KwaZulu-Natal broker Andre van der Merwe, who was debarred by the Financial Services Board (FSB) on November 9, 2009 and is now under investigation by the police, was ordered by the financial advice ombud to repay a father and his three children a total of R100 000 plus interest after he advised them to invest in the Garek share investment scam.
This is the sixth ruling against Van der Merwe by Noluntu Bam, the Ombud for Financial Services Providers. To date, Van der Merwe has been ordered to repay Garek investors a total of R600 000 plus interest. Bam’s office made the first ruling against Van der Merwe in February last year, by which time he had been debarred by the FSB for selling shares when he was not authorised to do so.
Personal Finance has established that several complainants have registered a criminal case against Van der Merwe. It is being investigated by the Serious Economic Offences Unit and the Special Commercial Crimes Unit of the South African Police Service.
In April 2005, Van der Merwe, who was introduced to Jacob Muller by a trusted family friend, advised Muller, of Uvongo, to cancel four endowment policies, three of which were intended to be used to finance the tertiary education of Muller’s children.
Acting on Van der Merwe’s advice, Muller invested R70 000 in his own name and made three investments of R10 000 each in the names of his then minor children, Cherie, Stefan and Natasha.
Van der Merwe told Muller that Garek was a financially sound company that promised “excellent returns”, despite the fact that by April 2005 Garek was under investigation by the Department of Trade and Industry (DTI).
Bam found that Van der Merwe had not provided any record of advice about replacing one financial product with another and had not conducted a risk analysis of Garek.
An investigation report on Garek by the DTI shows that the shares purchased by the Mullers were worthless, and that investors’ funds had been spent on company expenses, commissions and directors’ remuneration, among other things.
In her ruling, Bam says: “Quite apart from the fact that the shares are worthless and may have been part of an elaborate scam, the advice was inappropriate to [Muller’s] needs, and [Van der Merwe] did not concern himself with the fact that a portion of these funds were intended to further [Muller’s] children’s education.”
The ombud ordered Van der Merwe to repay Muller the amounts he had invested plus interest of 15.5 percent a year from April 28, 2005. Bam also ordered Van der Merwe to pay the case fee of R1 000.