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FAIS Ombud to Challenge Appeal Board Rulings

According to an article published in Personal Finance on Saturday, the FAIS Ombud intends appealing against certain findings by the FSB Appeal Board.

“Late last year, the Appeal Board of the financial services regulator, the Financial Services Board (FSB), issued rulings against two of the ombud’s determinations, based on interpretations of the law that, she says, are at odds with the principles that underpin how the ombud’s office operates.”

“Noluntu Bam, the Ombud for Financial Services Providers, has already launched an application in the Pretoria High Court for a review of an Appeal Board ruling on two earlier determinations in which she held Sharemax Investments and four former Sharemax directors liable for the losses incurred by two pensioners who invested in the property syndication.”

“Bam is now seeking legal advice on the board’s latest rulings. The first ruling upholds an appeal against a determination in which she held a broker liable for the R1 million lost by an investor in Herman Pretorius’s Relative Value Arbitrage Fund (RVAF), which posed as a hedge fund but was, in fact, a scam.”

“In the second determination, Bam held a broker liable for the R200 000 an investor lost by investing in unlisted Edwafin debentures the day after the investment was liquidated.”

The third Appeal Board decision relates to the Ombud’s decision to hold Sharemax and its directors responsible for the clients’ losses, despite the fact that they were not included in the original complaints.

Sheel Appeal

“Bam held Mark Alexander Eiserman, of Mark Alexander Investments, liable for Gail Sheel’s losses in RVAF after Sheel complained she had invested based on Eiserman’s advice that the investment was performing well and was safe.”

“She said he had contravened the general code of conduct under the Financial Advisory and Intermediary Services (FAIS) Act, because he failed to exercise due skill, care and diligence in advising Sheel to invest in RVAF.”

“In his appeal to the FSB’s Appeal Board, Eiserman argued that the investment was not a financial product and he had not furnished ‘advice’ to Sheel.”

“The Appeal Board, chaired by Advocate H Kooverjie, says in its ruling that the FAIS Act defines financial products as securities such as unit trusts, insurance policies, pension fund benefits, bank deposits, medical scheme benefits, shares, debentures, securitised debts, money market instruments and any other financial product of a similar nature that the Registrar of the FSB declares to be a financial product in terms of the Act.”

“The Appeal Board notes that, although unlisted shares are a financial product, the FSB had investigated Pretorius’s activities and found that he was involved in venture capital and private equity activities that were not subject to regulation by the FSB.”

“It had also considered that Pretorius marketed RVAF as a hedge fund at a time when hedge funds fell outside of the regulatory net. (Regulations issued in terms of the Collective Investment Schemes Control Act have since made hedge funds subject to the Act and the FSB’s regulation.)”

Edwafin Debentures

We reported on this finding last week in the article Investment Failure was not Reasonably Foreseeable.

Sharemax Syndications

Personal Finance notes:

“Noluntu Bam, the Ombud for Financial Services Providers, has launched the application for the Pretoria High Court to review the decision by the Financial Services Board’s Appeal Board to uphold an appeal brought by Sharemax and its former directors against two of her determinations…”

“The ombud held both parties liable, together with two advisers who recommended the failed property syndication investment to two pensioners, who lost their money.”

“The Appeal Board ruled that she should have confined her determination to the advisers against whom the pensioners had lodged complaints, and she should not have included Sharemax and its former directors as respondents in the case.”

“In her application to the High Court, Bam says the judge has misconstrued the provisions of the Financial Advisory and Intermediary Services (FAIS) Act that address the powers and functions of the ombud. In particular, she says the FAIS Act expressly confers on the ombud an equity jurisdiction and investigative and inquisitorial powers. An equity jurisdiction means the ombud is able to go beyond the common law and make decisions that are reasonable and fair.”

“Bam argues that the Act does give her the power to identify the true nature of a complaint and the real respondents as information emerges from an investigation into a matter brought to her office.”

“She also points out that complaints lodged at her office are often couched in lay terms and do not always contain readily identifiable issues. The case is due to be heard in mid-February.”

The Personal Finance article also contains the views of the FSB on how the Financial Sector Regulation Bill will address the issues contained in the Ombud’s appeal.

We strongly advise interested readers to click here to read the full Personal Finance article: Three ‘fires’ threaten ombud’s protective powers

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