We have long bemoaned the fact that determinations by the Ombud seemed to involve the advisor only, and not the product provider.
In the recent Bekker determination, the Ombud makes the following point:
“It is worth repeating that auditors and attorneys are appointed for the principal purpose of investor protection.”
We recently saw her hold the advisor and the Directors of Sharemax jointly and severally liable for the losses incurred by a client who invested in the Villa and Zambezi Retail Park syndications. She also wrote to the Law Society regarding the transfer of funds from the attorneys’ trust account before transfer of the properties was concluded.
These transfers appear to be the crux of the matter in the Bekker case as well. When Sharemax was asked about this by their auditors, it blamed the inclusion of the wording in the prospectus on a “cut and paste” error which occurred during the drafting of the prospectuses, claiming that it should not have appeared in the documentation. The Ombud is of the view that this was a key element in people deciding to invest with Sharemax – the fact that their money would be held in trust. She quotes from several other Sharemax documents which also emphasized the fact that the money would be held in the attorneys’ trust account.
In the Bekker determination, signed on 16 May 2013, the Ombud also involves the auditors involved in these two syndications. She sent a list of questions to the auditors, who responded with a reply from their attorneys. There remained a number of areas on which Ms Bam required further clarification. These are listed in the determination.
The auditors wrote to the Independent Regulatory Board for Auditors on 5 November 2010 regarding the early transfer of funds to the developers, indicating that it could be a reportable irregularity.
The fact that the actions of entities, other than advisors, are now also subject to scrutiny, is to be welcomed.