NPA’s decision to drop Sharemax prosecution will impact investors and advisers

In 2020, Magnus Heystek wrote an article titled A truly horrific chart with nowhere for the JSE to hide, in which he compared the returns of various investment options over the previous 10 years.

“The market for property syndications – mainly driven by two major players, Sharemax and Picvest – boomed for about 10 years until 2011 or there about, when all of these schemes collapsed… No one really knows how much money was lost in these schemes, but just Sharemax and Picvest lost investors an estimated R8 billion. All around the country, much smaller but equally dangerous property syndications sprung up and closed down, with major losses to unsophisticated investors who joined the feeding frenzy. Commentators who warned about these schemes – including Deon Basson, Vic de Klerk and myself – were either threatened with legal action or described as being stupid.

“Today, 10 years later, the process is still ongoing in trying to recover some money, but as of today, not one person has been criminally charged for these fraudulent schemes.”

The late Deon Basson, who conducted a personal crusade against these schemes, was unceremoniously thrown under the bus by the newspaper group for which he was reporting on a freelance basis after one of the syndication groups threatened it with legal action.

On Tuesday, Moneyweb reported as follows:

“The National Prosecuting Authority (NPA) has decided not to prosecute any individuals in connection with the implosion of the Sharemax investment scheme more than a decade ago. The NPA’s decision means no one may ever be held accountable for the scheme’s collapse in which 18 600 investors collectively invested R4.6bn of their savings and pensions.

“The NPA’s decision was revealed when it issued a nolle prosequi certificate to Toffie Risk, a former Sharemax investor, who laid the original criminal charges 12 years ago in 2010.

“Advocate Sibongile Mzinyathi, the NPA’s Director of Public Prosecutions in Gauteng, states in the certificate: ‘I have considered all the statements and affidavits on which charges of fraud, theft and/or contravention of the Banks Act, as contained in the case docket CAS 697/10/2010, and that I decline to prosecute at the instance of the State.’”

Bulelwa Makeke, the NPA’s head of communications, confirmed in response to questions that there “are no prospects of a successful prosecution”.

She said the claim that it has taken 12 years for the NPA to reach a decision was incorrect.

“The first nolle prosequi decision had been taken prior to February 2011 already, but further representations to review that decision were given attention.”

The Financial Services Tribunal referred a number of determinations by the FAIS Ombud against advisers back for reconsideration on the basis that the failure of the scheme was not foreseeable at the time the advice was provided.

What about the SARB?

On the role of the Reserve Bank, Moneyweb continues:

“However, the SARB has washed its hands and denied any wrongdoing. In a statement issued to Moneyweb, the SARB said different acts and mandates govern the bank and the NPA.

“The SARB said that in addition to having the power to decide whether an entity has contravened the Banks Act and to issue a directive for monies to be repaid, it also has an obligation to refer the matter to the NPA.

“Any decision of the NPA in this regard remains within its powers/mandate/prerogative and has no bearing on the processes executed by the SA Reserve Bank/Registrar/PA [Prudential Authority] in terms of the Banks Act.

“Following the court-sanctioned Schemes of Arrangement (SoA), the SARB had no further mandate/involvement/oversight over the matter. The SARB acted in accordance with the requirements of the Banks Act.

“The SoA refer to the elaborate restructuring of Sharemax and the creation of the Nova Property Group tasked to repay investors within 10 years. However, Nova failed to do so and is currently being investigated by the Companies and Intellectual Property Commission for trading insolvently.

“Two former Sharemax directors, Willie Botha and André Brand, were reserved in their responses to the news, but stated that they always believed the company was run in accordance with the law.”

Regulatory intervention

Sadly, the regulatory authorities appear to have been sadly lacking in fulfilling their duties. They focused on the easy pickings of low-hanging fruit – the advisers who marketed the schemes, and only after the syndications were stopped by the Reserve Bank.

Not that all advisers were blame-free. Exorbitant commissions played a significant role in many of them conveniently turning a blind eye to the fact that they were not selling a property investment, but unlisted shares.

But greed paid an equal part in the catastrophe. I saw with my own eyes how people, mainly the elderly, lined up at the offices of Sharemax to buy into the scheme. This was no doubt fuelled by the early “successes” of the syndications.

Piercing the corporate veil

One attempt by the FAIS Ombud to implicate the directors of Sharemax failed horribly. In her determination in the Siegrist case, as well as Bekker, she joined Sharemax, its directors and its FSP to the case, despite the fact that they were not included in the original complaint.

13.14 The directors of FSP Network and Sharemax must be held personally liable for the complainant’s loss.

This did not happen. Personal Finance reported as follows:

“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.”

The outcome of the court case resulted in all syndication-related complaints being put on ice. At the last count, more than 1 000 cases might never be concluded in light of the NPA’s decision, as well as the findings by the tribunal on legal causation.

That is unless, as has become the new norm in South Africa, a private organisation protecting the rights of minorities decides to intervene by means of a private prosecution.

As they say in the classics, watch this space.

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