The former director of the Praesidium Group, Craig Massyn, lodged an application with the Financial Services Tribunal (FST) to have his fine of R20 million and 20-year debarment reconsidered.
In August last year, the FSCA imposed administrative penalties on Massyn and his co-directors after an investigation found the group’s entities had advised clients to invest in forex instruments despite not being authorised to do so.
Read: Praesidium’s directors, key individuals fined millions of rands and debarred
The investigation was triggered by complaints from members of the public who alleged that Praesidium might be operating a Ponzi scheme because it was offering returns as high as 40% a year.
The FSCA investigation encompassed the investment schemes involving Praesidium Advisory Services (Pty) Ltd, Praesidium Wealth (Pty) Ltd, and Praesidium Sentinel (Pty) Ltd, which have since gone into liquidation. (Note: These entities are not connected with authorised FSPs Praesidium Capital Management or Praesidium Assurance and Investments.)
According to the Authority:
- Praesidium Advisory advised its clients to invest in forex instruments when it was not authorised to render financial services in respect of investment instruments denominated in a foreign currency.
- Praesidium Wealth advised its clients to invest in forex instruments although it was not approved as an FSP and was not appointed as a juristic representative of Praesidium Advisory between 1 April 2016 and 17 November 2018. Even after it was approved as a representative of Praesidium Advisory, it could not lawfully render financial services in forex instruments because Praesidium Advisory did not have an appropriate licence.
- Praesidium Advisory’s representatives advised clients to deposit money into the bank accounts of Praesidium Wealth and Praesidium Sentinel, which transferred the money to an account held in the name of Octox (Pty) Ltd. Octox was not an authorised FSP and therefore could not lawfully receive, hold, or invest clients’ money.
- Only 19.4% of the R1.36 billion deposited into Octox’s bank account was transferred to trading platforms for trading in forex instruments. The balance was used to pay withdrawals and monthly returns to clients, to pay the directors and consultants, and to fund the operating expenses of the Praesidium Group.
- Massyn, who was the head trader, was trading at a loss more than 50%, and there was no viable business activity in operation.
According to the FSCA’s report, it appeared that Massyn was operating a scheme “similar in nature to a Ponzi scheme”, and the positive trading returns “could not be remotely possible”.
Grounds for reconsideration
In his reconsideration application, Massyn did not dispute that Praesidium and its directors materially contravened the financial sector laws. His application was confined to the extent of the fine and his debarment.
In this respect, Massyn submitted that:
- The 20-year debarment was a lifetime ban from the financial services industry. Massyn, who was 39 years old when he lodged the application in October 2022, said he would 59 once the debarment ended. He asked the FST to reduce the debarment to 10 years.
- He could not afford to pay the R20m fine. He was sequestrated in September 2021.
- The penalties imposed on him were disproportionately large compared to those imposed on his co-directors, who were responsible for ensuring that Praesidium adhered to its licensing conditions. Brett Bukes was fined5m and Andrew Cunningham-Moorat was fined R2.5m. Both were debarred for 10 years.
- The FSCA “mainly based” the fines on the financial or commercial benefit derived by each director or juristic person related to the director. Massyn disputed that he benefited by R46 621 604, as stated by the FSCA.
Financial benefit not the only factor
In its decision handed down this week, the Tribunal stated it does not have the authority, in terms of the Financial Sector Regulation Act (FSRA), to reduce the length of Massyn’s debarment. He was advised to approach the FSCA directly.
The FST also rejected Massyn’s contention that the R20m fine was “mainly based” on the commercial benefit of R46m. It was clear from the FSCA’s decision that the financial benefit was only one of several factors considered by the Authority.
The other factors included:
- The nature, duration, seriousness, and extent of the contraventions, which included section 2 of the Financial Institutions (Protection of Funds) Act. The contraventions were not merely misdemeanours, but the result of a scheme administered by Massyn.
- Thousands of clients lost millions of rands because of Massyn’s conduct. Some clients invested their life savings and others had reached retirement when they were advised to invest. It is unlikely these clients will recover their losses.
- Massyn deliberately misrepresented his conduct. He reported positive trading results, even though he was making 50% losses before fees. Furthermore, he was paying some clients the returns due to them and their capital from other clients’ money, whereas he knew he had insufficient money on the trading platform to apply any set-off.
- The importance of deterrence, particularly considering the conduct that resulted in substantial losses to members of the public.
- The R46.62m benefit was the net effect of the flow of funds between the bank accounts of the primary entities and the accounts linked to Massyn and/or associated entities.
Massyn was ‘at the centre of the scheme’
Turning to Massyn’s argument that there should be uniformity in the penalties imposed on the directors, the Tribunal said the performance of a contract for difference (CFD) is dependent on the trader and the parties to the contract.
“In this particular case, the counterparties to the CFDs were the brokers. This put the applicant at the centre of the scheme as the main head trader. During the hearing, the applicant was invited to comment on this issue, and he indeed confirmed that as the head trader, the decision on what to buy and sell fell squarely on his shoulders. Trading was solely the applicant’s responsibility.
“This, in my view, is what puts him in a distinguishable position and on a different footing from the other key individuals. The respondent was consequently correct in differentiating between the applicant and other key individuals and directors,” wrote Zama Nkubungu-Shangisa, who chaired the hearing.
The Tribunal found the FSCA had carefully considered all the relevant factors and imposed a penalty in accordance with the applicable provisions of the FSRA. The Authority’s decision was sound in law and could not be faulted.
The FST therefore dismissed Massyn’s application.
