If someone approaches you to invest your money in the foreign-exchange (forex) market, be immediately on your guard. Foreign-exchange investments are extremely risky and there is a high probability of losing all your capital.

This is what happened to Ms D, a retired teacher from Port Elizabeth, who lost the entire R100 000 she invested with a company called Deo Volente Empowerment and Training CC, trading as Capital Builder Investments (CBI). CBI was a licensed financial services provider represented at the time by four key individuals: Paul Louw, Johannes Otto, Denton Henning and Paul Johnson, all of Port Elizabeth.

According to a recent determination by the financial advice ombud, Noluntu Bam, CBI promoted itself to Ms D as a “forex services provider”, and promised her that, although returns were not guaranteed, its forex product had shown “huge percentages of growth” and that she could expect “30 percent growth” a year. She was also told that 80 percent of her money would be “perfectly safe” in a Bank of Scotland deposit, and only the remaining 20 percent would be used for trading.

Ms D made her investment in 2008. Three years later, when she wanted to withdraw her capital, she found out that CBI was being shut down and there was less than five dollars in her account.

According to Bam’s determination, when Louw was approached by her for a response, he admitted that CBI had traded clients’ funds and lost all of it. He said that his colleagues had traded the funds contrary to the terms and conditions of the contracts they had with their clients. However, he also said CBI was simply providing a product and not in the business of giving financial advice. He had “adhered to the relevant policies of [CBI], the advice and instructions of [CBI’s] external professional compliance officers, the Financial Advisory and Intermediary Services (FAIS) Act, the Act’s code of conduct and Board Notice 39 of 2004 for Forex financial services providers; and therefore that I am not guilty of non-compliance of the FAIS Act and the Code of Conduct.”

In her determination, Bam says CBI and its representatives had not disputed that trading on the forex market was highly risky, and they admitted that such an investment was not suitable for clients who were unable to tolerate any risks to their capital.

She says she found that CBI’s presentations to its clients and its marketing material had “painted an exceptionally positive picture of CBI and its performance”, projecting a yield of 30 percent a year. It had also impressed on clients that it employed risk management techniques such as limiting trades to five percent of capital and applying a maximum drawdown (investment loss) of 20 percent of capital.

Bam says: “The marketing was misleading. As fund managers in the forex market, they could not responsibly promise such phenomenal returns, nor could they responsibly claim to guarantee 80 percent of the capital. We now know that this promised growth did not materialise; on the contrary, CBI traded clients’ funds into a loss, from which they could never recover.”

Ultimately, Bam found that:

* CBI traded complainant’s funds contrary to their agreed mandate;

* It exceeded the 20-percent drawdown in a vain attempt to trade out of its losses;

* It misled Ms D by providing accounts that misrepresented the truth; and

* Its conduct amounted to a breach of the common law, the FAIS Act; the FAIS General Code and the Forex Code, among other regulations.

She found CBI and its four representatives jointly and severally liable for Ms D’s loss, ordering them to repay her the R100 000 she invested.