The most recent determination by the FAIS Ombud concerns the placing of a client’s investment in the ill-fated Blue Zone scheme. Reading it provides one with insight into the practical application of the FAIS Act and General Code of Conduct.
We would like to discuss three aspects of this case which may be of value to readers:
- In her defence, the respondent intimated that she did not act in her capacity as key individual of the brokerage where she was employed, but as a representative of Bluezone. The Ombud points out that …all paperwork done by the respondent when she advised the complainant indicated that she was rendering services on behalf of the second respondent. Throughout her communication with the complainant, the respondent held herself out as a key individual of the second respondent and gave the impression that she was acting as such. To illustrate the point, the paperwork submitted by the respondent was in the letterheads of the second respondent. There was no trace of any sign of supervision by Blue Zone.
- The issue of due diligence is nothing new. In her review, the Ombud refers to the Durr v ABSA Bank Ltd and Another 1997 (3) SA 448 (SCA) case in which the supreme court of appeal considered the duties of a broker, and made the following observation: The important issue is that even if the advisor himself does not have the personal competence to make the enquiries, I believe it is incumbent upon him to harness whatever resources are available to him or, if necessary, to ask for professional, legal or accounting opinion before committing his client’s funds to such an investment”.
- Concerning the payments made to investors while Bluezone was not earning any income, the Ombud makes the following comments: A scheme that promises in excess of 10% income whilst the property is still being developed and before it is operational and earning money should have raised concerns in the mind of any diligent broker. At the time of the investment, there was no evidence of any development having been undertaken, nor had there been any rezoning of the agricultural land on which the property was meant to be based. Cursory investigation by the respondent would have alerted her on the possibility that the investors were paid from their own capital. This phenomenon should have prompted the broker to probe further into the inner workings of the Spitskop/Blue Zone syndication as all the signs signalled trouble.
Please click here to download the full determination.