The Financial Services Tribunal (FST) has rejected an attempt by the debarred executives of N-e-FG to substitute their sanctions with an enforceable undertaking that included “making good” the R470 million in missing or lost retirement savings.
On Monday, the FST summarily dismissed the reconsideration applications by three of the four N-e-FG executives who were sanctioned by the Financial Sector Conduct Authority in November last year.
The Tribunal said there were “more than sufficient grounds” to dismiss their applications. Its decision criticised the quality of the applicants’ submissions.
N-e-FG founder Stephanus Cornelius (Corné) Jansen van Rensburg (third applicant) and Frederick (Eric) Young du Preez (fourth applicant) were each fined R30 million and debarred for 30 years. Jeremia Jesaja Steyn Jansen van Rensburg (first applicant) was fined R8m and debarred for 20 years.
The second applicant, Elia Christiaan Janse van Rensburg, who was debarred for 10 years, withdrew his reconsideration application shortly before the Tribunal hearing in July, stating he intended to file a new application. The FST struck his application from the roll.
The sanctions were imposed for contraventions of the Financial Advisory and Intermediary Services Act, the Financial Institutions (Protection of Funds) Act, the General Code of Conduct for Authorised FSPs and Representatives, and the Determination of Fit and Proper Requirements for FSPs.
The FSCA’s regulatory action followed an investigation – launched in September 2021 – into N-e-FG Administrators (Pty) Ltd, which later rebranded as Phahamisa Administrators (Pty) Ltd, and N-e-FG Fund Management (Pty) Ltd. The investigation later included a related N-e-FG entity, The Wealth Strategist (Pty) Ltd.
Corné Jansen van Rensburg founded the N-e-FG, which stands for “New Economy Financial Group”, in 1999. N-e-FG positioned itself as a diversified financial services organisation, emphasising trust, transparency, and client-centric solutions.
N-e-FG’s operations came under scrutiny in mid-2021 when Lion of Africa Assurance Company lodged a complaint with the FSCA. N-e-FG Administrators administered Lion’s Optimal Living Annuity (OLA) policies, and N-e-FG Fund Management was the fund manager.
The FSCA’s investigation found that:
- About R111.8m of client funds, including R79m from OLA, were unlawfully invested with Phahamisa Investments (Pty) Ltd, an unauthorised FSP. These funds were redirected into the Phahamisa Venture Capital Fund, which issued loans to various private entities – many of which were linked to N-e-FG’s executives.
- The funds were not invested in unit trusts as mandated but used in a manner inconsistent with clients’ expectations and regulatory requirements.
- Investment decisions were made by Corné Jansen van Rensburg and Du Preez, who issued investment statements that misrepresented the true nature of the investments.
The Authority stripped N-e-FG Administrators and N-e-FG Fund Management of their licences in December 2021, citing contraventions of the FAIS Act, the Fit and Proper Requirements, and the General Code of Conduct.
The FSCA placed N-e-FG Administrators under statutory management in May 2022. The statutory manager, Krishen Sukdev, reported that the estimated value of missing money or assets was R470m. However, the losses might be higher, because the whereabouts and value of all the assets was unknown or appeared to be unrealisable.
Proposed enforceable undertaking
According to the Tribunal’s decision, the applicants filed a master submission setting out the “common grounds” for their application. In these grounds, confirmed under oath, the applicants admitted “in general terms” that they contravened financial sector laws. However, they said the contraventions were not criminal because they did not intentionally contravene the laws but were only negligent.
In exchange for their admissions, they sought to be exonerated, and for the debarments to be substituted with an enforceable undertaking. This proposal included securing a loan from an unnamed lender to repay the R470m in client losses. The essence of the applicants’ submission was that restorative justice should trump retribution.
The Tribunal said their argument was based on the fallacy that the primary function of debarment is retribution, whereas it is not. The main purpose of debarment is to protect the public against financial providers who are not fit and proper to provide financial services.
