice of FNB representative Nyaam Mooi, in 2006 invested R300 000 in an RMB unit trust fund, but then Mooi advised her to invest in a “solid” textile company called Delwray.
Ms FN, over a period, invested R340 000 in Delwray. Initially, she received about R1 500 a week in interest income, but the payments became erratic and finally she received nothing further.
In its appeal, FNB argued that Bam did not have the authority to hear the complaint.
But the Appeal Board devoted most of its determination to spelling out exactly why Bam has the authority to entertain complaints from consumers about products sold by FSPs and to order compensation if she finds in favour of consumers.
When asked this week whether Risk’s High Court challenge to the authority of the ombud will go ahead, Santam chief executive Ian Kirk said he has confirmed with the legal team that is representing Risk that the FSB Appeal Board’s dismissal of FNB’s appeal has “no relevance to the issues presently pending in the matter between Deeb Risk and the ombud.
“The issues are not the same even though there is some similarity. The FSP in this [the FNB] case appears to have acted fraudulently and advised the complainant to invest in a pyramid scheme.”
COMPENSATION ORDERS TOP R3M
A fifth determination by financial advice ombud Noluntu Bam has brought to R3.08 million the compensation orders made against Edenvale-based financial adviser Deeb Risk and his company, D Risk Insurance Consultants.
In her latest determination, Bam ordered Risk to pay retired couple Lionel and Catherine Oldacre the R300 000 they invested, on Risk’s advice, in an imploding Sharemax property syndication, The Villa.
In their complaint, the Oldacres said it was inconceivable that Risk had not known the regulator was investigating Sharemax. They said Risk did not warn them the scheme was high risk and that the investment model was legally suspect.
In his response, Risk:
* Challenged the authority of the ombud to adjudicate the complaint;
* Claimed that he did not have to deal with the merits of the case, but nevertheless did so, saying Lionel Oldacre had investment expertise because he had been employed as the financial manager of a retirement village; and
* Accused the Oldacres of making “defamatory” accusations and reserved his right to respond in “an appropriate forum”.
The Ombud for Financial Services Providers is Noluntu Bam
Telephone: 012 470 9080
Post: PO Box 74571, Lynnwood Ridge, 0040