Secondary

Assessment-disputed

High Court awards widow R2.7 million

A bereaved widow, who was convinced to invest R2 million in the Sharemax Villa scheme, finally saw justice a month ago in the Bloemfontein High Court, when the judge held her financial advisor accountable for the loss.

The plaintiff was vulnerable in July 2010 when the defendant advised her. She was a widow with a two and a half year old boy. Her husband passed away in tragic circumstances some four months earlier. She experienced financial and emotional difficulties. She had no experience of financial products and/or the financial market. She received the proceeds of an insurance policy and wanted to make a safe investment as the money was earmarked for her son’s upbringing.

The defendant was her deceased husband’s broker and she trusted him fully to advise her in respect of the investment of the sum of R2m. During the meeting with defendant when several forms relating to the investment were filled out for signature, plaintiff emphasised that she could not afford to lose two cents.

Defendant suggested the Sharemax investment and said it was an investment “in property” and “property cannot disappear”. The defendant made it clear that he did not even want to suggest any other investments as the proposed investment was “baie veilig – extremely safe”. He referred plaintiff to a bad copy of a newspaper article containing negative comments about Sharemax investments, but informed her that she had nothing to be concerned of as “hulle is jaloers – they are jealous.”

Plaintiff accepted defendant’s assurance immediately without even reading the article. In this regard it is to be noted that according to the pleadings defendant admitted informing plaintiff that she did not have to be concerned as he had spoken to Sharemax as well as his consultant.

This was not good enough. Defendant should have spoken to independent auditors, attorneys or financial analysts. He should have insisted on financial statements, such as income and expenditure accounts, cash flow analyses and a balance sheet. He should have inspected the shopping complex. If he did that, he would know that the investment could not possibly have an income stream at that stage or even in the foreseeable future. The investment that defendant induced plaintiff to make was a property syndication investment. The Sharemax investment was known as The Villa. The company used as the investment vehicle was registered in 2010 only.

This should have been a serious concern as well. The Villa shopping complex was in the process of being built. Ex facie the photographs handed in as Exhibit B, the buildings were still incomplete when the photographs were taken nearly six years later in January 2016. Mr (Magnus) Heystek explained the potential dangers of property syndication and also made the point that insofar as the companies involved were unlisted, there was a lack of disclosure making it difficult for financial analysts to make meaningful comparisons. Accordingly, as testified by him, a FSP “should not advise an investment in something which he is not himself able to fully understand.”

The judge then quotes from the Durr case:

“What he was not entitled to do was to venture into a field in which he professed skills which he did not have and to give them assurances about the soundness of the investments which he was not properly qualified to give.”

PI Cover Claim Rejected

The court case was not the only woes for the advisor. His PI cover insurer refused to pay his claim for the full R2.5 million he was insured for. The court set this aside, ordering the insurer to pay the maximum allowed. The insurer filed a notice of application for leave to appeal.

The view of the judge on this is extremely important, and will be covered in a separate article.

Judgement

The judge ruled as follows:

  1. Defendant is ordered to pay to plaintiff the capital amount of R2 000 000.00 and interest calculated to 27 July 2016 in the amount of R718 600.00.
  2. Defendant shall pay mora interest on the amount of R2 718 000.00 to plaintiff at the rate of 10.5% per annum, calculated from 28 July 2016 to date of payment thereof, both dates included.
  3. All legal costs incurred by the Plaintiff
  4. The insurer was ordered to pay the maximum PI cover under the contract as well as all the advisor’s legal costs in this regard.

And so, yet again, another sorry Sharemax saga confirms how greed can cloud clear judgment.

Click here to read the full judgement.

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