Tag Archives: FSB

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.

 

 

 

 

 

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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.

 

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.

Failed fund claims hit R12.3m

20 Apr

Author: Roy Cokayne

Publications: iOL -The Mercury

Date Published: 17 April 2015

REPORT  
THE total amount that three financial advisers need to repay 22 investors they wrongly advised to place money in the Relative Value Arbitrage Fund (RVAF) has now escalated to more than R12.26 million. 
This follows several further determinations issued by the ombud for financial advisory and intermediary services (Fais) Noluntu Bam against these financial advisers. None of the three financial advisers have filed notices of appeal against the determinations. The fund collapsed after its manager and trustee Herman Pretorius committed suicide in July 2013 after shooting dead his business partner Julian Williams. The Fais ombud last year issued 16 determinations against financial adviser Michal Calitz and/or Impact Financial Consultants to repay investors more than RIOm. The ombud has issued a further six determinations to date this year against financial advisors to repay their investment clients a total R2.24m. Five determinations were issued ordering financial advisor Andrea Moolman and/or Vaidro Investments to repay five of her clients a total of more than R1.6m. In one further determination, financial advisers Simon Morton and Carol Louw and/or Catwalk Investments 592 cc trading as Pinnacle were last month ordered to repay a client R600 000. Bam has made similar comments in the determinations issued to date related to RVAF, including that the complaints were about being advised to invest in a scheme that was not above board. She said neither Pretorius nor the RVAF itself was licensed “in any way”, which was a clear contravention of the Fais Act. 
Risks 
In the determination made by Bam against Vaidro Investments and/or Andrea Moolman in regard to a complaint lodged by Leon van der Walt, who invested R206 000, Bam said the issues principally pertained to the failure of Moolman to understand the fund and the risks to which she was exposing her clients when advising them to invest in RVAF. Bam added that there were no financial statements for RVAF and without financial statements “or so much as a fact sheet” Moolman could not have understood the economic activity that generated the returns of the fund. She said Moolman was unable to explain why RVAF was nowhere to be found in the documentation she used in support of recommendations she made to investors. “The inescapable conclusion is that respondent (Moolman) knew nothing about the fund or its underlying investment and accordingly was in no position to advise her clients to invest in it,” she said. Bam said Moolman had breached the general code, which required that a provider must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of the client and the integrity of the financial services industry. She said Van der Walt was in no position to understand the “any material investment or other risks associated with the product” as required by the code.

Investment red flags

16 Apr

Author: Hanna Barry

Publications: MoneyWeb

Date Published: 14 April 2015

JOHANNESBURG – Unregulated investment schemes may be a dime a dozen in South Africa, but they’re pretty easy to spot so there’s really no excuse to get caught out.

Be wary when promised abnormally high and consistently positive returns that are guaranteed even when the market is down, cautions Marc Alves, senior case manager at the Financial Advisory and Intermediary Services (FAIS) Ombud.

“It’s very difficult to get a 10% return in the market through an established financial services provider, so if someone is offering you 2% a month or 30% per annum, be very cautious,” he says.

The JSE’s All Share Index (Alsi) returned 7.6% last year. The Top 40 Index, which holds South Africa’s largest blue chip companies, returned just 6%. Listed Property and the Financial 15 (which includes the largest banks and insurers) fared significantly better, returning around 19% and 23% respectively.

But even at the upper end, these numbers are significantly lower than the 300% annual returns promised by Zantech Trading or the 2%-a-day returns promised by Chris Walker’s Defencex. Both schemes were found guilty of contravening the Banks Act and ordered to repay investors.

“Empower yourself with sound financial planning and don’t make decisions based on pressure and emotions,” advises Alves, noting that those exploited are often people who have not provided sufficiently for their retirement or other financial needs.

“Ask about the risks and how easy it is to get your money out. A lot of these schemes are willing buyer, willing seller. It’s difficult to get your money out if there is no willing buyer,” he points out.

Make sure you understand how the investment works (could you explain it to someone else?) and where your money is going, Alves adds.

Know the laws

If a company is providing a financial service it must be registered under the FAIS Act and have a financial services provider (FSP) licence number, issued by the Financial Services Board (FSB). An unregistered FSP would be in contravention of the Act. You can check whether a company has an FSP licence on the FSB’s website by running a search on the company’s name (‘Search for FSP name’).

Herman Pretorius’s Relative Value Arbitrage Fund (RVAF) was not a registered fund with the FSB. Yet it is believed to have amassed R1.8 billion from 3 000 investors.

Fortunately, because it fell within the definition of a financial product, the FAIS Ombud was still able to pronounce on it despite it not being registered and has made numerous awards in favour of consumers. Last year alone, one financial advisor was ordered to repay more than R10.7 million to around 20 consumers who he had advised to invest in the RVAF.

However, a number of schemes set themselves up so as to fall outside the definition of a financial product. This leaves consumers with very little recourse since financial regulators can only enforce the laws they have jurisdiction over and only where these laws have in fact been broken. If a company is not registered with either the South African Reserve Bank (Sarb), FSB or National Credit Regulator (NCR), ask why.

The role of financial advisors

Financial advisors approached by clients for advice on these products must do the appropriate due diligence on the product, Alves says. “We’re not saying there’s not a place for alternative investments, but definitely advisors should do their homework and make sure that the products are sound and meet all the criteria,” says Alves.

“If you don’t understand the product yourself, if you haven’t done any due diligence and can’t answer the questions, don’t advise on it and certainly don’t earn fees,” cautions Gavin Came, a financial planner with Sasfin Wealth.

“Product providers have over time caused more damage than intermediaries, although advisors have borne the vast majority of the regulator’s wrath,” he maintains. “When investments don’t pan out, the intermediary carries the can for an ill-designed product at best and a ponzi scheme at worst,” Came says.

Due Diligence and the Financial Adviser

13 Apr

Author: Paul Kruger

Publications: Moonstone

Date Published: 9 April 2015

Section 2 of the General Code of Conduct requires that ‘a provider must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of the clients and the integrity of the financial services industry.’

To the best of my knowledge, this does not require that a FSP must conduct a due diligence to the same extent required when mergers and takeovers are concerned. This is a formal process involving lawyers and accountants, and goes far beyond what can or should be expected from a financial adviser.

In a recent determination, the FAIS Ombud again referred to this thorny issue involving an investment in the Relative Value Arbitrage Fund (RVAF) run by the late Herman Pretorius.

In the formulation of the complaint, the determination reads:

Complainant contends that he was not informed by respondent that what he was investing in what was actually a pyramid scheme as opposed to a legitimate investment. Had he so known, he would never have invested and accordingly holds respondent accountable for his losses.

From the information supplied by the respondent, it appears that she was equally unaware that the scheme was, in its last years, run as a Ponzi scheme. In fact, this only materialised after the death of Pretorius.

In the determination under discussion, the following information is supplied by the respondent:

[12] Specifically questioned as to the due diligence she conducted, respondent advised that having been introduced to Abante Capital she visited the premises where Herman Pretorius explained the strategies and how the risk was managed. Having been introduced to the trading team, respondent then proceeded to ascertain whether Abante Capital was registered with the FSB. In addition thereto respondent confirmed with Momentum and Old Mutual and spoke to their fund managers about Abante Capital and their use of the fund in their portfolios.

[13] Respondent goes on to state that, having a reasonable knowledge of Hedge Funds, respondent concluded that the strategy is sound and when mostly top 40 JSE companies are invested into, this should be a sound fund. According to respondent, Mr Pretorius explained that the way that this fund operated the risks are relatively low.

[14] Respondent contends that she was satisfied that persons investing in the fund were fully appreciative and aware of the risks involved, both in that they attended presentations by Herman Pretorius but also in that respondent further explained the process and operation of the fund as she understood it. In this regard a written explanation of Board Notice 5711 was provided and explained to each client.

[15] As to the basis upon which respondent deemed RVAF to be a suitable basis for her clients, respondent advised as follows:

15.1. Many clients need a higher return on their investment to ensure that they reached their investment goals, and as an adviser it was her duty to ensure that all products and all investment avenues are explored on behalf of clients;

15.2. Given the various market crises, hedge funds could both act as a defensive strategy and outperform traditional investments in a downturn;

15.3. Researching the different hedge funds available in the country, respondent’s research showed that Abante Capital was one of three hedge funds in South Africa;

15.4 In 2008 Abante Capital won a hedge fund award. With regards thereto respondent provided a Symmetry multi manager document showing the market neutral category winner as ‘Abante Statistical Arbitrage.’

[16] The portfolio was explained to clients as a hedge fund which invested in shares on the JSE. It was explained that as in any investment involving shares the risk is of a high nature, however historically the loss in downside markets is lessened when hedge trading strategies are used.

[17] In this regard respondent states that hedge funds may actually be a lower risk than traditional investments as the target is to protect capital, increase defensive strategies, and obtain absolute returns under all market conditions as explained by Herman Pretorius.

Concerning the client’s knowledge of investments, the determination states:

With regards to the investment in RVAF, complainant was given to understand that the underlying investment was comprised of shares on the Johannesburg Stock Exchange. To this end and having personally dabbled a bit in shares he understood that there were risks involved in the investment, chief amongst which was that the share market could go up or down;

The respondent’s version of the client’s profile states:

‘Mr VD Walt has a degree, a residential and commercial property portfolio, runs his own consulting practice and trades a share portfolio. He is investment savvy and understands how shares can be traded long and short for a profit in a bear market’.

