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Calculating Investor Relief

We are seeing a substantial increase in the number of Sharemax related determinations from the FAIS Ombud. Most of these relate to complaints lodged in 2010 in the wake of the collapse of what some twisted minds would term the “Cruella the Villa” collapse.

The latest one concerns a widow who invested the proceeds of her late husband’s life savings in the property syndication, after initially considering a conventional insurer.

The background to this case is very much same-old, same-old until the Sharemax well ran dry in July 2010.

The investment was made in May 2008, and when payments stopped, the financial adviser actually paid the client various amounts from his own pocket until around March 2012.

The relief sought by the client amounted to the full R650 000 originally invested, and the Ombud held the respondents liable for the full amount.

It is interesting to note that, in this regard, the Appeal Board, in the FNB/Newlove case, found the following:

The complainant loaned a total amount of R340 000 to the “Delwray product scheme”. The complainant received interest and/or repayment totalling R186 200 and a further R20 000. Therefore, the ultimate loss suffered by the complainant is R154 780.

The appellant was ordered to pay the reduced amount to the client.

This creates an interesting question. When can the client claim full recovery, and when only the balance after consideration of payments received?

In the Newlove case, the Ponzi scheme was in the form of a loan, with the impression created that the capital was secure. This applied equally to expectations created in property syndications and the Relative Value Arbitrage Fund run by the late Herman Pretorius.

Is it right, therefore, that advisers who were instrumental in such investments should be held liable for the full amount, given the ruling by the Appeal Board?

Take The Villa for example – there is still no clarity on the final loss, or whether a compromise can be reached where the building can be completed and start generating an income, or sold to another developer to generate some capital for investors.

An article in Media24 on the 2015 AGM of the Nova Property Group provides some detail on where things currently stand. The recent ruling on the media’s right to access shareholder registers by the Supreme Court of Appeal in Moneyweb’s protracted case against the Nova Property Group, Frontier Asset Management and Centro Property Group may well bring some new information to light.

The matter of proportionate reimbursement applies to the other schemes mentioned above where the liquidators are still merrily liquidating along while desperate investors have to wait patiently for a final outcome. Those who failed to lay a complaint within three years with the FAIS Ombud have by now also lost this resource to recover their money.

Realcor Liquidation

Another angle on the issue is contained in the Peens ruling published on 12 May 2016.

Realcor was eventually liquidated. It does not appear from the documents on file that a liquidation dividend was paid by Realcor to its investors. Furthermore, it is not clear what the final report of the Reserve Bank’s managers was in respect of re-payment of monies to investors including complainant, if there was any. Based on the opposing submissions (made by FNB) to one of a few unsuccessful business rescue proceedings, the hotel was eventually sold for approximately R 50 million; all or the majority of which is likely to have been paid to FNB as one of the secured creditors. On the basis of this, it can be inferred that Realcor’s investors did not and are unlikely to have received anything.

Much has been said about these tragic events. Finding scapegoats brings sketchy relief to a few investors, while lengthy legal disputes drag matters out and merely add credence to the old saying: Justice delayed is justice denied.

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