The financial advice ombud, Noluntu Bam, has issued another determination against a financial adviser whose client, a pensioner, lost money in a Sharemax property syndication investment. Bam has ordered Freesure, a financial services company in Roodepoort, and its key representative, Lourens Oberholzer, to repay Ms P the R170 000 she lost in Silverwater Crossing Centre Holdings, a Sharemax project. Freesure’s financial services provider licence was withdrawn in 2011. Oberholzer now runs the company Retire Rich and Happy, also of Roodepoort. The determination provides some background to Sharemax. Sharemax stopped operating in 2012 after the Reserve Bank found it was contravening the Banks Act. This intervention resulted in frozen investments, which led to dormant, uncompleted building operations. A “scheme of arrangement” was reached through the courts by which several schemes were taken over by a new company, Nova Property Group Holdings, and investors received shares or debentures in these schemes. In 2005, Ms P, on the advice of Oberholzer, invested R160 000 in Sharemax’s Silverwater project. Two years later, she invested a further R10 000. She says in her complaint that she used to receive about R1 000 a month in income from the investment. In 2010, the monthly income started to decrease, dwindling to about R300 a month. When, in 2010 she wanted to withdraw her capital, she was told that the negative publicity around Sharemax related only to its Zambezi and The Villa retail park developments and not to its older properties, which “were owned by the shareholders, not by Sharemax”. Eventually, however, Ms P realised something was amiss and complained to the ombud. In response, Oberholzer said he met Ms P through her daughter in 2005. At the time, Ms P had a bank savings account and was looking for investment options in order to make high returns. He explained that, in order to increase her income, she would have to look beyond a bank fixed deposit and accept more risk. He recommended Sharemax and explained how it worked. Oberholzer said that the negative press surrounding Sharemax in 2009 had a detrimental effect on investors and argued that he could not be held responsible for the losses suffered by Ms P, because the syndication schemes had been approved by the Financial Services Board, even though they fell foul of the Banks Act. Bam considered the following issues, among others, in making her determination: • Whether Oberholzer, in rendering financial services to Ms P, violated the Financial Advisory and Intermediary Services (Fais) Act and its code of conduct; • In the event that he did, whether such a breach caused Ms P’s loss; and • The risk involved in the Sharemax investment. Bam says the Silverwater Crossing Centre prospectus, which was presented to Ms P, should alone have alerted Oberholzer to the risky nature of the investment. It confirms, she says, that Ms P “was presented with nothing more than a web of lies and deceit. Evidently [Oberholzer], who calls this an investment, could not decipher that there was simply no investment in this mess. It was a scheme to enrich those who designed it.” The prospectus lists the directors of Silverwater Crossing Centre Holdings (into which Ms P invested) as the same as the directors of the promoter, Sharemax, and of Silverwater Crossings Centre Investments, the company that owned the property. In other words, Bam says, “Sharemax was, in addition to being the promoter, the property manager, company secretary and manager of investor funds. A basic knowledge of corporate governance would have alerted [Oberholzer] to the inherent risks of this glaring conflict of interest.” There is no evidence, she says, that an independent board of directors ever existed in the entire group of Sharemax entities at the time; nor were there audit and risk and remuneration committees. “With no evidence of independent oversight, it is fair to conclude that investors would have no protection whatsoever and were at the mercy of executive directors. “The mere fact that [Oberholzer] was happy to market this investment, when he knew that he could not question or interrogate a single detail in the prospectus and supporting marketing material, is sufficient to conclude he was reckless.” Bam says that Oberholzer contravened several sections of the code of conduct under the Fais Act. Had he followed the code, he would not have recommended the Sharemax investment and, on a balance of probabilities, had Ms P been fully aware of the risks inherent in the investment, she would not have agreed to it.