The Ombud for Financial Services Providers, Noluntu Bam, is continuing to issue determinations against financial advisers who put their clients into property syndication investments about a decade ago. The advisers are being held personally liable for the money their clients invested in these high-risk schemes, which went belly-up in the aftermath of the global financial crisis of 2009.
Most of the investors were retired people, who were persuaded to invest their life savings by advisers who pocketed huge commissions in the process.
One of the biggest of the schemes was Sharemax, which marketed a number of property developments around the country, the most notorious being The Villa Retail Park on Delmas Road in Pretoria, which lies half-built and is an eyesore for local residents.
Investors, such as some of those in the cases listed below, invested more than R1.5 billion in the project.
According to a report published late last year in Personal Finance’s sister publication, Business Report, there is a backlog of about 1 400 property syndication complaints at the ombud’s office. The backlog built up in the two years it took for an appeal against two of Bam’s determinations to be finalised.
The determinations were against Sharemax and four of its former directors: Gert Goosen, Willem Botha, Dominique Haese and Andre Brand. They held them jointly liable to repay two investors who had invested in a Sharemax scheme. In 2015, the four successfully appealed against the determinations.
The outcome of the appeal meant the ombud could issue determinations only against advisers and could not place liability at the doors of the property syndication directors, Business Report said.
Sharemax collapsed in 2010. In 2012, in a court-sanctioned scheme of arrangement, the property developments were taken over by Nova Property Group (now Nova PropGrow), and Sharemax investors were issued with debentures or shares in the group.
However, there have been questions about the value of the group’s assets, and, correspondingly, the value of the debentures that the roughly 18 000 former Sharemax investors now hold.
The following determinations relating to Sharemax and another property syndication scheme, Realcor, were issued recently by Bam’s office.
In all the cases, the ombud ordered the advisers to repay investors the full investment amount. She found that the advisers had failed to assess the risk of the investment or its suitability to the clients’ needs and circumstances, and, in so doing, had contravened the code of conduct under the Financial Advisory and Intermediary Services Act.
The full determinations are available on the ombud’s website, www.faisombud.co.za.
• Midcoast Financial Services and Bruce Earl Griffiths. In March 2009, Mr JO, since deceased, invested R500 000 of his life savings of R800 000 in Sharemax’s The Villa, on Griffiths’s advice. The investment was, according to Griffiths, secure and “ideal” for Mr JO’s circumstances.
He received a monthly income of R4 791 until August 2010, when all income payments ceased. A former veterinary surgeon, Mr JO was forced to sell his house and live on a state old-age grant of R1 600 a month, according to the determination.
• Gariep Investment and Financial Planners and Willem Jacobus Nienaber. Mr and Mrs G made two investments of R60 000 each, in April 2005 and May 2007, in Highveld Holdings and Liberty Mall Holdings, both promoted by Sharemax. In August 2010, their income instalments suddenly stopped.
Mr and Mrs G said Nienaber advised them that the capital would be guaranteed, and they were made to understand that the investments were in keeping with their risk profile – that of conservative investors.
• Anesh Maharaj and Mak Investments and Assurance Brokers, trading as Nu Era Insurance. Mr TS and Ms RS complained about four failed investments, of R200 000 each, made on their behalf by their mother in 2007 and 2010 into Sharemax’s The Villa Retail Park Holdings and Rivonia Square Shopping Mall Holdings. The investments were funded with proceeds from the siblings’ late father’s estate that had been earmarked for their education.
During 2010, the investments stopped paying income and the complainants considered their capital to be lost.
The adviser, Maharaj, had described the investments as moderate in terms of risk, according to the ombud’s determination, but Bam ruled that the investment risk was “in no way moderate”. “The product, in fact, carried extremely high risk.”
• Dabie Saayman Insurance Brokers. In December 2008, Mr FR, a retiree, invested R100 000 in Sharemax’s Zambezi development in the name of his wife, Mrs R. The funds were part of Mrs R’s retirement funds that had originally been invested with Sanlam and were transferred to Sharemax on the recommendation of Saayman.
In July 2010, the income instalments suddenly stopped. Mr FR was advised that the income would be restored within three to four months. But, when he lodged his complaint in February 2012, the instalments had not resumed, according to the ombud’s determination.
• Johanna Susanna Petronella du Preez, trading as Du Preez Financial Advice Services. In April 2010, Mrs CS, a 62-year-old retiree at the time, was advised by Du Preez to invest R600 000 in Sharemax’s The Villa Retail Park. The purpose of the investment was to generate capital growth and income. Four months later, her income payments stopped.
In 2011, Mrs CS was told by a friend that Sharemax was experiencing financial problems, but this was denied by Du Preez, who, according to the determination, said such claims “were being made by people intent to cast Sharemax in a bad light”.
Mrs CS subsequently filed her complaint with the ombud in April 2011.
• Johan Potgieter. In November 2009, Mrs BB was advised by Potgieter, a representative of AJG Brokers, to invest R100 000 in Grey Haven Riches 11, a subsidiary of Realcor Cape. She was told she would be investing in the Blaauwberg Beach Hotel (correctly the Radisson Blu Hotel on the Blaauwberg beachfront).
The funds invested in Realcor came from the proceeds of a Sanlam retirement annuity and her personal savings.
Mrs BB was told she would receive monthly interest of 10% to 15% a year on the investment.
Her income came to an abrupt halt in 2011 after Realcor imploded in a similar fashion to Sharemax.
In her complaint, Mrs BB claimed that her health was deteriorating and she depended on her children for financial help.
• In February, Moneyweb reported that a group of about 200 financial advisers and brokers who sold Sharemax products were taking legal action against the Nova group for, among other things, contravening the Companies Act.