Was the advisor negligent?

A recent Appeal Board ruling on this case contains the following interesting view:

What then constitutes negligence? The lack of skill or knowledge is not per se negligent. It is however, negligent to engage voluntarily in any potentially dangerous activity unless one has the skill and knowledge usually associated with the proper discharge of the duties connected with such an activity. Hence, in interpreting the meaning of “care and skill”, our authorities have held that a mandatory should always employ reasonable care and skill in exercising his or her mandate.

What is reasonable in the circumstances is measured against the “general level of skill and diligence possessed and exercised at the same time by members of the branch of profession to which the mandatary belongs. If a mandatary negligently falls to execute his mandate or he is negligent in exercising his mandate, he failed to act with “care and skill”. To act negligently means to act in a way that falls short of the standard of the reasonable person”. Hence the defendant is negligent if the reasonable person would have acted differently if the unlawful causing of damage was reasonably foreseeable and preventable.

It is difficult to see how the actions by the respondent, as outlined above, can be deemed to have been lacking in “… due skill, care and diligence…”, or negligent.



Tighter regulation for hedge funds

14 Mar

Author: Bruce Cameron

Publications: iOL

Date Published: 14 March 2015

Hedge funds, which manage assets of more than R57 billion, mainly from retirement funds, will have to register as collective investment schemes by the end of March next year in terms of new regulations by National Treasury and the Financial Services Board (FSB).

This will result in far more protection for investors in hedge funds, which are currently unregulated. Until now, hedge fund managers have only had to register with the FSB as financial services providers.

The absence of regulation allowed things such as the massive Relative Value Arbitrage Fund scam, in which about 3 000 people invested about R2 billion in an unregulated fund posing as a hedge fund. The fund collapsed in 2013, when the person who ran it, Herman Pretorius, shot himself after killing his business associate, Julian Williams, after the FSB started a much-delayed investigation.

The regulations, which will be implemented from April 1, 2016, will require all new hedge funds to register in terms of the Collective Investment Schemes Control Act (Cisca), while existing hedge funds will have 12 months to register.

The regulations create two broad categories of hedge fund, each with different levels of regulation:

* Qualified investor hedge funds, which are limited to institutions, such as retirement funds, and very wealthy individuals who have large sums to invest. These funds are less rigidly regulated. Investors must be able to demonstrate to the fund managers that they have sufficient expertise to understand the workings and risks of hedge funds.

* Retail hedge funds, which are open to ordinary investors, although the minimum investment amounts are usually fairly high. They are more strictly regulated than qualified investor funds, and the risks they are allowed to take are more limited.

The new hedge fund regulations follow changes to regulation 28 of the Pension Funds Act four years ago that allowed retirement funds to invest significant amounts in hedge funds.

The regulations also come at a time when investors internationally are expressing greater caution about hedge funds, because of complexity, fraud, costs and poor performance. For example, in 2014, one of the world’s biggest retirement funds, the California Public Employees’ Retirement System, announced plans to start cashing in the US$4 billion it had invested with hedge funds, saying they were “too expensive and complex”.

The aims of the regulations are to:

* Provide investors in hedge funds with better protection;

* Assist in monitoring and managing systemic risk to the financial services industry;

* Promote the integrity of the hedge fund industry;

* Enhance transparency in the hedge fund industry, which traditionally has been ultra secretive; and

* Promote the development of financial markets.

The regulations state that hedge funds will be taxed on the same conduit basis as all other collective investment schemes, such as unit trust funds.

The conduit principle means that investors pay tax only when they receive returns. So any interest or dividend payments are taxed in the hands of the investor when they accrue; and income tax (if the investment is sold in less than three years) or capital gains tax apply to any gains or losses on the sale of an investment.

The regulations, in effect, accord hedge funds a special status in terms of Cisca. Unit trusts funds, which are also governed by the Act, cannot use the investment strategies and financial instruments that often form the backbone of hedge funds (see “What are hedge funds?”, below). For example, unit trust funds are not allowed to borrow to invest, nor can they use most derivatives.

But the regulations will not open the door to a “wild west”. There are strict controls, particularly in the case of retail hedge funds, on investment strategies, gearing and financial instruments.

The South African hedge fund industry grew its assets under management by R10.5 billion during 2014, ending the year with assets under management of R57 billion.

These assets are invested in 113 hedge funds, which are managed by 55 hedge fund managers (fund of hedge fund managers excluded).

‘WELCOME DEVELOPMENT’

The declaration of hedge funds as collective investment schemes by National Treasury and the Financial Services Board (FSB) is a welcome and long-awaited development, says Leon Campher, chief executive of the Association for Savings & Investment SA (Asisa).

Campher says Asisa partnered with National Treasury and the FSB for several years to regulate hedge funds, which had been pushing for clarity on product regulation.

“Generally, regulation assists with the growth and management of an industry, as it provides much- needed clarity to industry participants and investors alike. Consumers, whether they are institutional or retail, also find comfort in the fact that an independent body – the FSB – is overseeing the industry operations and structures that manage their investments,” Campher says.

He says that South African financial regulators accepted in 2007 that hedge funds needed some form of regulatory supervision. Initially, this was thought to be appropriate at only manager level, since hedge fund managers are held to higher experience standards, greater capital adequacy requirements and stricter qualifications than their “long only” peers. However, since the global financial crisis of 2008, South African and global regulators have been reviewing the situation.

REGULATIONS FOR QUALIFIED AND RETAIL FUNDS

Under the new regulations, general conditions apply to both retail and qualified investor hedge funds. For example, they are restricted in the main to using securities and derivatives that are listed on registered securities exchanges. There are also limitations on the percentage of a fund that may be invested in any one security. These limitations apply to all collective investment schemes, to reduce risk of a major loss if there was a total failure of a single underlying investment.

The specific conditions that apply to qualified investor funds include:

* They are restricted to “qualified investors”. This is someone who can invest a minimum of R1 million per hedge fund and who has demonstrable knowledge and experience in financial and business matters that enable the investor to assess the merits and risks of a hedge fund investment; or who has appointed a financial services provider who has demonstrable knowledge and experience to advise the investor about the merits and risks of a hedge fund. A qualified investor can be an individual or an entity, such as a retirement fund.

* There are limitations on investment strategies that expose an investor to a loss in excess of the value of its investment or contractual commitment to a fund.

* The fund manager must set a “value-at-risk”, which is a measure of the maximum expected loss of a portfolio over a specified period.

* Have sufficient liquidity (cash and easy-to-sell assets) that enable the manager to pay out investors within three months of an instruction to sell.

The specific requirements for retail hedge funds include:

* The fund must have sufficient liquidity to enable its manager to pay out investors within three months of an instruction to sell. A unit trust fund must pay out an investor within 48 hours, but, because of the contractual nature of derivatives, there are constraints on when the underlying investments of a hedge fund can be cashed in.

* The fund manager is limited to borrowing up to 10 percent of the value of a portfolio for liquidity purposes.

* The manager may borrow against the fund’s assets only for investment purposes, when borrowing funds for taking short positions or engaging in derivative transactions with counterparties (see “What is a hedge fund?”, below).

* Gearing (borrowing to invest) is restricted to a maximum of 20 percent of the total net asset value of the portfolio.

* Managers must report to the Financial Services Board monthly, within 14 days of the end of the month, all long and short positions in the portfolio, reflecting the market value and the effective exposure and value of each of the underlying investments.

* The fund may not invest in property, the portfolio of a fund for qualified investors or a private equity fund.

* If the portfolio includes derivatives, the manager must ensure that the fund’s exposure to derivatives does not exceed the net asset value of the portfolio.

WHAT IS A HEDGE FUND?

Hedge funds are similar to unit trust funds in that investors’ money is pooled to buy assets. The main difference is that hedge funds have more flexibility in the financial instruments and investment strategies they can use, and they can borrow money against their assets, to multiply returns (but they can also multiply losses).

Hedge funds should not be confused with hedging, which is an investment strategy to reduce potential losses.

Most hedge funds are more risky than unit trust funds. On average, they are far more expensive than unit trust funds, which reduces the returns.

Hedge funds use many different strategies to earn returns, from trading in stressed debt to finding small gaps in the prices of securities. Most of these strategies are not permitted in terms of the new regulations.

Most hedge funds, particularly more traditional ones, use what are called long-short strategies to provide superior returns, whether investment markets are rising or falling. These involve buying some securities long and selling others short.

Buying long means buying a security (bond or share) to hold on to it in the hope that it will increase in value.

Selling short is a bit more complex. The manager borrows (rents) shares from another investor and sells the shares in the expectation that the share price will drop. When the price drops, the manager buys back the shares at a cheaper price to give back to the original owner, making a profit on the difference between the selling and buying prices (less the rental).

There are many risks associated with hedge funds, which the regulations aim to reduce but do not eliminate. These include:

* Liquidity risk. It is often difficult to sell a fund’s underlying investments because of contractual or market conditions. In extreme market conditions, liquidity problems can cause a fund to collapse.

* Pricing risk. It can be very difficult to value the assets in a fund at a particular time.

* Counterparty risk. Hedge funds tend to deal with other parties when purchasing derivatives, borrowing securities and gearing (borrowing). There is a risk that a counterparty may fail to meet its commitments, which will have a knock-on effect on the fund.

