The Ombud for Financial Services Providers has issued several more determinations in favour of pensioners who lost money in a hotel development that collapsed and against a Pretoria financial services firm and its representatives who facilitated the investments.
According to the determinations by the ombud, Noluntu Bam, key representatives of Huis van Oranje Financial Services, including Barend Geldenhuys, Stephanus van der Walt and Pierre Wilsenach, persuaded the pensioners to invest in the Blaauwberg Beach Hotel development through property syndication company Realcor and its complex web of subsidiary companies.
About 3 300 investors, mainly elderly people, collectively lost over R650 million in the development, which was liquidated in 2013, with the unfinished 144-room hotel fetching just R50 million on auction. This was after Realcor was placed under curatorship when the Reserve Bank found that it had been illegally acting as a bank by taking deposits from investors.
Several of the investors had heard of the property syndication investment through promotions and advertising on a Pretoria radio station.
As in previous determinations against advisers who put investors in Realcor and other property syndications that imploded, Bam found that Huis van Oranje and its representatives had breached the Financial Advisory and Intermediary Services Act and its code of conduct by failing to ascertain how risky the investment was and whether or not it was appropriate for the investor concerned.
In her determinations, Bam also refers to Government Notice 459, specifically addressing property syndication investments, which was published in the Government Gazette in 2006 and of which the advisers should have taken heed.
Bam says: “The notice contains minimum mandatory disclosures, which must be made by promoters of property syndicates. The disclosures must form part of the disclosure document or prospectus, which must be issued by the promoter. By extension, any provider who recommends this type of investment to clients must be aware of the notice and is obliged to deal with the disclosures when advising their clients. The aim is to protect the public.”
She says some of the most pertinent provisions of the notice are that:
* Investors must be informed in writing that a public property syndication is a long-term investment, usually not less than five years;
* There is a substantial risk, because investors may not be able to sell their shares if they want to do so in the future;
* It is not the function of the promoter to find a buyer if investors want to sell their shares; and
* Investors must be informed that funds received from them prior to transfer will be held in an attorney’s trust account. Funds shall only be withdrawn [by the syndicator] from the trust account in the event of registration of transfer of the property into the syndication vehicle; or underwriting by a disclosed underwriter with details of the underwriter; or repayment to an investor in the event of the syndication not proceeding.
Bam says the investors were required to pay their funds directly into Realcor’s bank account instead of into a trust account, in contravention of the government notice. This alone, she says, should have alerted Huis van Oranje to the dubious nature of the investment.
She ruled that:
* Mr and Mrs T be repaid the R400 000 they invested;
* Ms R be repaid her investments totalling R1 565 000 (The maximum compensation the ombud may order is R800 000. However, Bam says, Ms R’s investments were made “on different occasions, as separate and distinct transactions. So, each investment makes a separate cause of action”.)
* Mr and Mrs D, a retired land surveyor and his wife, be repaid the R800 000 they invested; and
* Ms K be repaid her investment of R55 000.