Archive | May, 2015

Taking a significant beating with legislative Act

19 May

Author: Myra Rego

Publications: FANEWS

Date Published: 19 May 2015

Intermediaries are governed by the Financial Advisory and Intermediary Services (FAIS) Act which governs their actions and regulates the way in which advice is given to a client. While this act has been a welcome addition to the industry, some intermediaries have been taking a significant beating by the Act.

This was yet again, the issue in the recent determination by the FAIS Ombudsman (FAIS Ombud). The case was between Daphne Auret Foster (hereafter referred to as the complainant), Vaidro Investments (hereafter referred to as the first respondent) and Andrea Moolman (hereafter referred to as the second respondent).

Facing stumbling blocks

In 2011, the complainant invested a combined total of R800 000 in a Relative Value Arbitrage Fund (RVAF). To make up R800 000, the first payment of R150 000 was made in February, followed by a payment of R550 000 in June and lastly, R100 000 in November.

The fund was managed and operated as a hedge fund – by one Herman Pretorius, (now deceased) – with no license of its own.

The investments were made in consequence of the recommendation and advice of the second respondent, who acted as the complainant’s financial adviser. The complainant states that the purpose of the investment was two-fold, namely capital growth for an imminent retirement, as well as the access to additional cash in the event of Mr Foster’s passing.

The complainant was advised that the RVAF would be less risky than investing in the JSE, in that the risks were better managed. In this regard, the complainant was advised that whilst the returns in good time would be less, conversely the returns during a downturn would not be as bad. In this respect, the complainant was advised and shown records indicating not only that the fund had shown good performance over a long period but that it even showed a positive return over the stock exchange crash of 2008.

Accordingly, the complainant, when asked by the Office what needs analysis was conducted by the respondent, replied that this was not necessary as the couple had other investments for their pension. Furthermore, the complainant advised that she was also offered another hedge fund; however, the respondent advised her that the RVAF was more secure and suitable to her requirements. The investment comprised all of complainant’s investable capital but constituted 15% of the couples total retirement savings.

The complainant blames the respondent for poor advice and the loss of her investment of R800 000. It was expected that the funds were to be invested and trade in the top 40 companies on the JSE and that certain measures would be in place to manage risk. Accordingly, the complainant states that the investment was misrepresented being in fact a Ponzi or fraudulent scheme and the complainant holds the respondents accountable.

A painted canvas

The FAIS Ombud invited the respondent to respond to the complaint. The respondent stated that the complainant’s husband wanted to invest in the RVAF, but wanted to do so in his wife’s name (the complainant) for tax purposes. The husband wished to meet with Herman Pretorius in order to ask several questions.

According to the respondent, the husband advised that he is well informed and knowledgeable regarding trading shares and that he himself in his own capacity trades Satrix top 402 and hence understood that the investment made use of a partnership agreement. No Financial Needs Analysis (FNA) was conducted as this was treated as a single need. The complainant required nothing more as he is already well invested for retirement.

The record of advice evidences that the complainant was warned by the respondent about the high risks of the product.

The respondent only provided factual information on hedge funds and did not provide advice. The respondent advised that Herman Pretorius explained the strategies and how the risk was managed. She stated that by having reasonable knowledge of Hedge Funds, she concluded that the strategy, as explained to her, was a suitable investment for the client. The respondent contended that she was satisfied that persons investing in the fund were fully appreciative and aware of the risks involved.

What is not in dispute, is that the complainant sought guidance from a licensed financial adviser; namely the respondent. In so doing, the respondent had a duty to ensure that the advice that was provided was correct and appropriate for the complainant’s circumstances. Other than taking an interest in his own financial affairs, there is no evidence that the complainant’s husband possessed any particular investment knowledge or experience. Had the complainant’s husband been the experienced investor the respondent makes him out to be, he would have certainly steered clear of RVAF.

Immeasurable accountability

The inescapable conclusion is that the respondent knew nothing about the fund or its underlying investment and was in no position to advise her clients to invest in it.

No sensible person having been given the correct material information or advice would have invested in RVAF. Nothing in the records explains why it was necessary to take such a risk with a substantial portion of the complainant’s capital.

The issue determined is that the respondent failed to act honestly, with care and diligence. The complaint is upheld and the respondents are ordered, jointly and severally, the one paying the other to be absolved, to pay to complainant the amount of R800 000.

Editor’s Thoughts:
We need to be honest and also admit that poor advice is also a major contributor in some of the FAIS determinations – it is such a pity that some “bad apples” give the industry a bad name and thus give professional advisers a harder time with selling and compliance with regulation. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.