* Short squeeze risk. This is the risk that the securities required for a shorting contract will not be available when required.

* Financial squeeze. This is the risk that a manager will be unable to borrow, or to borrow at an acceptable rate, frustrating the strategy followed by the manager.

* Timing risk. This is the risk that the manager simply gets it wrong.

Investment red flags

13 Jan

Author: Hanna Barry

Publications: MoneyWeb

Date Published: 13 January 2015

If it sounds too good to be true…

JOHANNESBURG – Unregulated investment schemes may be a dime a dozen in South Africa, but they’re pretty easy to spot so there’s really no excuse to get caught out.

Be wary when promised abnormally high and consistently positive returns that are guaranteed even when the market is down, cautions Marc Alves, senior case manager at the Financial Advisory and Intermediary Services (FAIS) Ombud.

“It’s very difficult to get a 10% return in the market through an established financial services provider, so if someone is offering you 2% a month or 30% per annum, be very cautious,” he says.

The JSE’s All Share Index (Alsi) returned 7.6% last year. The Top 40 Index, which holds South Africa’s largest blue chip companies, returned just 6%. Listed Property and the Financial 15 (which includes the largest banks and insurers) fared significantly better, returning around 19% and 23% respectively.

But even at the upper end, these numbers are significantly lower than the 300% annual returns promised by Zantech Trading or the 2%-a-day returns promised by Chris Walker’s Defencex. Both schemes were found guilty of contravening the Banks Act and ordered to repay investors.

“Empower yourself with sound financial planning and don’t make decisions based on pressure and emotions,” advises Alves, noting that those exploited are often people who have not provided sufficiently for their retirement or other financial needs.

“Ask about the risks and how easy it is to get your money out. A lot of these schemes are willing buyer, willing seller. It’s difficult to get your money out if there is no willing buyer,” he points out.

Make sure you understand how the investment works (could you explain it to someone else?) and where your money is going, Alves adds.

Know the laws

If a company is providing a financial service it must be registered under the FAIS Act and have a financial services provider (FSP) licence number, issued by the Financial Services Board (FSB). An unregistered FSP would be in contravention of the Act. You can check whether a company has an FSP licence on the FSB’s website by running a search on the company’s name (‘Search for FSP name’).

Herman Pretorius’s Relative Value Arbitrage Fund (RVAF) was not a registered fund with the FSB. Yet it is believed to have amassed R1.8 billion from 3 000 investors.

Fortunately, because it fell within the definition of a financial product, the FAIS Ombud was still able to pronounce on it despite it not being registered and has made numerous awards in favour of consumers. Last year alone, one financial advisor was ordered to repay more than R10.7 million to around 20 consumers who he had advised to invest in the RVAF.

However, a number of schemes set themselves up so as to fall outside the definition of a financial product. This leaves consumers with very little recourse since financial regulators can only enforce the laws they have jurisdiction over and only where these laws have in fact been broken. If a company is not registered with either the South African Reserve Bank (Sarb), FSB or National Credit Regulator (NCR), ask why.

The role of financial advisors

Financial advisors approached by clients for advice on these products must do the appropriate due diligence on the product, Alves says. “We’re not saying there’s not a place for alternative investments, but definitely advisors should do their homework and make sure that the products are sound and meet all the criteria,” says Alves.

“If you don’t understand the product yourself, if you haven’t done any due diligence and can’t answer the questions, don’t advise on it and certainly don’t earn fees,” cautions Gavin Came, a financial planner with Sasfin Wealth.

“Product providers have over time caused more damage than intermediaries, although advisors have borne the vast majority of the regulator’s wrath,” he maintains. “When investments don’t pan out, the intermediary carries the can for an ill-designed product at best and a ponzi scheme at worst,” Came says.

Fais-wet: Wyer toesig nodig

7 Nov

Author: Ekonomiese Redaksie

Publications: Die Burger

Date Published : 7 November 2014

Verbruikersbeskerming is sterker as ooit, skryf Ian Middleton, besturende direkteur van Mast­head, maar daar is steeds gebreke.

Sedert die Wet op Finan­siële Advies- en Tussengangerdienste (Fais) in 2004 van krag geword het, het reguleerders – veral die Raad op Finansiële Dienste (RFD) – verskeie kodes en beginsels ingestel om te verseker dat elke finansiële-adviesonderneming kliënte se belange op die hart dra.

Dit sluit in die kode oor die billike behandeling van kliënte.

Voor Fais het Suid-Afrika ’n hoogs ongereguleerde finansiëledienste-omgewing gehad. Enigeen kon homself ’n finansiële raadgewer noem. Die hoofdoelwit met Fais was om mense wat finansiële raad betref, te beskerm en die professionaliteit en integriteit van die finansiëledienstebedryf te verhoog.

Die Fais-wet het standaarde vir bevoegdheid, etiek en werkwyse gestel om mense teen onbetroubare en beginsellose raadgewers te beskerm.

Raadgewers en die sleutelindividue moet gelisensieer word. Kliënte kan dus by die RFD nagaan of iemand geakkrediteer is en wat hulle by magte is om te verkoop. Adviseurs mag slegs binne hul kundigheidsveld raad gee of dienste lewer.

Raadgewers is ook onderworpe aan jaarlikse oudits en moet eksamens slaag.

Kliënte het nou ook ’n maklike, goedkoop en vinnige manier om dispute met hul raadgewer te besleg deur die kantoor van die Fais-ombudsman.

Dit bevoordeel kliënte, maar beklemtoon ook die belangrikheid van raadgewers. Deur kwalifikasies vir die bedryf amptelik te maak, het dit die beroepstatus van raadgewers verhoog.

Voldoening aan die Fais-wet verg regstreekse en onregstreekse koste – tyd en mensehulpbronne.

Dit het ’n groot las geskep vir klein raadgewende firmas en raadgewers wat alleen sake doen. Die aantal onafhanklike finansiële raadgewers het gevolglik afgeneem. Sommige het weens die reguleringshekkies uitgeval, ander het werk gaan soek by groter organisasies.

Die veranderinge was nie so erg soos in Brittanje nie waar soortgelyke regulasies jare voor Fais ingestel is.

Wat die raad van adviseurs betref, is ons in die algemeen positief.

Dit lyk dalk asof daar baie klagtes oor finansiële raadgewers is, maar dit moet in konteks gesien word.

Sowat 30 van die Fais-ombudsman se beslissings haal jaarliks nuusopskrifte, maar niks word gesê oor die miljoene kliënte wat voordeel getrek het uit die raad wat hulle oor lang- of korttermynpolisse of beleggings ontvang het nie.

Die doeltreffendheid van verbruikersbeskerming word egter verwater weens ’n reguleringsgaping.

Hoewel die RFD alle bedrywighede wat die onder die Fais-wet val, reguleer, beheer en monitor, lê baie beleggingskemas wat waarde vir verbruikers vernietig het en die opskrifte gehaal het buite die trefwydte van die RFD in ’n ongereguleerde ruimte.

Ons meen dat daar op ’n breër vlak toesig gehou moet word oor of die beloftes wat aan kliënte gemaak word, billik en bereikbaar is.

Wanneer ongereguleerde produkte aan kliënte bemark word in openbare advertensies in druk, op radio en op televisie, moet dié produkte en verskaffers gesien word as dat hulle die gereguleerde wêreld betree het en hulle moet as sodanig behandel word.

Met so ’n ingewikkelde doolhof van keuses moet kliënte seker maak dat hulle raad by ’n geakkrediteerde, gelisensieerde, professionele raadgewer kry.

As ’n kliënt so iemand raadpleeg en sy of haar raad volg, sal hulle ’n veiliger finansiële toekoms binnegaan. Niks klop daardie gemoedsrus nie.

■ Masthead help finansiëledienstemaatskappye aan wetgewing voldoen.

 

‘Wees ingelig, dan sal jy veiliger wees’

Nico van Gijsen, ’n gesertifiseerde finansiële beplanner en gereelde rubriekskrywer vir Sake, gee sy mening oor die Wet op Finansiële Advies- en Tussengangerdienste:

Die Fais-wet het myns insiens goeie bedoelinge, maar gaan in praktyk nie naastenby ver genoeg met sy doelstellings – die beskerming van die regte van mense – nie.

Mense is in die algemeen finansieel ongeletterd of minstens oningelig en naïef, veral oor langtermyn- finansiële beplanning. Die produkte is kompleks en daar is ernstige etiese probleme wat wetgewing nie oplos nie.

Die bedryf is te veel ingestel op verkope ten koste van gepaste finansiële advies. Die Fais-wet fokus ooglopend sterk op “advies”, maar is beperk in sy definisie: “Advies” is eers advies as ’n produk te sprake kom.

Dan is daar die malligheid in die beleggingswêreld. Dink maar aan die “skemas” wat verspot groot opbrengste belowe en dan bankrot speel.

Ek meen kliënte moet sterker begin staan. Hulle kan begin deur:

■ Net professioneel opgeleide finansiële beplanners te gebruik;

■ Elke brokkie advies skriftelik verduidelik te kry;

■ Nie poliskontrakte te onderteken voordat hulle dit deeglik deurgelees en seker gemaak het hulle verstaan dit nie;

■ Nie wolhaarstories oor beleggingsopbrengste te glo nie – die sakeblaaie skryf immers gereeld daaroor; en

■ Dit sal goed wees as sakeblaaie meer op persoonlike finansiële advies fokus en as mense dié blaaie lees, want dit is hoe jy ingelig raak oor jou eie finansies.

