Property syndication ruling despite court threat

Financial advice ombud Noluntu Bam continues to roll out determinations against financial advisers who put investors, mainly pensioners, into high-risk and often fraudulent property syndication schemes, despite an attempt by Santam to stop the ombud in her tracks.

Santam has put together, and is financing, a legal team that will, on July 30 in the Pretoria High Court, challenge Bam’s right to issue determinations against a Gauteng financial adviser, Deeb Risk.

Bam has ruled that Risk improperly put pensioners into property syndication investments, with the result that they now face destitution.

Santam, through its agency, Stalker, Hutchinson and Admiral, provided Risk with professional indemnity cover.

Risk has not sought to appeal on the merits of the complaints and determinations but on the right of the ombud to issue determinations in cases that concern property syndication schemes.

In Bam’s latest determination involving property syndications, two pensioners, Theodore Edwin Hill, aged 66, and his wife, Loraine, aged 65, of Gauteng, complained that financial services provider Bulls Eye Financial Consultants, of Fourways Gardens, and its representative and key individual, Craig Shelley, and its representative, Colin Jamieson, had incorrectly advised them to invest R300 000 each in the allegedly fraudulent BlueZone Spitskop Village property syndication scheme, which has since imploded.

Theodore Hill had been retrenched years earlier, and the money that the Hills were advised to invest was the proceeds of his pension fund. The Hills depended on this capital to see them through retirement.

Bam says the Hills invested in the property syndication in September 2007, and they received an income from that date until August 2009. They have since been informed by the liquidators that they stand to lose 80 percent of their capital.

In responding to the complaint, Jamieson attempted to claim that he was merely a “spotter” for BlueZone and not a financial adviser – an argument rejected by the Hills and Bam, because Jamieson was paid a commission and “is now trying to distance himself from his responsibilities”. Bam found the respondents were “neither qualified nor capable of rendering advice” in terms of the Financial Advisory and Intermediary Services Act.

Jamieson claimed in his response to the ombud that, in his view, BlueZone investments were moderate risk, because they offered only slightly higher returns than conventional investments.

Bam says this assessment by Jamieson “ignores the fact that BlueZone was an unlisted entity with no track record; its only asset being a piece of land which it had purchased from its sister company for R1 057 000, upon which it intended to raise R425 million. In simple terms, there were no assets which provided any meaningful security to investors.

“These risk factors were magnified when one considers that the majority of the complainants’ life savings were being placed into one basket – and an untested and questionable unlisted entity at that.

“Had the respondent bothered to consider how BlueZone intended to pay the monthly income, given that it had no income-producing assets, the risk would have been strikingly apparent and led the respondents to a different conclusion as to risk.

“Had the most basic of due diligences been conducted, it would have been apparent that, apart from not being approved, this was a very high-risk venture indeed,” Bam says.

The ombud ordered Bulls Eye Financial Consultants and Shelley to pay the Hills R300 000 each plus interest of 15.5 percent on any amount not paid within seven days of her determination.

CONTACT

The Ombud for Financial Services Providers (the financial advice ombud) is Noluntu Bam.

Telephone: 012 470 9080

Fax: 012 470 9097

Post: PO Box 74571, Lynnwood Ridge, 0040

Email: info@faisombud.co.za

Website: www.faisombud.co.za