 

 

 

 

 

Belvedere: A closer look at Trinity

14 May

Author: Patrick Cairns

Publications: MoneyWeb

Date Published: 14 May 2015

CAPE TOWN – The allegations against Belvedere were first made in OffshoreAlert back in early March. The Miami-based publication claimed to have uncovered “one of the biggest criminal financial enterprises in history”.

There were suggestions that billions of dollars were at risk in what was a web of fraudulent activity.

Despite the size of the alleged scam, a peculiarity of the story is that there has been very little in the way of anyone coming forward to claim that their money is missing. The deVere Group raised the initial concerns about the Strategic Growth Fund, which was the focus of the recent actions by the Guernsey Financial Services Commission (FSC). It is worried about a total £30 million that it has not yet been able to recover from the fund.

No other investors have yet publicly come forward to state that they are worried about missing funds. The scale of what may or may not be compromised therefore remains a point of conjecture.

Much of the speculation around Belvedere has also suggested that everything with any connection to the group must be fraudulent. However, there are investment vehicles associated to Belvedere that are verifiably legitimate, and it is important not to overlook those details.

This is the case with the two sub-funds housed under the Trinity Global Fund in Guernsey. To understand this, it is necessary for some context.

Towards the end of April, the Guernsey FSC successfully applied to have three funds managed by Lancelot Management – the Global Mutual Fund PCC, Universal Mutual Fund ICC and Worldwide Mutual Fund PCC – placed under administration.

The FSC also applied to place a fourth fund, the Trinity Global Fund, under administration. That application was however adjourned to a later date, and has since been adjourned again.

Why is Trinity different?

Trinity is distinct from the other Lancelot-managed funds in Guernsey in that it is a unit trust, rather than a hedge fund vehicle. It currently houses only two sub-funds, the Armstrong Global Diversified Fund and the NeFG Global Diversified Fund.

There are strong connections to South Africa here: NeFG is a local fund manager and the Armstrong Fund is the offshore vehicle into which the MET Global Diversified Feeder Fund invests.

A ‘consent order’ was obtained in court that essentially requires Trinity’s trustee bank, the Royal Bank of Canada, to impose strict conditions on any transactions within these funds. This will stand until May 29, when the application to place Trinity under administration is now set to be heard.

Moneyweb has established that both the Armstrong and NeFG funds have long-only mandates and may only invest in listed securities. In both cases the underlying investments within these cells are exclusively in funds managed by South African asset managers – the likes of Coronation, Sanlam, Investec, Prescient and Stanlib.

Given what has taken place in Guernsey, certain reports have once again questioned whether the money in these funds is safe. The Head of Distribution and Client Services at MET Collective Investments, Kevin Hinton, stated some time ago that he was confident that the assets in the MET Global Diversified Fund could be validated, and he reiterated as much again to Moneyweb this week.

“I still stand by that comment,” Hinton said. “We’ve gone as far as to check the unit registers of the management companies themselves. When we originally got a document from the administrator Lumiere indicating what the underlying assets were, we went to each of those asset managers – the likes of Prescient, Investec and Stanlib – and validated that they were holding those units in their funds by that nominee vehicle.”

As such, he is satisfied that no investor money is compromised.

In the case of the NeFG, as reported towards the end of April, Moneyweb has seen copies of the fund valuation and portfolio valuations confirming its assets. It is invested in only three underlying funds – the RECM Global Fund, Coronation Global Managed Fund, and PSG International Global Flexible Fund – and the assets in each are identifiable and valid.

Moneyweb understands that the NeFG fund is in the process of cashing out its assets as the reputational risk has become too much. It is looking to relocate to another jurisdiction.

Guernsey

These matters taking place in the Royal Court of Guernsey have been the focus of the Belvedere story over the last few weeks. The application to the court to place the Lancelot funds under administration was accompanied by an affidavit sworn by Paul Yabsley, a senior analyst in the enforcement division of the Guernsey FSC that contained the first concrete details of suspicious trades. These had taken place within the Strategic Growth Fund cells of the Global Mutual Fund.

This is the fund about which deVere had expressed its concern.

The trades were a series of investments into the underlying cells of two Mauritius-domiciled funds: Two Seasons and Four Elements. These funds were both administered by Belvedere Management and managed by RDL Management.

The FSC was particularly concerned about what it termed “significant and systemic conflicts of interest” in these transactions, as Cobus Kellermann and David Cosgrove owned or managed entities involved at almost every level. It also submitted to the court that the financial positions which resulted may not have been valued correctly.

The four specific transactions in question were to the value of $10 million, $1 million, $1.5 million and $14 million. The Guernsey FSC also questioned the valuation of a property in Stellenbosch that was bought by one of the Mauritian funds for R28.5 million and sold two years later to another for R72 million.

The affidavit further questioned the sale and transfer of R14 million worth of shares in JSE-listed BKOne between funds linked to Kellermann. The transaction was instigated the day before Herman Pretorius murdered Basilues CEO Julian Williams and then committed suicide.

