The Financial Services Tribunal (FST) has set aside the R2.5 million fine imposed on Nigel Green, the former director of deVere Investments South Africa (Pty) Ltd, as well as his five-year debarment.
In May 2022, the FSCA sanctioned Green and Brite Advisors South Africa (Pty) Ltd, which was fined R10m, for contravening various financial sector laws from 22 February 2010 to 1 August 2015. Brite was formerly known as deVere Investments SA and deVere SA Acuma (Pty) Ltd.
Read: FSCA fines Brite Advisors and former director R12.5m
Green was a non-resident director of deVere SA from 2008 to 2015.
The FSCA contended that deVere SA marketed foreign collective investments schemes that were not approved by the Registrar of Collective Investment Schemes as required by section 65(1) of the Collective Investment Schemes Control Act (Cisca).
The Authority said Green was, as a key individual, responsible for deVere’s SA operations and decision-making. Green maintained he was not involved in the day-to-day management of the group.
The advisory firm had also argued deVere SA at no stage handled client funds; clients only chose whether to act on its advice.
Founded in 2002, the deVere Group is an independent adviser for specialist financial solutions to high-net-worth clients. It has a network of more than 70 offices across the world, over 80 000 clients and $12 billion (R203 billion) under advisement. The deVere Group disposed of its local shareholding in November 2019.
The reconsideration application was brought by Green alone. Brite has filed its own reconsideration application. The tribunal is scheduled to hear that matter in March.
Jurisdiction over a foreign person
One of the issues that came up in the reconsideration application was whether the FSCA had jurisdiction over Green because he is not a South African citizen or resident. The tribunal addressed this issue in its decision, in November 2022, to set aside the R50m penalty imposed on Viceroy Research. In that case, the FST held that the FSCA does not have personal (as opposed to subject-matter) jurisdiction over a foreign person unless that person was served with the initiating papers while present in South Africa.
Read: Tribunal rules on Viceroy’s application against R50m penalty for Capitec report
The FST said it did not believe that Green’s assistance with the FSCA’s investigation into deVere and submitting to a summons to give evidence on a general compliance topic of deVere amounted to his personal submission to jurisdiction for the purposes of administrative sanctions. However, Green was deemed to have waived his right to raise the lack of jurisdiction.
Application of Financial Institutions (Protection of Funds) Act
In its first notice of its intention to take regulatory action, in 2019, the FSCA accused Green of contravening section 65(3) of Cisca:
“A person who solicits investments in a foreign collective investment scheme which is not approved in terms of sub-section (1) is guilty of an offence and liable on conviction to a fine not exceeding R10 million or to imprisonment for a period not exceeding 10 years, or to both such fine and such imprisonment.”
In its second notice, in 2020, the FSCA alleged a further contravention, based on section 2(a) of the Financial Institutions (Protection of Funds) Act, which states:
“A financial institution or nominee company, or director, member, partner, official, employee or agent of the financial institution or nominee company, who invests, holds, keeps in safe custody, controls, administers or alienates any funds of the financial institution or any trust property–
(a) must, with regard to such funds, observe the utmost good faith and exercise proper care and diligence;”
According to the FSCA, Green, as director of deVere SA, failed to comply with that duty by causing or permitting contraventions of, among other laws, section 65(3) of Cisca.
But the FST agreed with Green’s counsel that there were problems with the application of section 2 of the Financial Institutions (Protection of Funds) Act to Green.
“It is difficult to see how one can equate the solicitation under section 65(3) by deVere SA for the investment of client funds in unapproved collective investment funds as ‘investing, holding, keeping in safe custody, controlling, administering, or alienating’ those funds. The funds were UK pension funds that were moved from the UK to other EU jurisdictions because of deVere’s solicitation and advice in South Africa,” the tribunal said.
It said the second problem was that Green, although he was a director of deVere SA, did not perform any of the acts mentioned in the preamble to sub-section 2(a) – “investing, holding, keeping in safe custody, controlling, administering, or alienating”.
The FSCA contended that section 2(a) does not require a personal act, and that Green’s culpability was premised on deVere SA’s actions. Green, in his role as a non-executive director, was to be held strictly and personally liable for the conduct of the FSP on the basis that “the very purpose of section 2 of the FI Act is to avoid the persons mentioned therein to hide behind the corporate veil and to ensure collective accountability”.
The FST said section 65(3) of Cisca is a criminal provision with serious consequences, and, as such, it must be restrictively interpreted.
“The Authority’s interpretation would mean that a director is criminally vicariously liable for acts of or transgressions by the company. To counter this, the Authority submits that to find otherwise would mean that a director could hide behind the corporate veil.
“To find that a director is only liable for personal acts or omissions is not permitting a director to hide behind a corporate veil; it is the opposite because it prevents a director from hiding behind any veil because the director is held criminally liable for his/her personal criminal act or omission,” the FST said.
The criminal liability of companies and directors is spelt out in section 332 of the Criminal Procedure Act, and there is no indication that this provision intended to change that position. “Hiding behind a corporate veil” is in any event an inappropriate and loaded mantra when dealing with criminal provisions – it is a civil concept dealt with in detail in section 77 of the Companies Act, the tribunal said.
It found that Green did not contravene section 2 of the Financial Institutions (Protection of Funds) Act while he had been a director of deVere SA.
FST’s powers regarding debarment decisions
The FST set aside Green’s debarment and referred the decision back to the FSCA for further consideration.
The tribunal noted that it was entitled to set aside a penalty decision and substitute it with its own decision in terms of section 234(1)(b)(i) of the Financial Sector Regulation Act. However, the “incongruity or irony” is that the tribunal does not have the same competence in relation to a debarment order in terms section 153 which may be based on the same facts. In terms of section 234(1)(a), the FST may only dismiss the application or set the decision aside and remit it to the FSCA for further consideration.
Reaction from Green and the FSCA
In a statement on 5 January, Green said he had fully co-operated with the FSCA during the inspections, and consistently refuted the allegations against him.
“It’s clear that the case was overturned on the basis of both factual inaccuracies in the FSCA’s case against me and an incorrect application of laws,” he said, adding the FST came “to the only sensible conclusion”.
He said the FST criticised the FSCA for changing the alleged offences on several occasions – even up to two weeks before the case was heard – and for failing to understand its own laws. “By doing this, the regulator was shown to be on a mission to discredit me, come what may.”
Green said, in his case, the regulator “appears to have lost the objectivity and impartiality expected of a public body discharging a public function”.
The FSCA said it will consider whether to take the case on appeal, with reference to the penalty, while it will reconsider Green’s debarment.
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