More rulings against Calitz up his bill to R6.8m

5 Oct

Author: Angelique Arde

Publications: iOL

Date Published: 4 October 2014

Over the past three months, the Ombud for Financial Services Providers has handed down eight more rulings against financial adviser Michal Calitz, who advised clients to invest in the Relative Value Arbitrage Fund (RVAF), a Ponzi scheme that was marketed as a hedge fund. This brings the number of rulings against Calitz to 12 and the total amount he must repay investors to more than R6.8 million.

The RVAF was “nothing short of a scam”, Noluntu Bam, the Ombud for Financial Services Providers, said in her first ruling against Calitz, which was handed down in June.

Following the collapse of the RVAF, in July 2012 Herman Pretorius, the mastermind of the scheme, shot his business partner before turning the gun on himself. The RVAF reportedly reaped in about R2.2 billion from investors.

In Bam’s first ruling against Calitz, she says Calitz conceded that he had received “profit share” from the RVAF amounting to about R8.4 million. This was contained in a report addressed to creditors, by the trustees of the insolvent fund.

Calitz, who operates from Bellville in the Western Cape, holds a Certified Financial Planner accreditation. This means he has a Post Graduate Diploma in Financial Planning and is a member of the Financial Planning Institute (FPI).

The latest rulings against him read much like the previous four. Bam holds Calitz and Impact Financial Consultants, a close corporation and an authorised financial services provider (FSP), jointly and severally liable to pay the complainants, as follows:

* Garvitte Lombard – R700 000;

* Hendrik du Plessis and Erna du Plessis – R800 000 each;

* Johannes Coetzee – R500 000;

* Hendrina Rautenbach – R701 350;

* Carolina Olivier – R360 000;

* Fiona King – R494 000;

* Loredana Hansen – R630 000; and

* Natalina Natali – R120 000.

In previous rulings, and repeated in the latest rulings, Bam says nothing in the evidence persuades her office that the complainants were aware of or could have understood the implications of what they were investing in. “In particular, there is no mention of the risks of investing in an unregulated entity, one without so much as a set of audited financials.”

Hedge funds are currently not regulated in South Africa. Hedge fund FSPs may operate, but are subject to a code of conduct.

Calitz contends that he dealt through Abante Capital, a licensed FSP, but Abante Capital is not mentioned in any contractual documentation, Bam says. A hedge fund must also obtain a signed mandate from the client and ensure that the client understands the risks.

Investors in the RVAF paid money directly to the RVAF, instead of to a nominee account, “a safety mechanism to distinguish investor funds from those of the service provider”, Bam says.

She says no adviser would have recommended the RVAF as a suitable component of any investment portfolio had they exercised the required skill, care and due diligence.

Bam’s first ruling against Calitz states that, in terms of the law, a financial adviser must carry out a needs analysis on his or her client, provide a record of advice, and make proper disclosure about product suppliers. Clients must be given details of the services the adviser is authorised to provide, and whether the adviser holds guarantees or professional indemnity cover.

Ashley Percival, an assistant ombud at Bam’s office, says the office of the ombud is finalising investigations in respect of other financial advisers who advised their clients to invest in the RVAF.

This week, Jacqui Grovè, the legal and compliance services manager for the FPI, told Personal Finance that Calitz’s disciplinary hearing is scheduled for November 10. Although the ombud’s rulings carry the weight of a High Court ruling, Grovè says an FPI member is “deemed innocent until found guilty by a competent FPI disciplinary panel of his or her peers”.

RVAF adviser ordered to repay R4.25m to clients

18 Aug

Author: Roy Cokayne

Publications: iOL

Date Published: 18 August 2014

THE TOTAL amount financial adviser Michal Johannes Calitz and his financial advice consultancy have been ordered to date to repay investors for advising them to invest in the Relative Value Arbitrage Fund (RVAF) has risen to more than R4.25 million.
This follows an eighth determination and order being issued against them by ombud for financial services providers Noluntu Bam. In the latest determination, Bam ordered Calitz and/or Impact Financial Consultants to repay widow Hendrina Rautenbach R701 350.
The RVAF is in liquidation. It collapsed after the fund’s manager and trustee Herman Pretorius committed suicide in July last year after shooting dead his business partner.
Rautenbach claimed she and her late husband had one meeting with Calitz prior to investing the first R600 000.
They subsequently made four further investments in the RVAF totalling a further R890 000 plus £25 000 (R442 115) in what Rautenbach believed was the UK or international component of RVAF. The various investments made in RVAF totalled R1.17m but Rautenbach subsequently withdrew R473 350.
Rautenbach recalled being advised by Calitz that Pretorius was a clever investor with an excellent track record and had a team of highly qualified people who invested in a variety of shares in the stock market.
Rautenbach and her late medical doctor husband ended up investing more than half of their retirement savings in the RVAF. She denied ever being advised that they were investing in a hedge fund or that it was not registered with the Financial Services Board (FSB).
“Calitz, as an FSB-registered financial broker, should not in the first place have invested any of our capital with a non-registered financial fund. We trust Calitz to invest our hard-earned retirement capital in safe, gilt-edged investments producing an income on which we would/could rely in our retirement years,” she said.
Calitz claimed that at no stage was Rautenbach brought under the impression that the investment would be in shares on the JSE or in unit trusts but it was explained that the RVAF was a hedge fund and that it was not regulated by the FSB.
He added that the option to invest in hedge funds was explained to Rautenbach’s husband and was not in contradiction with his risk profile.
However, Bam said nothing in the documents that Rautenbach and her late husband were required to retain persuaded her office that they were even aware or could have understood that they were investing in a hedge fund.
Bam referred to a previous determination, which dealt with the key issues pertaining to the rendering of advice to invest in the RVAF. These included Calitz’s failure to understand the RVAF, the risks he was exposing his clients to when advising them to invest in this fund and the material deficiencies in the RVAF application forms.
Bam stressed that no adviser would have recommended the RVAF as a suitable component of any investment portfolio had they exercised the required due skill, care and diligence and in rendering financial advice, Calitz had failed to act in accordance with the Financial Advisory and Intermediary Services Act.

Investors need to wise up to Ponzi schemes

18 Aug

Author: DAWIE DE VILLIERS

Publications: Citizens Alert ZA

Date Published : 17 August 2014

Investors need to wise up to Ponzi schemes – Sharemax and directors schemed to defraud public, says Fais ombud

With many South Africans – and retirees, in particular – struggling to make ends meet, they become easy pickings for fraudsters operating get-rich-quick investment scams, also known as Ponzi schemes.

In their search for high returns on investments, South Africans seem to repeatedly entrust their hard-earned savings to operations which, at best, have short-term track records and, at worst, knowingly sell promises that they are unable to deliver on.

Investors buy into these promises without fully understanding how these operators achieve their alleged returns.

Over the past five years, the following schemes – which have had traumatic consequences for unsuspecting investors – come to mind: Fidentia, Leaderguard, Sharemax, King Group, and the Herman Pretorius saga.

There is a golden thread running through this list: each one promised a return far superior to that of the financial market, at a very low risk. In hindsight, such promises were too good to be true. But why do we continue to move from one such scandal to the next?

Spotting a Ponzi or pyramid scheme is relatively easy. Here is a checklist to arm yourself against fraudsters:

1. Insist on proof that the investment vehicle is registered with the Financial Services Board (FSB).

If it isn’t, and your money gets lost, you have no avenues of recourse open.

2. Compare the interest rates on offer with the global and local investment landscape (for example, interest rates and economic growth rates).

If the national interest rates are at 5 or 6 percent, and someone is offering you a guaranteed return of 30 percent, it is likely to be a fraudulent scheme. Having realistic expectations of investment returns is the cornerstone of any sensible investment strategy.

3. Be wary of consistent returns.

By their very nature, financial markets are fluid instruments fluctuating daily.

If a scheme offers consistent, guaranteed returns and it is not underwritten by an insurer or bank, it is most likely not invested in secure financial instruments and should, therefore, be closely scrutinised.

4. Look carefully at the track record of the institution and individual offering the investment opportunity.

And this means not just taking their word for it. Contact the FSB, contact the editor of the personal finance section of the newspaper, and ask reputable brokers for their opinion. In an economic downturn, your best bets are very well-established investment houses with solid track records and healthy cash reserves.

Don’t be fooled by professional-looking documentation or reporting.

5. Practise steps 1 to 4 above, no matter who you hear about the scheme through.

Unfortunately, many unsuspecting investors are introduced to Ponzi schemes through intermediaries, such as friends and family, and this provides them with a comfort factor. This does not mean they are safe. It is possible that those family and friends will equally become victims.

6. Don’t be comforted if the scheme has paid out regularly to those family or friends.

This is a classic characteristic of a Ponzi scheme. In order to appear legitimate, they pay out, as promised, for a period of time to allow word-of-mouth to market the scheme on their behalf. Then, when there are enough investors, they pull the plug and make off with the money.

7. Trust your instincts. Common sense and gut feel can be great defences against falling for Ponzi schemes.

Ask yourself why you have been given an opportunity to make fabulous returns on your investment. Why have you been so lucky to get this unbelievable opportunity to multiply your wealth? What’s so special about you?

