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Who enforces Penalties?

The content of an article in Moneyweb entitled Rogue broker ignores FAIS Ombud was covered in this newsletter in June.

Frank McCarter and his wife are one of many investors who received bad advice from rogue financial adviser Andre van der Merwe. In 2008 the McCarters were advised by Van der Merwe to invest their life savings into Garek and a Sharemax-promoted syndication. Both schemes failed.

McCarter laid a complaint against Van der Merwe with the Fais Ombud Noluntu Bam.

The Ombud ruled in McCarter’s favour on November 4 2010. (Click here to download a copy of the determination). Van der Merwe was ordered to pay McCarter R660 000 with interest of 15.5%, beginning from October 2008.

Van der Merwe failed to comply with the ruling. In fact, Van der Merwe has treated the Ombud and other regulators with contempt. Despite losing his Financial Services Board licence in 2009, Van der Merwe has continued to peddle unlisted shares in worthless companies.

The Ombud’s office does not keep records of whether rulings are complied with. Once a determination is obtained, it is up to the complainant to enforce it.

A Fais Ombud spokesperson comments: “The complainant will have to approach an attorney to assist him with the execution of the judgement. Once a determination is filed in court, we are not at liberty to get involved any further.”

It is interesting to note that the Ombud rulings provide a “start” date, but not a deadline, for payment. Interest at 15.5% is payable from the date indicated to date of payment, though.

In contrast to this, the Enforcement Committee of the FSB stipulates a “pay by” date. It is not clear from the FSB website whether there is any follow-up to ensure that the order was complied with.

In the case referred to in the Moneyweb article, the broker had a number of similar findings against him. It might be more a case of being unable to pay, rather than being unwilling to.

The suggestion from the Ombud’s office, that the complainant appoints an attorney to try and recover his money, opens another Pandora’s box.

The Ombud’s home page explains its function as follows:

The FAIS Ombud’s role is to resolve disputes between financial services providers and their clients in a procedurally fair, informal, economical and expeditious manner.

The Ombud’s determination was made on 4 November 2010. It appears that the final outcome for which the client approached the Ombud is yet to materialise.

This problem requires urgent attention. It makes little sense, empowering the Ombud with the same powers as the High Court, and then leaving the client to his own devices if the determination is not complied with.

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