Over the past three months, the Ombud for Financial Services Providers has handed down eight more rulings against financial adviser Michal Calitz, who advised clients to invest in the Relative Value Arbitrage Fund (RVAF), a Ponzi scheme that was marketed as a hedge fund. This brings the number of rulings against Calitz to 12 and the total amount he must repay investors to more than R6.8 million.
The RVAF was “nothing short of a scam”, Noluntu Bam, the Ombud for Financial Services Providers, said in her first ruling against Calitz, which was handed down in June.
Following the collapse of the RVAF, in July 2012 Herman Pretorius, the mastermind of the scheme, shot his business partner before turning the gun on himself. The RVAF reportedly reaped in about R2.2 billion from investors.
In Bam’s first ruling against Calitz, she says Calitz conceded that he had received “profit share” from the RVAF amounting to about R8.4 million. This was contained in a report addressed to creditors, by the trustees of the insolvent fund.
Calitz, who operates from Bellville in the Western Cape, holds a Certified Financial Planner accreditation. This means he has a Post Graduate Diploma in Financial Planning and is a member of the Financial Planning Institute (FPI).
The latest rulings against him read much like the previous four. Bam holds Calitz and Impact Financial Consultants, a close corporation and an authorised financial services provider (FSP), jointly and severally liable to pay the complainants, as follows:
* Garvitte Lombard – R700 000;
* Hendrik du Plessis and Erna du Plessis – R800 000 each;
* Johannes Coetzee – R500 000;
* Hendrina Rautenbach – R701 350;
* Carolina Olivier – R360 000;
* Fiona King – R494 000;
* Loredana Hansen – R630 000; and
* Natalina Natali – R120 000.
In previous rulings, and repeated in the latest rulings, Bam says nothing in the evidence persuades her office that the complainants were aware of or could have understood the implications of what they were investing in. “In particular, there is no mention of the risks of investing in an unregulated entity, one without so much as a set of audited financials.”
Hedge funds are currently not regulated in South Africa. Hedge fund FSPs may operate, but are subject to a code of conduct.
Calitz contends that he dealt through Abante Capital, a licensed FSP, but Abante Capital is not mentioned in any contractual documentation, Bam says. A hedge fund must also obtain a signed mandate from the client and ensure that the client understands the risks.
Investors in the RVAF paid money directly to the RVAF, instead of to a nominee account, “a safety mechanism to distinguish investor funds from those of the service provider”, Bam says.
She says no adviser would have recommended the RVAF as a suitable component of any investment portfolio had they exercised the required skill, care and due diligence.
Bam’s first ruling against Calitz states that, in terms of the law, a financial adviser must carry out a needs analysis on his or her client, provide a record of advice, and make proper disclosure about product suppliers. Clients must be given details of the services the adviser is authorised to provide, and whether the adviser holds guarantees or professional indemnity cover.
Ashley Percival, an assistant ombud at Bam’s office, says the office of the ombud is finalising investigations in respect of other financial advisers who advised their clients to invest in the RVAF.
This week, Jacqui Grovè, the legal and compliance services manager for the FPI, told Personal Finance that Calitz’s disciplinary hearing is scheduled for November 10. Although the ombud’s rulings carry the weight of a High Court ruling, Grovè says an FPI member is “deemed innocent until found guilty by a competent FPI disciplinary panel of his or her peers”.