8. Be extremely wary of “opportunities” to invest your money in franchises or investments that require you to bring in subsequent investors to increase your profit or recoup your initial investment.

No legitimate investment house employs this strategy – in short, it is a very big clue that something dodgy is brewing.

Whatever your reason for investing, it is vital to have a goal, a timeline and reasonable expectations.

By investing in regulated investment products – such as unit trusts or mutual funds – you are investing in products that have an enormous amount of governance.

Before investing, you must be sure that you are trusting your funds to a person, people or an institution that has shown that it can consistently deliver returns over an extended period of time.

Long-standing institutions with proven track records are often the wisest choice.

Please contact an accredited financial adviser to discuss these collective investment schemes.

* De Villiers is chief executive officer, Sanlam Structured Solutions.

Background

Named after Charles Ponzi, an Italian immigrant to the US who convinced New Yorkers to invest in coupons yielding fabulous returns in the aftermath of World War I, most Ponzi schemes have the following modus operandi: investors are wooed by fantastic returns, with the older investors in the scheme getting paid from the proceeds of the newer investors. But the scheme only lasts as long as it attracts new investors.

South Africans in search of high returns have also been caught out. Names that spring to mind include Barry Tannenbaum – who fleeced billions from wealthy individuals in 2009 – Masterbond, Ovation, Fidentia and, most recently, Herman Pretorius.

Makelaar moet sy Pretorius-miljoene terugbetaal

15 Aug

Author: Marelize Barnard

Publications: Die Burger

Date Published : 14 August 2014

KAAPSTAD. – Die makelaar Michal Calitz, wat beleggers gelok het om meer as R86 miljoen by die swendelaar Herman Pretorius te belê, moet miljoene rande aan kommissiegeld en ‘n “kontantgeskenk” terugbetaal.

Regter Monde Samela het in die Wes-Kaapse hooggeregshof uitspraak gelewer in ‘n aansoek deur die kurators van Pretorius se gesekwestreerde Relative Value Arbitrage Fund (RVAF) en sy Seca-trust.

Die kurators het ‘n aansoek by die hooggeregshof ingedien dat Calitz R6,54 miljoen aan die RVAF en nagenoeg R380 000 aan die Seca-trust moet terugbetaal.

Verder is geëis dat Impact Finansiële Konsultante (’n beslote korporasie waarin Calitz ’n 80%-aandeel het) ook sowat R2,1 miljoen aan die twee trusts moet terugbetaal.

In die beëdigde verklaring van Lambertus von Wielligh Bester, een van die kurators, en hofdokumente wat in die aansoek ingedien is, word genoem dat Calitz tussen 28 Februarie 2005 en 31 Mei 2012 meer as R6 miljoen in betalings ontvang het uit die RVAF as wins of kommissie omdat hy beleggers na Pretorius verwys het.

Van die Seca-trust het hy R377 155 ontvang.

Pretorius het ook net minder as R1 miljoen aan Calitz geleen. Van dié geld is R750 000 aan Pretorius terugbetaal deur Calitz se kommissiegeld van die lening af te trek. Pretorius het die res, R250 000, as ‘n geskenk aan Calitz gegee en hy het dit aanvaar.

Die kurators het aangevoer die betalings was deel van ‘n onwettige beleggingskema, of Ponzi-skema.

Calitz het op sy beurt aangevoer dit is geld wat hy vir dienste wat gelewer is, betaal is en waarop hy belasting betaal het.

Samela het gelas Calitz moet die geld – met rente bygereken – terugbetaal.

Makelaar sê verlies is nie sy skuld nie

13 Aug

Author: Marelize Barnard

Publications: Die Burger

Date Published : 12 August 2014

KAAPSTAD. – Die rede waarom beleggers die geld verloor het wat hulle by die oorlede swendelaar Herman Pretorius belê het, was die gevolg van Pretorius se bedrog en “nie die optrede van ’n makelaar nie”.

Dít is die verweer van die makelaar Michal Calitz van Impact Financial Consultants teen wie die ombudsman vir finansiële adviseurs en tussengangers (Fais) die laaste tyd ’n rits besluite geneem het.

Die Fais-ombudsman het Calitz gelas om van sy kliënte se geld wat by Pretorius belê was, terug te betaal.

Calitz het aangedui dat hy dié beslissings gaan betwis. Hy sal dus geen geld in dié stadium terugbetaal nie.

Jean Kotzé, Calitz se prokureur van die prokureursfirma Laäs en Scholtz, het gister gesê ingevolge die regulasies van die Fais-ombudsman het Calitz 30 dae tyd nadat ’n beslissing gelewer is om aan te dui of hy appèl wil aanteken.

“Calitz voer aan dat daar geen kousale verband is tussen die skade wat beleggers gely het en sy optrede as makelaar nie. Dit was nie Calitz se toedoen nie, maar die gevolg van Pretorius se bedrog,” het Kotzé gesê.

“Die skade wat deur beleggers gely is, is ook nie die gevolg van professionele nalatigheid of Fais-regulasies waarby daar nie gehou is nie.”

Volgens Kotzé is daar van die kliënte wat klagtes by die Fais-ombudsman ingedien het wat steeds sy dienste as makelaar gebruik.

“Dit wys hulle besef die skade wat hulle gely het, is te wyte aan Pretorius se bedrog en nie Calitz se betrokkenheid nie.”

Die moontlikheid bestaan dat dié beleggers hoop dat Calitz se versekering die eise teen hom sal dek.

Beleggers het op advies van Calitz meer as R86 miljoen in Pretorius se skema belê.

Calitz het ook ’n aansoek in die Wes-Kaapse hooggeregshof teengestaan waarin die kurators van Pretorius se gesekwestreerde Rela­tive Value Arbitrage Fund (RVAF)-trust en sy Seca-trust geëis het dat hy diensgeld wat aan hom betaal is, moet terugbetaal.

Die kurators het ’n aansoek by die hooggeregshof ingedien dat Calitz R6,54 miljoen aan die RVAF-trust en byna R380 000 aan die Seca-trust terugbetaal.

Calitz het op sy beurt aangevoer dat hy geregtig is op al die betalings aan hom. Volgens hom is dit geld wat in die normale verloop van sy sake met Pretorius se Abante-groep aan hom betaal is.

Regter Monde Samela het in Mei vanjaar uitspraak voorbehou.

More woes for hedge fund adviser

4 Aug

Author: Angelique Arde

Publications: iOL

Date Published: 03 August 2014

The Ombud for Financial Services Providers has handed down another ruling – the fifth so far – against financial adviser Michal Calitz, who advised a number of his clients to invest in the Relative Value Arbitrage Fund (RVAF), which turned out to be a scam.

Calitz was paid R8.4 million in share profits from the RVAF before it collapsed in July 2012, the month the master-mind of the scheme, Herman Pretorius, committed suicide. The RVAF collected an estimated R2.2 billion from about 3 000 investors.

In the latest ruling, ombud Noluntu Bam ordered Calitz to repay Garvitte Herman Lombard R700 000.

According to the ruling, Calitz alleged that he did not introduce Lombard to the RVAF. He claimed that another of his clients who had invested in the scheme had. He also claimed that he told Lombard that the RVAF was an unregulated hedge fund, and that the fund manager, Abante Capital, was registered with the Financial Services Board. He contested that Lombard was satisfied with the risk and that the funds invested constituted about 10 percent of Lombard’s portfolio. The RVAF investment was to diversify the client’s portfolio.

In the latest ruling, ombud Noluntu Bam ordered Calitz to repay Garvitte Herman Lombard R700 000.

According to the ruling, Calitz alleged that he did not introduce Lombard to the RVAF. He claimed that another of his clients who had invested in the scheme had. He also claimed that he told Lombard that the RVAF was an unregulated hedge fund, and that the fund manager, Abante Capital, was registered with the Financial Services Board. He contested that Lombard was satisfied with the risk and that the funds invested constituted about 10 percent of Lombard’s portfolio. The RVAF investment was to diversify the client’s portfolio.

But in her determination, Bam refers to her first ruling against Calitz and the “key issues”: his failure to understand the entity and the risks to which he was exposing his clients, whose funds were transferred directly into the RVAF “without even the protection afforded by a nominee account”.

“Quite simply, no adviser would have recommended this product as a suitable component of any investment portfolio had they exercised the required due skill, care and diligence,” Bam says.

Lombard relied on Calitz’s advice, and Calitz failed to act in accordance with the Financial Advisory and Intermediary Services Act.

Calitz is the owner of Impact Financial Consultants, an authorised financial services provider in Bellville, Western Cape. He is a member of the Financial Planning Institute and is an accredited Certified Financial Planner.

Hedge fund scam: more rulings

21 Jul

Author: Angelique Arde

Publications: iOL

Date Published: 20 July 2014

Michal Calitz, the financial adviser who was paid R8.4 million in share profits from the Relative Value Arbitrage Fund (RVAF), which was, in fact, a scam, has been ordered to compensate two more clients who lost money after he advised them to invest in it.

The RVAF collapsed after Herman Pretorius, the mastermind of the scheme, shot his business partner and committed suicide in July 2012. The scheme collected an estimated R2.2 billion from about 3 000 investors.

