Secondary

Rent a Licence

The latest determination by the Ombud again concerns an investment in Sharemax. The Ombud ordered the respondent to buy back the shares at the price it was sold to the complainant.

An interesting aspect emerging from this case concerns how the respondent, Martiens Ras, was able to “legally” give advice on unlisted shares and debentures, despite having no experience in this field.

It appears that he was listed as a representative of FSP Network, trading as Unlisted Securities South Africa (USSA). His application form for appointment as a representative of USSA was completed on 19 May 2009, and he advised the client for the first time on 24 May of the same year.

It seems that the FSP Network only existed to enable intermediaries, who did not qualify to market licence category 1.8 and 1.10 products, to do so.

A check on the FSB website reveals that the FSP Network licence had lapsed. One is still able to download the application form for appointment as representative from their website. Alternatively, you can get it from your nearest Sharemax consultant.

The questions in the application form mainly concern the competency requirements, and verification of the applicant’s educational qualifications and experience. The latter is then used to determine whether he/she should be appointed as a representative or one working under supervision.

A report in Moneyweb states that Gert Goosen was the key individual of USSA, and the application form for appointment as representative shows him as the director of the business. Goosen was also Sharemax’s director of compliance.

In the determination in question, the Ombud pointed out that Ras had indicated on the USSA application form that he had no experience in shares and debentures. Yet, a few days later, he concluded the R800 000 deal, using only the prospectus of the Sharemax syndication.

In fact, he did not discuss it with the client – he indicated that he “…gave her time to go through it”. Furthermore, the Ombud states that there is “…no evidence whatsoever of any disclosure in respect of fees, commissions, method of termination or applicable penalties.”

The convoluted relationship between Sharemax, USSA and advisors placing business with Sharemax becomes evident from the following chain of events. When Ras submitted the application form to Sharemax, he gave the details of his own company, Perfecsure Lewens Makelaars. This FSP is not licenced to sell unlisted shares and debentures.

In her determination, the Ombud states:

“Given the reference to USSA, enquiries were directed to Mr G. Goosen, previously a key individual of USSA. Mr Goosen replied on 30th November 2010. The crux of his response was that respondent was at the time a representative of USSA, however, complainant’s business was not submitted under USSA but as confirmed by the documentation, under the name and licence number of Perfecsure.”

The fact of the matter is that there is an obligation on the product provider to ensure that intermediaries who submit business are properly and duly licensed. To comply with this regulation, they should not have accepted the business from Ras, or have insisted that he submit it under his USSA representative status.

This question was also put to Sharemax by the Ombud. She reports on this as follows in her determination:

“Mr Goosen, in essence, evaded the question and replied as follows: ‘In order to sell products promoted by Sharemax Investments, a person needs to be a representative of a FSP that is licensed for financial products 1.8 and 1.10. The procedure followed by Sharemax Investments is that when a person wants to promote the products syndicated by Sharemax, they need to enter into an agreement with Sharemax, In addition to that they also need to provide proof that they are licensed for financial products 1.8 and 1.10.’”

We believe that, at one stage, USSA had more than 2 500 representatives under supervision, yet only one key individual and one compliance officer. Apart from the physical impossibility of fulfilling their obligations correctly, one has to ask why USSA was allowed to stay in operation?

Membership of USSA cost its representatives R150 per month. Compared to the 6% commission rumoured to have been paid in these kinds of investments, it was not a shabby deal. For USSA, earning R150 per month from each of its representatives, was not bad either.

And no prizes for guessing who the biggest losers were in this setup

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