The FST rejected the proposed enforceable undertaking for other reasons:
- Section of 151(1) of the Financial Sector Regulation Act (FSRA) states “a person may give a written undertaking to the responsible authority concerning that person’s future conduct in relation to a matter regulated by a financial sector law”. The applicants’ offer did not contain such an undertaking.
- The offer did not include an undertaking to provide “specified redress to financial customers”, per section of 151(2) of the FSRA, and the FSCA was not prepared to accept “the vacuous undertaking”. It had rejected a similar one previously.
- The offer by the unknown lender was made to a company that was in business rescue and subject to a pending liquidation application.
- The Tribunal does not have the jurisdiction to impose an enforceable undertaking on the FSCA.
The attorney who wrote the letter on behalf of the lender was supposed to engage the Tribunal about the terms and confidentiality of the loan. The FST said this did not happen, although this was not unexpected because “the offer on the face of it was nothing more than an inept (other adjectives spring to mind) attempt to postpone the day of decision”.
Issue of criminal intent
One of the issues addressed by the Tribunal was the nature of the applicants’ actions. They argued that their contraventions resulted from negligence rather than criminal intent, asserting that debarment was disproportionate for unintentional errors.
The Tribunal said the question of criminal intent was irrelevant, because it was not disputed that the applicants materially contravened financial sector laws and attempted, or conspired with, aided, abetted, induced, incited, or procured others to contravene a financial sector law in a material way.
However, criminal intent was “probably present”. The Tribunal said Corné Jansen van Rensburg and Du Preez “used trust money contra their mandate to create a secret profit for themselves or their companies, and they issued fraudulent reports to hide the fact of their dishonest conduct. That is in ordinary criminal law theft and fraud.”
The Tribunal elaborated on its conclusion with reference to Lion Life’s OLA policies. It said N-e-FG Fund Management, through N-e-FG Administrators, issued forged statements to Lion Life and the annuitants indicating that the funds were invested in unit trusts.
Corné Jansen van Rensburg and Du Preez, in their reconsideration applications, alleged they have emails to prove that Lion Life knew of the contra mandate investments, but these emails have not been produced, the FST said.
The Tribunal said they had admitted under oath to the FSCA that they made the investments contra mandate, and the High Court “found as a fact that the investments were contra mandate, fraudulent, and reckless, and that the applicants could not or would not account for the lost money”.
In their reconsideration applications, the two also admitted that the statements were fabricated, which would have been unnecessary unless it was to hide unauthorised actions.
“All this has been independently established by the Authority and, unsurprisingly, accords with the interim findings of FTI Consulting, which the applicants chose not to address in these proceedings, the Tribunal said.
Cause of the losses
The applicants sought to attribute, in part, the R470m in client losses to external factors, namely the FSCA and the High Court. They contended that:
- The FSCA’s suspension and subsequent withdrawal of N-e-FG Administrators and N-e-FG Fund Management’s licences disrupted their operations, preventing them from recovering misappropriated funds.
- The High Court’s liquidation order against N-e-FG Fund Management further precluded efforts to salvage the financial situation.
They argued that these regulatory and judicial actions exacerbated the losses, implying that they should have been allowed to continue managing the funds to mitigate the damage.
The Tribunal rejected this argument as lacking substance: “The irony is self-explanatory. It assumes that the companies and the applicants should have been allowed to continue with their unauthorised actions to limit the losses.”
The Tribunal also dismissed the other issues raised by the applicants in their common grounds, which it described as “frivolous to say the least”.
The applicants’ debarments were justified because they provided financial services while no longer fit and proper, having contravened sections 8A(a) and 13(1)(b)(iA) of the FAIS Act. Regulation 9 of Board Notice 194 of 2017 creates a presumption of unfitness for persons connected with liquidated entities, which the applicants failed to rebut.
The Tribunal said the applications constituted delaying tactics, particularly the common grounds, which admitted to contraventions while seeking exoneration.