In the two latest rulings by the Ombud for Financial Services Providers, Calitz has been ordered to repay Dr Johannes Hartshorne R460 000 and Martha Jooste R165 000.

This brings to four the number of rulings by ombud Noluntu Bam against Calitz (Personal Finance reported recently on the previous two rulings, and the reports can be viewed at http://www.persfin.co.za).

Calitz is the owner of Impact Financial Consultants, an authorised financial services provider with offices in Bellville, Western Cape. Calitz is a member of the Financial Planning Institute (FPI) and an accredited Certified Financial Planner.

Bam’s latest rulings show that in the weeks leading up to Pretorius’s death, Calitz advised both Hartshorne and Jooste to disinvest from the RVAF – “but by that stage it was already too late”.

In both cases, Calitz had been an adviser to the complainants for many years.

Hartshorne contends that Calitz never told him that neither the RVAF nor Pretorius were registered with the Financial Services Board (FSB) and that there could be potential risks.

“On the contrary, Calitz told [Hartshorne’s] wife that Pretorius was a person of integrity and that the RVAF was performing well.”

Hartshorne also told the ombud that Calitz did not carry out a risk assessment on him.

Jooste complained that Calitz assured her that there was no risk of investing in the RVAF and that he had invested some of his own money in the fund, which “was managed by professional people with industry experience”.

Jooste’s R165 000 was her entire investible capital and had been sitting in an Absa money market investment account before Calitz persuaded her that the RVAF was her best option.

In response to both complaints, Calitz claims to have explained to his clients the workings of a hedge fund and that these instruments are not regulated but that investment manager Abante Capital through which the investments were channelled was registered with the FSB.

But in both determinations, the ombud says the key issues, as with previous rulings against Calitz, pertain to the rendering of advice to invest in the RVAF – principally, Calitz’s “failure to understand the entity and the risks to which he was exposing his clients”.

She reiterates that no adviser would have recommended the RVAF as a suitable component in “any” investment portfolio had they exercised the required due skill, care and diligence.

The FPI responds

Jacqui Grovè, the legal and compliance services manager for the FPI, says that when the news broke about the RVAF, the FPI launched an enquiry to find out whether any FPI members might have been involved in the scheme.

By the end of last year the FPI had evidence of the possible involvement of two members, she says.

“Our investigation was made difficult by the fact that, despite our best efforts, we could not find sufficient verifiable evidence with respect to these members. We then took a decision to await the results of the ombud’s investigation.”

The release of the financial advice ombud’s determinations has provided the FPI with [the] information [needed] to proceed with disciplinary action, Grovè says.

“We are now proceeding as speedily as possible, having regard for due process, with finalising hearings. We shall publish the results of these hearings.”

Although the ombud’s rulings carry the weight of a high court ruling, Grovè says an FPI member is “deemed innocent until found guilty by a competent FPI disciplinary panel of his or her peers”.

She says the institute’s purpose is to benefit the public by ensuring that its members can be trusted always to put their clients interests’ first.

Hedge fund scam: second ruling

13 Jul

Author: Angelique Arde          

Publications: iOL

Date Published: 13 Jul 2014

The Ombud for Financial Services Providers has handed down another ruling against financial planner Michal Calitz of Impact Financial Consultants in Bellville.

Calitz earned R8.4 million in so-called share profits from the Relative Value Arbitrage Fund (RVAF), which purported to be a hedge fund but was, in fact, a scam.

The RVAF collapsed after its architect, Herman Pretorius, shot himself in July 2012. The fund is in liquidation, and its trustees have indicated that some, if not all, investor funds have been lost.

Both of Bam’s rulings against Calitz are the result of complaints by clients who invested in the RVAF on his advice.

The latest ruling states that, acting on Calitz’s advice, Robert Whitfield-Jones invested two amounts in the RVAF: R350 000 in March 2009 and R250 000 in February 2012. The money for both investments came from Whitfield-Jones’s unit trust fund investments. Calitz told his client that he could earn a better return if he invested in the RVAF.

Whitfield-Jones says he knew nothing about the risks associated with investing in a hedge fund and trusted Calitz to render the best advice, particularly because they had a relationship that went back several decades.

Holding Calitz accountable for his loss of R600 000, Whitfield-Jones turned to Bam for compensation.

In her determination, Bam refers to her previous ruling against Calitz in which she found that, “on the objective evidence, he could not have conducted even the most basic due diligences on the RVAF”.

The issues pertain to Calitz’s failure to understand the RVAF and the risks to which he exposed his clients when he advised them to invest in it, she says.

“Quite simply, no adviser would have recommended this product as a suitable component of any investment portfolio had they exercised the required due skill, care and diligence,” Bam says.

Whitfield-Jones, as a client of a registered financial adviser, relied on Calitz’s advice when he made the investment. When rendering financial services to clients, the financial services provider is required to act in accordance with the Financial Advisory and Intermediary Services Act and its code of conduct. Calitz failed in this regard, Bam says.

She ordered him and his company, jointly and severally, to pay Whitfield-Jones R600 000.

Calitz holds a postgraduate diploma in financial planning and has the Certified Financial Planner accreditation. He is a member of the Financial Planning Institute (FPI), which has its own code of conduct.

The FPI has yet to discipline any of its members who advised clients to invest in the RVAF. In October 2013, the FPI said it was expecting to hold disciplinary hearings in December. The outcomes of the disciplinary hearings would be published once the appeal period had expired. But to date no outcomes have been published. Personal Finance has had no response to questions put to the FPI’s legal and compliance services manager.

Pretorius: Makelaar moet geld teruggee

10 Jul

Author: Marelize Barnard

Publications: Die Burger

Date Published : 10 Mei 2014

KAAPSTAD. – ’n Makelaar wat beleggers na wyle Herman Pretorius se beleggingskema gelok het, moet R500 000 plus rente terugbetaal aan een van dié beleggers.

Die ombudsman vir finansiële adviseurs en tussengangers (Fais), Noluntu Bam, het ’n bevel gemaak dat die makelaar van Bellville, Michal Calitz, en sy beslote korporasie, Impact Finansiële Konsultante, die R500 000 en rente van 15,5% per jaar moet terugbetaal.

Die klaer in die saak, Craig Inch, het jare lank pensioengeld bymekaargemaak en dit op Calitz se aanbeveling in Pretorius se Rela­tive Value Arbitrage Fund (RVAF) belê.

Inch se geld was vantevore in die geldmark belê en hy het dit nooit oorweeg om dit in ’n verskansingsfonds te belê nie.

Volgens Inch se weergawe in sy aansoek by Fais het Calitz hom verseker dat dit ’n stabiele fonds is en Inch se geld is op 30 Maart 2010 by RVAF inbetaal.

Hy wou op 26 Julie 2012 sy geld onttrek, maar het ’n dag later uitgevind dat Pretorius dood is.

Preto­rius het op 26 Julie 2010 selfmoord gepleeg nadat hy ’n oudkollega, Julian Williams, doodgeskiet het.

In die Fais-ombudsman se uitspraak word genoem dat Calitz aangevoer het dat hy nie verantwoordelikheid kan aanvaar vir wat blyk die “doelbewuste poging van een persoon was om beleggers te bedrieg nie”.

Verder word genoem dit is kommerwekkend dat Inch se geld reeds op 30 Maart 2010 in die RVAF Trust se bankrekening inbetaal is, terwyl ’n ooreenkoms daaroor eers op 7 April onderteken is. Die belegging is gemaak “voor enige dokumente onderteken is”.

Bam het verder gesê daar is geen bewyse deur Calitz gebied dat die ware risiko aan Inch verduidelik is nie.

“Nóg Pretorius nóg die RVAF was gelisensieer . . . Calitz moes geweet het dat die Fais-wetgewing nie nagekom is nie.”

Verder is daar geen behoorlike boekhouding of rekords deur Pretorius gehou nie. Dit is ’n belangrike kwessie wat Calitz nie kan verduidelik om te bewys dat hy ’n behoorlike ondersoek na die RVAF se sake gedoen het nie.

“Dit is duidelik dat Calitz blindelings aanvaar het wat aan hom gesê is oor die RVAF, want hy het beslis nooit die moeite gedoen om navraag te doen oor die finansiële state wat nooit bestaan het nie,” lui Bam se uitspraak.

Are industry regulators preserving the integrity of the industry?

9 Jul

Author: Jonathan Faurie

Publications: FANews

Date Published: 9 Jul 2014

Are we as an industry being protected by the regulator? We often receive determinations sent to us by the office of the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud), and there is a common thread in most of the determinations. There are certain advisers in the industry who seemingly have a blatant disregard for the Financial Advisory and Intermediary Services (FAIS) Act and they think that they can get away with defrauding clients.

Predictably they do not always get away, as the Ombud have an open door policy for the public to raise any concerns that they have regarding an adviser. The Ombud then investigates the claim and if it is found that the adviser is guilty a fine will be imposed. But is this enough? This is the question we are left with to reflect on after reading a recent determination handed down by the FAIS Ombud.

Negotiating a normal client interaction

Dr Craig Inch (complainant), a dental practitioner, was seeking an investment plan that would best suit his needs and help grow his savings. After recommendation by a college, the complainant arranged a meeting with Michal Calitz (respondent) to discuss the possible investments which would be best for the complainant.

