Failed syndication: pensioner paid back R60 000

A financial adviser who recommended that a Bellville pensioner invest in a now-failed property syndication has been ordered by the financial advice ombud to repay the pensioner the R60 000 he invested.

Lukas Maree, director of Polokwane-based Maree and Rogers Beleggings, recommended in March 2005 that 73-year-old Jan van der Merwe invest the money in Blue Pointer, the marketing company for the Propdotcom property syndication scheme, according to a ruling released this week by the Ombud for Financial Services Providers.

Noluntu Bam, the ombud, says Van der Merwe received income as agreed, which “was characterised as a dividend payable at a rate of R1 000 a month on the investment”, until early 2006, when Blue Pointer defaulted. Since then, all Van der Merwe’s attempts to get his capital back have failed, Bam says.

Van der Merwe told Bam he wanted to invest the R60 000 to supplement his retirement income and that he could not tolerate high risk.

The Financial Services Board (FSB) investigated Blue Pointer and Propdotcom in 2006.

Propdotcom was supposed to purchase various commercial properties and issue shares that Blue Pointer would sell. But, according to the FSB’s findings, which were reported in an earlier determination by Bam, Propdotcom’s and Blue Pointer’s funds were mingled and used to fund Blue Pointer’s operations, and proper accounting records were lacking.

According to Bam’s earlier determination, Blue Pointer never obtained a licence to sell shares, in contravention of the Financial Advisory and Intermediary Services (FAIS) Act. Blue Pointer eventually shut its doors in 2007 after taking the funds from the sale of the only property in Propdotcom.

According to the ruling against Maree, he told the ombud he had offered Van der Merwe three investment options: a money market fund, an investment in Blue Pointer or an investment in Propdotcom.

He says Van der Merwe chose the Blue Pointer investment because it offered a higher income.

Maree told Bam Blue Pointer’s property portfolios were stable with a low risk profile and comparable to investments in Nedcor Commercial Property and Old Mutual Property.

He admitted that, at the time, he had no information on whether the portfolio was managed properly.

However, in her ruling, Bam says the shares issued by Blue Pointer were unlisted and illiquid, and the company had no track record.

It was “misleading” to compare the investment to one in Old Mutual Property and Nedcor Commercial Property, because Blue Pointer did not have to publish financial statements, she says.

It is “impossible to understand how [Maree] was able to come to the conclusion that the shares offered by Blue Pointer were appropriately priced”, the ombud says.

Investors could not know what they owned and what governance structures were in place to look after their interests, she says.

The shares would generally be regarded as high risk, she says, and an investor’s capital could be redeemed only if a willing buyer for the shares could be found.

Maree failed to disclose this to Van der Merwe, and this failure was a contravention of the code of conduct under the FAIS Act, Bam says.

In addition, Bam found that Maree and Rogers Beleggings was operating under the FAIS licence of Maree’s son, Coenraad Maree, who was not licensed to sell unlisted shares. In terms of the FAIS Act, Maree should have told Van der Merwe that he was not licensed to sell Blue Pointer shares, Bam says.

The ombud says she is convinced that Van der Merwe would not have made the investment if he had known that he might lose his capital and that Maree was not licensed to sell the Blue Pointer shares.

Van der Merwe’s loss was a consequence of Maree’s conduct, the ombud says, and therefore she ordered him to repay the R60 000 to Van der Merwe.