None of the other cells in either the Global Mutual Fund or any of the other funds placed under administration were specifically mentioned in the affidavit. However the FSC did state its belief that the conflicts of interest it uncovered could extend “to a number of other Managed Funds which have advisers with similar ownerships or investments into Four Elements and Two Seasons.”

It therefore requested that all the funds be placed under administration to allow for proper investigation into whether there was any contagion and to protect investors in the case of redemptions, since there is a risk that net asset values may be incorrect.

The specifics

What the affidavit also highlighted was the need to deal in specifics with regards to the allegations against Belvedere. Suspicious activity has been uncovered, and that must be dealt with on its merits.

The question of whether there has been contagion must be followed up. As that happens, more details may emerge.

It is, however, evident that not everything associated with Belvedere is fraudulent, or even suspicious. Within the Belvedere hive there are genuine funds running demonstrably valid mandates with assets that can be verified. One of the issues the regulators are facing, therefore, is the onerous task of separating the good from the bad.

The problem for investors is that until the regulators’ work is complete, they can’t know the difference. And unfortunately for any fund associated with Belvedere, that may be a death sentence.

Hof hoor van band tussen Cobus Kellermann, Herman Pretorius

10 May

Author: Nellie Brand-Jonker 

Publications: Netwerk24

Date Published : 10 Mei 2015

Die baasbrein agter Suid-Afrika se reuse-RVAF-piramideskema, wyle Herman Pretorius, word in hofstukke in Guernsey oor beleggingskemas genoem waarby die Kaapse batebestuurder Cobus Kellermann betrek word.

In die hofstukke daar word gesê van die hoogs riskante Suid-Afrikaanse beleggings wat Kellermann as ’n portefeuljebestuurder van ’n Guernsey-fonds gemaak het, was in maatskappye van Basileus Investments.

Wie was Basileus Investments?

Basileus Investments het in 2012 die nuus gehaal toe sy uitvoerende hoof, Julian Williams, in sy kantoor in die middestad van Kaapstad deur Preto­rius doodgeskiet is. Pretorius het homself daarna geskiet.

Volgens die hofstukkie is die JSE-genoteerde BK One gestig as ’n voertuig waardeur kapitaalinspuitings gemaak kon word om die Basileus-verwante maatskappye te ondersteun.

Paul Yabsley, die ondersoeker van Guernsey se finansiële owerheid, skryf in die hofstukke dat die Strategic-fonds in ’n stadium onder leiding van Kellermann direk en indirek deur fondse van Mauritius beleggings en lenings aan Basileus en sy verwante maatskappye gemaak het.

Die hofstukke verduidelik ook hoe die Strategic-fonds in wese R71 miljoen geleen het aan ’n maatskappy om ’n plaas in Helshoogte te ontwikkel en daarna weer R72 miljoen opgedok het om die plaas te koop – om dié lenings aan homself terug te betaal, volgens Yabsley.

Yabsley verwys na die skietvoorval op 26 Julie 2012 toe Williams deur Pretorius geskiet is, glo oor ’n dispuut oor geld wat Basileus se maatskappy AV Alloy aan hom moes betaal het.

Daar is berig dat dié geld deur Pretorius gebruik is om die beweerde piramideskema te finansier. Dit het later aan die lig gekom dat beleggers R2,2 miljard in Pretorius se Relative Value Arbitrage Fund (RVAF) belê het.

Belangebotsings?

Die hofstukke verwys ook na die hoogs omstrede transaksie wat Kellermann gedurende die week van die skietvoorval met BK One-aandele uitgevoer het om die aandele te verkoop. Kellermann was in daardie stadium die eienaar en portefeuljebestuurder van Ankh Analytic wat ’n Ankh-fonds bestuur het wat BK One-aandele besit het.

Ná die skietvoorval het BK One se aandeelprys skerp geval.

Volgens Yabsley is die BK One-aandele aan die Strategic-fonds verkoop teen die prys waarop dit op 25 Julie 2012 verhandel het.

Daar is geen bewyse tot die Guernsey finansiële kommissie se beskikking dat Kellermann in daardie sta­dium enige poging aangewend het om die skietvoorval van Pretorius en Williams en die negatiewe uitwerking wat dit waarskynlik sou hê op die BK ­One-aandele te openbaar nie, voer Yabsley aan.

“Alle aspekte van hierdie transaksie is hoogs twyfelagtig. Sonder twyfel is die Ankh-fondse se belange in BK One verkoop tot voordeel van beleggers in die Ankh-fondse en tot nadeel van die beleggers in die Strategic-fondse.

“Kellermann het groot belangebotsings gehad in alle dele van die transaksie met sowel Ankh as die Strategic-fondse.”

