The South African Reserve Bank in Pretoria.
JOHANNESBURG - A Welkom-based financial adviser has claimed it was unfair to expect him to ensure that the directors of Sharemax did not violate a government regulation and followed the rules of a prospectus for The Villa.

One of the rules of the prospectus was that investors' funds would be held in trust until the syndicated property was transferred into the syndication vehicle.

Abe Gouws Brokers and Abraham Gouws further claimed they did not cause the loss in an investment in The Villa - a property syndication promoted and marketed by Sharemax - as the investment had failed because of the SA Reserve Bank's intervention and not because it was inferior.

Abe Gouws Brokers and Gouws were responding to a complaint lodged by a male pensioner Remo Ehlers to the Ombud for Financial Services Providers related to R420000 he invested in The Villa on Gouws’s advice.

The ombud Noluntu Bam ordered Gouws and/or his brokerage to repay Ehlers the R420 000 he had invested.

Gouws’s reference to the Reserve Bank related to the bank appointing statutory managers to Sharemax after its collapse in 2010. New investments dried up and it could not make monthly payments to investors.

This followed the findings of a registrar of banks investigation, which found that Sharemax’s funding model contravened the Bank Act, becoming public knowledge.

About 40 000 people invested about R4.5 billion in the various schemes promoted and marketed by Sharemax.

The registrar of banks laid criminal charges against Sharemax for alleged contraventions of the Banks Act in March, 2012.

Bam said Ehlers’s loss was not caused by the management failure of Sharemax or the intervention of the Reserve Bank, but by Gouws’s inappropriate advice.

Gouws claimed he complied with the Financial Services code of conduct, because he considered Ehlers’s needs when deciding what type of investment would give him a better income.

He further claimed he perceived the investment in The Villa to be safe, as he visited the construction site to ensure it was being built and was low risk.

Gouws said he accepted that all the provisions in the prospectus were correct and in line with the relevant laws, because of the approval of the prospectus by the Department of Trade and Industry.

But Bam said despite the overwhelming evidence provided in Gouws’s investment recommendation letter to Ehlers, which included a summary of the relevant prospectus, it was concerning to note that Gouws still failed to see the risk and therefore the inappropriateness of the product in relation to Ehlers's specific circumstances and request for a safe investment.

She said Ehlers had not seen “a single cent” of his funds since the monthly payments ceased nor a return on his capital.

Bam concluded that Ehlers had lost his investment and there was simply no prospect that he would ever receive his capital.

With regard to Gouws’s reference that he could not be held liable for the transgression by Sharemax of a government notice and non-compliance of the directors, Bam said Gouws still failed to see that by the time he presented the prospectus to Ehlers the directors of Sharemax were “already contravening the law”.

Bam added that a basic knowledge of corporate governance would have alerted Gouws to the fact that nothing healthy could come from an investment where the directors, at every level, were accountable only to themselves.

She concluded that Gouws did not understand the content of the prospectus and the implications for investors.

Bam added that had Gouws truly appreciated what he was advising Ehlers to invest in, he would have steered Ehlers in a different direction.