During the original discussion, a number of unit trusts were discussed and it was recommended that the complainant look into these unit trusts. A follow-up meeting was arranged and the respondent made mention of a hedge fund that the complainant’s college, who was a client of the respondent, had spoken of. The fund was doing well and the complainant asked the respondent if he knew of any other funds which operated in a similar manner. The respondent recommended the Relative Value Arbitrage Fund (RVAF).

The complainant was hesitant to invest in a high risk fund as he was thinking of investing his whole life savings into this fund and could not afford to lose it. In the complainants version to the Ombud, he said that he made this very clear to the respondent. He asked the respondent to explain the RVAF in more detail to which the respondent explained that the fund took long positions in stocks which were expected to increase in value and short positions on stocks which were expected to decrease in value.

The complainant then asked about the performance of the fund to which the respondent assured him that the fund’s performance was in the region of twenty percent per annum.

The plot thickens

The respondent apparently told the complainant that a hedge fund was not regulated in the same way as a unit trust portfolio. The respondent then assured the complainant that the RVAF fund did have all of the correct paperwork and documentation. During the investigation of the Ombud, it was clear that this was not the case.

With regards to the fee structure, the complainant was told (as he remembers it) that he did not have to pay a fee and instead that twenty percent of the profits generated from the fund would be used as a fee.

The complainant obviously felt uneasy about the investment because he once again mentioned his reluctance to invest in a high risk vehicle as he would be investing his whole life savings of R600 000. He asked the respondent how much he should invest and the respondent recommended the complainant invest R500 000. The complainant was assured about the stability of the fund and that it was not influenced by market fluctuations. The respondent reiterated that many of his clients invested in the fund and that he was also an investor in the fund.

When the complainant wanted to withdraw R600 000 from the fund, he emailed a letter of intent to the fund, to which he was informed of the death of Herman Pretorius who was a fund manager and a trustee of the fund.

Opening a can of worms

Unlike many other recent determinations, the respondent did respond to the allegations made to the Ombud.

In his defence, the respondent said that the complainant asked about the RVAF and not the other way around. In the record of advice there was also no indication that the respondent mentioned to the complainant that hedge funds are not regulated in the same way as unit trust funds.

Two articles on a prominent media site unsettled the respondent and prompted him to withdraw all of his client’s savings out of the RVAF. However, he did not mention what particular aspects of the articles made him withdraw the funds.

The respondent further adds that he cannot accept responsibility for what seems to be one person’s deliberate intention to defraud investors.

Unearthing a long list of infringements

The list of aspects of the FAIS Act which the respondent infringed on in this case was very extensive and took up twenty pages in the Ombud’s determination, which can be read here.

One of the most important aspects of the FAIS Act which the respondent contravened was the poor selection of the vehicle in which the funds were invested. During the Ombud’s investigation it was found that there was no financial needs analysis done. The respondent did not present a range of options which could have been invested in other than the RVAF and the complainant never received any documentation that the RVAF was the fund that his capital was invested in. There was also a significant grey area on who the respondent was representing.

Was justice served?

Upon the death of Herman Pretorius, the RVAF went into liquidation and all of the capital invested in the fund was lost. However, the complaint was upheld by the Ombud as it ruled that the capital should never have been invested in this fund in the first place. The respondent was instructed to pay the complainant R500 000 and interest at a rate of fifteen point five percent per year.

What is the role of the Financial Services Board (FSB) in this debacle? Despite the fact that Calitz should have been dealt with by the regulator long before this determination took place, the issue is what will happen to Calitz now? The ruling of the Ombud can hardly be described as a slap on the wrist, but if he is allowed to continue practicing, is justice being served? In all fairness, the FSB should suspend Calitz and never allow him to practice again.

Editor’s Thoughts:
The financial services industry operates on public perception. If the public thinks that one adviser is fraudulent, they may paint a lot of other advisers in the industry with the same brush. The FSB has a duty to fight for the reputation of the industry. Is it fulfilling its role? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

FSP Due Diligence Responsibilities

7 Jul

Author: Paul Kruger

Publications: Moonstone

Date Published: 3 Jul 2014

On Monday, we briefly outlined the background to the first complaint against an advisor who invested client funds in Herman Pretorius’s Relative Value Arbitrage Fund.
In his response to the complaint, the advisor stated, amongst other arguments that he, after reading about possible problems, “…contacted Mr. Pretorius to further investigate the matter. Mr. Pretorius advised me in a meeting at his office that the FSB had visited him and found nothing untoward.”
“If the FSB with all the investigative means at its disposal was not able to detect improper “hedge fund” activities by Pretorius, it surely cannot expect me to have done so.”
He also attached a copy of an e-mail from Tefo Moatshe of the FSB to another adviser dated the 11 May 2009 which states:
“Hedge funds are currently not regulated in South Africa – we only regulate a person who manages a hedge fund portfolio. This means that a person who renders financial services to a client to invest in hedge funds is not a financial services provider and not required to be licensed.”
The Ombud responded to this as follows:
“It is neither considered necessary nor appropriate of this Office to comment on the allegation that the FSB failed to pick up contraventions despite, according to the respondent, the FSB having investigated the business activities of Pretorius on more than one occasion.”
“Whatever the alleged failure on the part of the Financial Services Board, (no opinion is expressed by this Office on this allegation), the respondent’sfailure to conduct even the most basic due diligence is inexcusable. Even more so, given that not only was the respondent directly and regularly interacting with Pretorius and the RVAF, but as discussed hereunder, the respondent was more than amply qualified to pick up on any irregularities.”
The Ombud then expands on the respondent’s membership of a professional body, his obligations under its code of conduct and his professional qualifications.
I find it difficult to reconcile this conclusion with the information published in the media release by the FSB in August 2012 in response to media reports:
“During May 2011 it was brought to the attention of the FSB that Pretorius was “selling shares in unlisted companies” and “promoting these ventures” by making representations to the community.
As the selling of unlisted shares may constitute a financial service as contemplated by the FAIS Act, the FSB followed up on the information which it subsequently received in order to establish whether or not Pretorius was acting in contravention of the FAIS Act, given also the fact that he was not licensed in terms of the FAIS Act.
Some of the findings given were:
“Based on the information supplied in response at the time the FSB was satisfied that:
The private equity or venture capital projects embarked upon or supported by Mr Pretorius did not constitute an activity which was subject to FSB regulation.
Pretorius’s activities did not require a FAIS licence at the time.
The manner in which Pretorius indicated that capital would be raised from investors and the investment vehicle used for the raising of such capital also did not point towards any activity which was subject to FSB regulation or otherwise unlawful…”
The explanations provided to the FSB concerning the nature of the trusts as investment vehicles were such that it could not be established with certainty that their activities were subject to FSB regulation. Some of the ventures were designed for individuals who could properly be considered to be involved in a private domestic affair.”
“Following further complaints received by the FSB in May/June 2012 against Mr. Pretorius it was decided that a formal inspection should be conducted on the affairs of Pretorius and the various investment vehicles utilised in order to establish whether or not the activities of the investment vehicles were subject to FSB regulation. The inspection was under way at the time when Pretorius allegedly committed suicide.”
“There are media reports indicating that concerns were raised with the FSB more than 8 years ago regarding Pretorius’ involvement in hedge funds. In this regard, the FSB wishes to clarify that at that time that these concerns were raised the regulator could not establish any evidence of Pretorius’ activities in hedge funds or any irregularities with regard to the issues that were raised at the time. Further, the FSB wishes to categorically state that, as detailed above, appropriate action was taken from the time that the allegations first surfaced, and that the investigation into this matter is on-going.”
“Concerns have also been raised about how the FSB “allowed what amounts to a gigantic Ponzi scheme to continue under its nose.” Once again, it must be remembered that schemes that are operated outside of and actively in secret from the regulator cannot be said to be operating under the regulator’s nose. Accordingly, to the extent that there was a Ponzi scheme in Pretorius’ activities, such a scheme would have been operated in strict secrecy from the FSB.”
“The FSB is of the view that if there was any non-compliance by Pretorius, it was well-designed not to be subject to regulatory scrutiny. 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.”
– See more at: http://www.moonstone.co.za

Investor obtains order for R500 000 refund in RVAF scam

1 Jul

Author: Roy Cokayne          

Publications: iOL

Date Published: 1 Jul 2014

Investor obtains order for R500 000 refund in RVAF scam

Noluntu Bam, the ombud for financial advisory and intermediary services (Fais), yesterday ordered Impact Financial Consultants in Bellville and/or financial adviser Michal Johannes Calitz to repay dentist Dr Craig Stewart Inch the R500 000 he invested in the RVAF.

Bam said the RVAF was nothing short of a scam and initial reports by the joint trustees indicated that most, if not all, investors’ funds had been lost.

She said there were many areas where Calitz was remiss and in direct contravention of the Fais Act. At its simplest, if Calitz had merely requested a set of properly audited financials, the scam would have been revealed, she added.

Bam said this would have been part of basic due diligence. Not only was this elementary step omitted but deficiencies were similarly evident in the lack of any form of proper due diligence study into the fund, its underlying investments or their structure.

Inch said he had trusted Calitz because he was correctly registered as a certified financial planner, a member of the Financial Planning Institute and his company Impact Financial Consultants was correctly licensed with the Financial Services Board (FSB).

