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RVAF Update

22 Apr

Author: Paul Kruger

Publications: Moonstone

Date Published: 21 April 2015

Die Burger reported on Thursday, 16 April 2015, that investors who placed funds with the Relative Value Arbitrage Fund (RVAF) can expect to get some of their money back.

This information was contained in the latest progress report from the joint trustees of Herman Pretorius’s estate.

According to the article, receipts show that the RVAF group accumulated approximately R2.5 billion between 2004 and 2012 from investors and other sources. A summary of the group’s income and expenses by forensic auditors, appointed by the trustees, states that Pretorius used R753 million of the funds for payments unrelated to payments to investors.

Other unspecified payments amounted to R164 million.

At the time of Pretorius’s death, there was only about R2.1 million left in the RVAF bank account.

It is not clear just how much will become available for distribution to investors. The trustees indicated that they will be applying for the setting aside of judgements obtained to freeze certain of Pretorius’s assets to prevent it from being used. They have also successfully applied for the sequestration of Pretorius’s family trusts.

Broker Commissions

The article also states that R124.6 million was paid to financial advisers who convinced investors to place their funds in the RVAF. The trustees aim to approach these advisers on an individual basis to reclaim the fees paid to them by Pretorius. One such claim was already allowed by the courts, but there is currently an appeal against this finding.

The same broker also appealed against various determinations by the FAIS Ombud that he should repay investors the money they placed in the RVAF on his advice.

In total, 23 FAIS Ombud determinations were made in favour of complainants against a handful of advisers.

Investor Claims

A third article reminds investors who wish to lay complaints against advisers that they would have to do so soon, as they only have three years from the time they became aware of, or should reasonably have become aware of, the occurrence of the act or omission which gave rise to the complaint. Pretorius died in July 2012.

A Double Whammy

There are two sources of hope for investors. The final restitution after the trustees managed to wind up Pretorius’s estate, and/or the Ombud finding in their favour.

In view of a recent Appeal Board decision it appears unlikely that investors will be allowed to have the best of both worlds. They cannot reclaim their investment from the broker, and get a partial payment from the estate. It appears that, until such time as a final payment is made from the estate, the quantum of the loss cannot be ascertained with certainty.

The attempt to get advisers to pay back the “commission” they received is far more complex than what it seems.

In 2012, after the death of Pretorius, the FSB issued a media release on the RVAF in which it said:

” The ambit of the FAIS Act is focused on the rendering of financial services which typically involve three parties, namely a product supplier, an intermediary and a client. Unless a financial product is involved, the FAIS Act does not apply.”

And further on: “To the extent that investors were lured into any of his projects, such investors carried the risk and obligation to enquire into the merits before parting with their money, especially where above-average returns were being offered. The loss of so much money to so many investors is a sad state of affairs but one for which the regulator is not accountable.”

The outcome of the appeal case, referred to above, should provide clarity on this matter.

Justice for All?

Another consideration noted before in this forum, but as yet unresolved by the authorities, concerns the broker’s ability to reimburse clients.

With multiple claims resulting from both the trustees and the Ombud’s determinations, the chances are very good that the brokers involved may be forced to choose the insolvency option.

This could mean that clients will receive justice, but no compensation, while those who benefitted most will walk away scot free.

Such an outcome defeats the object of the exercise, and deserves serious attention.