There appears to be two kinds of respondents involved in FAIS Ombud determinations: those who attempt to defend themselves, and those who follow a strategy akin to the Lindesfarne song from which the title of this article was taken.
It is evident that many advisers who do respond to an invitation from the Ombud to state their case in respect of a complaint, often display an almost naïve defence, based on inadequate knowledge of their obligations under the applicable legislation.
One can only assume that the respondents in the latest “Van Breda” determination opted to turn a deaf ear as they had nothing to say in defence.
The following description in the determination reminds one of the good old days when Charles Pilai ruled the roost:
“Hiding behind an undisclosed conflict of interest, respondent corralled complainant and other investors to the BondCare stable, where respondent and his colleagues had unbridled control of investors’ funds. BondCare was by no means an investment but a cesspit.”
The determination summarises the scheme as follows:
BondCare solicited investments from members of the public to advance to conveyancing attorneys as bridging finance in immovable property transfers.
Funds were allegedly paid into the ‘trust bank account’ of BondCare and later into the attorney’s trust account, where it would be protected by the Attorneys Fidelity Fund.
There was no evidence to support the aforementioned claims. No investor knew what happened to their money after paying it into BondCare. There was not even a set of audited financial statements to demonstrate the financial wellbeing of BondCare. In addition, there was no credible process of verifying what happened to the funds after they were paid into BondCare.
Predictably, as soon as the money was paid into BondCare, first respondent and Smit, hiding behind an undisclosed conflict of interest, started paying themselves undisclosed amounts of money from investors’ funds.
The timeline reads as follows:
- The complainant’s first investment of R200 000 was made in October 2010
- In March 2011, a further investment of R250 000 was made
- R5500 was invested on 23 January 2012
- In June 2012, complainant was informed by BondCare of an investigation into the affairs of the group by the South African Reserve Bank
- On 30 July 2012, the complainant requested immediate return of his capital.
- Having not heard from first respondent, complainant lodged a complaint with the Ombud on 21 August 2012
- On 30 August 2012 the Ombud invited the respondents to furnish their response to the complaint, but nothing was forthcoming
- On 13 April 2015, respondents were sent a final warning by the Ombud to respond
It is not clear from the determination why there was lapse of two years and eight months between the last two dates. It can possibly be ascribed to the investigation the Ombud had to conduct in lieu of information from the respondents.
A report submitted at the second meeting of creditors of Bondcare on 16 September 2014, indicated a shortfall of about R23 million. Add to this the claim by the South African Revenue Services, (SARS) which had not been taken into account at the time the report was compiled, and the prospects of a dividend towards the complainant becomes bleak, as SARS’ claim must be paid in full before any concurrent creditor can be paid. The complainant is one of the many concurrent creditors.
Nonetheless, the Ombud ordered that the respondents repay an amount of R455 000 plus interest at 9% from the date of demand, being 14 August 2012 to date of final payment.
Alan Holton, a Moonstone Compliance associate, responded as follows to what aggrieved complainants can do in a situation like this:
The Complainant can get the determination treated as a civil judgement and ask the court to issue a warrant of execution against the Respondent’s assets.
The Financial Sector Regulation Bill takes the matter a little further, and provides at S 268 (Compensation for contraventions of financial sector laws) that a person, including a financial sector regulator, who suffers loss because of a contravention of a financial sector law by another person, may recover the amount of the loss by action in a court of competent jurisdiction against the other person and any person who was knowingly involved in the contravention. This will include directors of a company FSP.
Alan will be discussing this and other important changes to the original Financial Sector Regulation Bill at our Regulatory Update workshops – see below for more information.
Click here for a copy of the full determination.