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Honesty and Integrity

A recent finding by the Board of Appeal in the Teixeira case clarified certain matters around the very broad definition of this important fit and proper consideration.

Briefly: the adviser was debarred by the Registrar after investigating a complaint concerning an investment in a sugar deal. The regulator found that the adviser was responsible for the loss suffered by the client when the deal went sour, and she was debarred for five years, and the FSP license withdrawn. She appealed against this decision.

As discussed on Monday, the Board of Appeal found that the representative had not given advice as contemplated in the FAIS Act, but objective information. It found that the Registrar had erred in finding that Ms Teixeira had given advice to Heckroodt in conflict with the provisions of the Code.

Concerning the finding by the Registrar that Teixeira failed to meet the character qualities of honesty and integrity, the Board of Appeal ruled as follows:

The Registrar’s alternative (actually main) ground for disbarment is the finding that Ms Teixeira attempted to mislead the Registrar by stating that that she had never been the financial adviser of the Heckroodts when in fact she had been their adviser and intermediary.

A further point that can immediately be dispensed with relates to her provision of intermediary services to the Heckroodts. This she disclosed already in the second paragraph of her response to the Ombud and was repeatedly admitted in her attorney’s responses to queries from the Registrar.

The last point made by the Registrar relates to the inference drawn from documents that she in the past had given financial advice to the Heckroodts. This fact, too, was disclosed in the second paragraph of her response to the Ombud.

We find the proposition on which the Registrar’s case is based incomprehensible. It is namely that someone who discloses all the facts and then draws an incorrect conclusion from them, makes a fraudulent or dishonest misrepresentation, even when that person qualifies the inference with “in my view”.

The problem is that the Registrar did not appreciate the context of her denial. She made it clear that because of the personal relationship between her and the Heckroodts she was not formally appointed as their financial adviser and she regarded that all was done because of that relationship and not because of a professional one. That she was wrong is beside the point. She was not debarred on the basis of incompetence.

This brings one to the question of motive. The Registrar argued that her denial was prompted by her failure to have complied with the Code in respect of either the sugar transaction or the Momentum withdrawal. The problem with the submission is that it is not based on any allegation in the papers.

Counsel for the Registrar also sought to argue that Ms Teixeira lacked integrity and honesty –

  • because of the conflict of interest between her and the Heckroods in respect of the sugar transaction;
  • that she failed to prove that she, too, had lost money;
  • that she had made misrepresentations to the Heckroodts in connection with the sugar transaction in respect of her own involvement and it being risk-free; and
  • • that her attorney had misstated the reason for the Ombud’s dismissal (as if the Registrar did not know the facts and the attorney had reason to mislead the Registrar).

These matters were not foreshadowed in any communication from the Registrar and fairness demands that a provider must be alerted prior to the decision of the material facts on which the decision may be based. Cherry-picking after the event is not allowed. ln this case the Registrar did not even consider these matters and Ms Teixeira was not called upon to deal with them.

The appeal was upheld and the decision of the Registrar of 20 November 2015 to debar Ms Teixeira and withdraw her licence, was set aside.

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