Yabsley sê Kellermann moes al in Junie 2012 bewus gewees het van die bewerings oor die bedrieglike beleggingskema van Pretorius.

Kellermann het onlangs aan Die Burger gesê die opdrag om die BK One-aandele te verkoop, is gegee ’n dag voordat Williams geskiet is. Volgens hom het dit verband gehou met die administrateur van Ankh se opdrag om sekuriteite te verkoop om likiditeit in die fonds te kry.

“Die vereffening van die aandele vind ’n dag of twee ná die transaksie plaas. Daar is niks ongerymd daaraan nie.”

Volgens hom is dit deur die Raad op Finansiële Dienste ondersoek, wat gelukkig was met die antwoorde.

 

Dienstekommissie onthul: Ponzi-manne ‘het lang geskiedenis’

6 May

Author: Marelize Barnard

Publications: Netwerk24

Date Published : 6 Mei 2015

KAAPSTAD. – Wat het die Ponzi-bedrieër wyle Herman Pretorius, die man wat hy doodgeskiet het, Julian Williams, en die beleggingsbestuurder van Welgemoed, Jacobus Kellermann, met mekaar te doen?

’n “Lang geskiedenis” – as dit van die Finansiële Dienstekommissie van die Britse eiland Guernsey (GFSC) afhang.

Die skietery waarin Pretorius op 26 Julie 2012 eers vir Wil­liams en daarna homself geskiet het, is in die Guernsey-hooggeregshof vir die eerste keer in openbare hofdokumente aan internasionale aandeletransaksies gekoppel.

Kellermann, wat net soos Pretorius spogeiendom in Welgemoed aangeskaf het – en ook soos Pretorius ’n voorliefde vir vinnige sportmotors het – word by dié aandeletransaksies betrek. Kellermann en sy sakevennoot, David Cosgrove, is die afgelope twee maande al hoe meer in die nuus oor die beleggingsfondse waarby hulle in veral Mauritius en ook Guernsey betrokke is en ondersoeke na hul betrokkenheid by die bestuur van internasionale beleggingsfondse.

Die Pretorius-skietery:

Pretorius en Williams se skietdood was ’n dag nadat Kellermann betrokke geraak het by die verkoop van 1,4 miljoen aandele in die beleggingsmaatskappy BK One, wat gebruik is as beleggingsmedium om beleggers te kry om in maatskappye te belê wat aan die Basileus-groep behoort het.

Pretorius se beleggers het in een van die Basileus-maatskappye, AV Alloy, belê. In Pretorius se poging om sy Ponzi-skema geheim te hou, het hy R40 miljoen aan Williams geleen om aan sy beleggers uit te betaal en daardeur te probeer voorgee alles gaan goed.

Williams en Pretorius het hieroor gestry, wat klaarblyklik tot die skietvoorval gelei het.

Op dieselfde dag van die skietvoorval is 1,4 miljoen aandele in BK One verhandel. Dit is aandele wat aan Ankh behoort het, ’n beleggingsfonds wat deur Kellermann bestuur is.

Die verkoop van aandele:

Die Ankh-aandele in BK One is volgens die Guernsey-hofstukke deur nog ’n entiteit, Citygate (’n maatskappy in Mauritius wat deur Kellermann en Cosgrove bestuur is), aan nog ’n entiteit, Strategic Cells, verkoop. Die verkoopsprys was glo teen die waarde van die aandele soos vasgestel die dag voor die skietvoorval.

Intussen het die skietvoorval ’n “dramatiese” impak gehad op die waarde van die BK One-aandele. “Alle aspekte van die transaksie” kan volgens die hofstukke voor die Guernsey-hooggeregshof op hoogste vlak bevraag-teken word. Daar word aange-voer dat Kellermann in ’n groot-skaalse belangebotsing was omdat hy namens Ankh én Strategic Cells opgetree het.

Kellerman het volgens die bewerings van die Guernsey Finansiële Dienstekommissie nie die nodige inligting van die skietvoorval of die moontlike negatiewe nagevolge wat dit op die BK One- en Basileus-aandele sou kon hê aan die relevante betrokkenes verklaar nie.

Wat sê Kellermann?

Kellermann het op 25 Maart aan Die Burger gesê hy was as raadgewer betrokke by ’n maatskappy wat genoteerde BK One-aandele gekoop het. Die beleggingspan het dit verkoop na aanlei-­ding van ’n versoek van die besturende maatskappy om kontant in die portefeulje te verhoog.

Kellermann en Cosgrove het gister deur hul regsverteenwoordiger, Werksmans-regsfirma, by navraag oor die bewerings in die Guernsey-hofaansoek gesê hulle gaan vir eers nie verder kommentaar lewer nie.