THE Eastern Cape High Court has ruled in favour of a couple who sued their financial adviser for the more than R10 million they and their company lost in the ill-fated Relative Value Arbitrage Fund (RVAF) and associated investments. 

The judgment (see “Investigation into products was ‘superficial’”, below) lends weight to a number of rulings against advisers made by the Ombud for Financial Services Providers, Noluntu Bam. 

However, Bam is no longer accepting RVAF complaints after the Financial Services Board (FSB) Appeal Board overturned one of her decisions on the grounds that the RVAF fell outside the ambit of the FSB.

The RVAF, run by Herman Pretorius, was marketed as a hedge fund, but turned out to be a scam in which, according to the judgment, investors were paid their returns from new investors’ capital. The scheme collapsed in 2012, with Pretorius committing suicide after shooting and killing his business partner, Julian Williams. 

Investors had collectively put about R1.8 billion into the fund, and advisers were paid handsome commissions to sign up clients.

Many desperate investors turned to Bam for help. She ruled mostly in favour of the investors and against the advisers, on the basis that the advisers had not, as they were bound to under the Financial Advisory and Intermediary Services (FAIS) Act, fully ascertained the risks involved by undertaking a proper due diligence on the fund. Initially, the Appeal Board upheld Bam’s rulings when the advisers took them on appeal.

One adviser, Michal Calitz, of Impact Financial Consultants in Durbanville, Western Cape, who was a personal friend of Pretorius, notched up at least seven Bam determinations against him and was ordered to pay back more than R10m to his clients. Calitz appealed the ombud’s decision on review after his initial appeal was unsuccessful. The ombud is opposing this application.

Another Appeal Board decision at the beginning of this year, however, put a bigger spoke in the works for RVAF investors lodging complaints with Bam’s office. Personal Finance reported in January that, following an appeal from adviser Mark Alexander Eiserman, the Appeal Board ruled that the FSB had found that Pretorius was involved in venture capital and private equity activities that were not subject to regulation by the FSB. 

The Appeal Board had also considered that Pretorius marketed the RVAF as a hedge fund at a time when hedge funds fell outside of the regulatory net. It therefore concluded that the RVAF was not a financial product as defined under the FAIS Act and fell outside the ambit of the Act. (Regulations under the Collective Investment Schemes Control Act have since made hedge funds subject to the Act and the FSB’s regulation.)

When contacted this week for news of its progress in opposing the Calitz application and helping investors claim against advisers who put them in the RVAF, Bam’s office told Personal Finance: “This office has no pending matters other than the Calitz matter and even that was in response to a review application that had been launched before the [FSB Appeal] Board decided against our decision [in the Eiserman case]. This office’s stance is that we are no longer accepting complaints with regards to RVAF.”


The Eastern Cape High Court ruling involves Mr and Mrs K and their IT consultancy company, who brought a case against advisory firm Atwealth, its representative, Andrea Moolman, and another entity, Vaidro 172 CC, which employed Moolman at a later stage.

Between 2009 and 2012, Mr and Mrs K invested £565 000 (about R9.5 million at the current exchange rate) and a further R700 000 through “holding company” Abante in the Relative Value Arbitrage Fund (RVAF) and associated investments, MAT Abante UK RVAF Fund and MAT Worldwide. They said they were told that the investments generated high returns (20% a year) and were legitimate. 

However, the judgment says the investment vehicles were not registered as financial institutions or products and did not produce any financial records. 

When the investments were wound up, the couple was unable to recover any of the money they had invested.

According to the judgment, the couple argued that Moolman had failed to comply with certain common law and statutory legal duties in investing their money. 

Moolman responded that Mr and Mrs K had attended a presentation on the RVAF investments, and she had not personally given the couple any financial advice, only “factual information”.

After hearing arguments for both sides, the judge, AJ Molony, said he was satisfied that Mr and Mrs K had received financial advice as contemplated in the Financial Advisory and Intermediary Services (FAIS) Act. The judge observed that Moolman could not appropriately explain the legal relationships among the various investment companies, nor could she distinguish between the definitions of a financial product, a product supplier and a financial services provider.

He said in his judgment: “The outcome is that [Moolman] did not possess the necessary skill and knowledge to market hedge funds. She did not attempt to comply with the requirements of the code [of conduct under the FAIS Act] or the discretionary code [that applied at the time to hedge funds]. In particular, she did nothing more than a superficial investigation in regard to Abante and its related products.”

He said that, even if one were to hold Moolman to the lowest possible standard as an adviser, it would still emerge that she was negligent in providing the advice that she did to Mr and Mrs K.

Referring to the Financial Services Board Appeal Board’s decision that the RVAF fell outside the ambit of the FAIS Act, the judgment says: “[Considering that the Appeal Board had previously upheld the ombud’s decisions] what emerges clearly is that the decision by the Appeal Board is contentious at best. It is also not binding on this court.”

The judge found in favour of Mr and Mrs K, ordering the defendants to pay them what they had invested and the costs of the case.

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