He was dismayed that Calitz had not made certain that the investment platform he would be investing his money into was legal, correctly registered and had performed all the necessary due diligences. He had also not checked that RVAF’s fund manager was FSB-licensed, there would be third party verification of returns and valid financial statements and the fund would be correctly audited.

“Calitz acted unethically by investing my money in this ‘hedge fund’. I would never have invested a cent had I known this information.”

Bam said that apart from the issue around the risk profile, the circumstances surrounding the investment were essentially not in dispute, leaving what were essentially allegations about the failure to comply with the Fais Act, including questions of due diligence, appropriateness of advice, licensing and disclosure related to licensing, whether Calitz acted in the interests of his client and the integrity of the financial services industry.

She added that there was no evidence that a need analysis was conducted on Inch and the decision to place the majority of Inch’s savings into such a high risk investment without any diversification defied logic.

Bam said the substantial sums in commissions received by Calitz could simply not be justified when considering the poor quality of advice offered to Inch. She said these commissions were only revealed in a report to creditors in June last year by the trustees of the insolvent estate of the RVAF and a letter dated August 15 last year in which attorneys acting for Calitz conceded that he had received a so-called profit share of R8.44 million.

“Yet on the objective evidence, Calitz could never have conducted even the most basic of due diligences on the RVAF. Calitz placed the funds in a scheme which did not have so much as a financial services provider number, nominee account or even audited financials.

“Schemes such as the RVAF cannot exist without professionals such as Calitz turning a blind eye to legislative requirements,” she said.

FAIS Ombud Rules on RVAF Investment

1 Jul

Author: Paul Kruger

Publications: Moonstone

Date Published: 1 Jul 2014

The reasons for the sad ending to the Relative Value Arbitrage Fund, for both investors and advisors, are evident from this, the first determination by the Ombud on the Herman Pretorius saga.

A client, who invested R500 000 in 2010, complained to the Ombud after losing all his savings when the mastermind behind the fund reportedly committed suicide.

The Ombud quotes the following “important points” from the complaint:

‘I had trust in the respondent as he was correctly registered as a certified financial planner. He was a member of the FPI. His company was FSB licensed. I would never have invested my money in any investment platform by not doing it through a registered financial services provider/certified financial planner. The fact that he is a registered financial services provider makes it certain in my mind that whatever investment platform he would be investing my money in would be:

  • legal
  • correctly registered
  • have all the necessary due diligence performed by himself
  • the fund manager (of RVAF) would be FSB licensed
  • there would be third-party verification of returns
  • there would be valid financial statements
  • the fund would be correctly audited

This, I understand, is not the case at all. I am dismayed that none of the above 7 points were fulfilled and I declare that the respondents acted unethically by investing my money in this “hedge fund”. I would never have invested a cent of my money into this fund had I known this information’ (own emphasis).

The Ombud then proceeds to dissect the evidence in terms of the legal obligations of the advisor, including the following:

  • The duty to identify the client’s needs
  • Disclosures in terms of section 4 and 5 of the Code
  • Information on the product supplier
  • The Code of Conduct for Discretionary Financial Services Providers
  • Risk and hedge fund strategies disclosure as required by the discretionary code and
  • Authorisation to conduct business as a financial services provider

Having dealt at great length with all of the above, the Ombud concludes:

“There are so many areas where the respondent was clearly remiss and in direct contravention of the FAIS Act that it is difficult to recap without repeating all that has already been discussed. At its simplest, had the respondent just requested a set of properly audited financials, the scam would have been revealed. This would have been part of basic due diligence. Yet not only was this (sic) most elementary of steps clearly omitted, but similarly, deficiencies are evident in the complete lack of any form of proper due diligence into the investment vehicle, underlying investments or their structure.”

She quotes from the ground-breaking Durr vs ABSA Bank Ltd and Another 1997 (3) SA 448 (SCA), case which states:

“The important issue is that even if the adviser himself does not have the personal competence to make the enquiries, I believe it is incumbent upon him to harness whatever resources are available to him or if necessary to ask for professional, legal or accounting opinion before committing his client’s funds to such an investment”.

Concerning the respondent’s obligations as a member of a professional body, she states:

“The Code of Ethics requires that the 2nd respondent undertake to act in a manner that displays exemplary professional conduct and maintain the abilities, skills and knowledge necessary to provide professional services competently. In short, the 2nd respondent was certified to a standard above and beyond that of the average financial adviser and must be held to this standard.”

A thorough reading of this determination is highly recommended to all investment advisors. In particular, the views of the Ombud on due diligence will clarify an aspect which is still very murky for many of us.

In Thursday’s Moonstone Monitor we will discuss the Ombud’s view on why the FSB failed to identify problems with the RAVF during on-site visits, which is also discussed in this determination.

Please click here to download the full determination.

 

Continue reading this article

‘Hedge fund’ advice slammed

22 Jun

Author: Angelique Arde

Publications: iOL

Date Published: 22 June 2014

The Ombud for Financial Services Providers has handed down a scathing determination against a financial planner who placed R500 000 of his client’s savings in the Relative Value Arbitrage Fund (RVAF), which was a scam posing as a hedge fund.

The RVAF collapsed after the architect of the scam, Herman Pretorius, reportedly shot his former business partner and then himself in July 2012.

The determination handed down by ombud Noluntu Bam this week reveals that adviser Michal Calitz of Impact Financial Consultants in Bellville, Western Cape, earned R8.4 million in so-called share profits from the RVAF, “yet on the objective evidence he could not have conducted even the most basic due diligence [tests] on the RVAF”.

Calitz placed his client’s funds in a scheme which did not have a financial services provider number, nominee account or even audited financials, Bam’s determination states.

“Schemes such as the RVAF cannot exist without professionals such as Calitz turning a blind eye to legislative requirements,” Bam says.

Calitz holds a post-graduate diploma in financial planning and is a member of the Financial Planning Institute (FPI). This entitles him to call himself a Certified Financial Planner (CFP). He was certified to a standard above that of the average financial adviser and “must be held to that standard”, Bam says.

The ruling follows a complaint by a dentist, Dr Craig Inch, who became Calitz’s client because a friend had recommended him.

According to the ruling, Inch’s friend had told him about a hedge fund that had been performing well, and the dentist asked Calitz about it or others of a similar ilk. Calitz said he did know about it, and mentioned the RVAF.

Not knowing much about hedge funds other than that they can be risky, Inch asked Calitz to explain the fund. Calitz replied that the fund manager was a gentleman he knew very well and that the fund used a technique involving long-short strategies.

When Inch asked about the risks of losing capital due to poor decision-making by the fund manager, Calitz said that although this was possible, the fund had done consistently “very, very well” and provided a return of 20 percent a year without much deviation.

Calitz explained that hedge funds are not regulated in the way that unit trust funds are, but that this fund has “all the correct paperwork”.

Bam says the RVAF had no paperwork by way of registration or licence whatsoever, and in that regard was conducting business illegally.

With all his savings (R600 000) in a money market fund, Inch was not willing to invest his capital with a high risk of loss. But Calitz assured him that the fund was not influenced by market fluctuations. Furthermore, not only had many of his clients invested in the RVAF, but so too had he. Based on this assurance, Inch deposited R500 000 into the RVAF’s bank account on March 30, 2010, the ruling says.

On July 26, 2012, Inch instructed Calitz that he wanted to withdraw R600 000. The following morning, he heard of the death of Pretorius, “the fund manager and trustee of the RVAF”.

The RVAF is in liquidation, and the trustees have indicated that some, if not all, investor funds have been lost. Bam’s ruling says that in a letter dated November 2012, Calitz wrote: “It is presumed that Dr Inch’s funds are lost, although no definite finding has been made by the liquidators.”

Inch told the ombud he trusted Calitz because he is a CFP and his company is registered with the Financial Services Board (FSB). This led him to believe that the product he was investing in was legal and registered, that Calitz had done the necessary due diligence, that the fund manager was licensed with the FSB, that there were valid financial statements and that the fund was audited.

“This is not the case at all. Had I known this, I would never have invested a cent in this fund,” Inch told the ombud. Calitz acted unethically by investing his money in this “hedge fund”, he says.

In response to questions from Bam’s office, Calitz did not provide evidence of having done a financial needs analysis, justifying investing Inch’s savings in a hedge fund, “which is high risk”, or a record of advice, to explain what other products were considered.

Bam says while Calitz supposedly had the qualifications and experience, “he either failed to properly understand what he was dealing with, or, more worryingly, turned a blind eye in favour of lucrative commission, which he received from the RVAF” .

Bam says Calitz ignored the very legislation designed to protect his client, which led to his client’s loss, and ordered him and his company pay Inch R500 000.

Bam’s office has also referred the determination to the FPI.

Read Article

It’s been a year and a half since Herman Pretorius’s Ponzi collapse?

6 Jun

Author: Julius Cobbett

Publications: Twitter

Date Published: 21 May 2014

CobbettTwitter

Belegger sterf aan hartaanval

2 May

Author: Marelize Barnard

Publications: Die Burger

Date Published : 02 Mei 2014

KAAPSTAD. – ’n Sewentigjarige belegger wat met wyle Herman Pretorius se bedrogspul al sy spaargeld vir mediese uitgawes verloor het, is oorlede kort voor hy vrae oor sy beleggings moes beantwoord.

Die likwidateurs van Preto­rius se Relative Value Arbi­trage Fund (RVAF) Trust en die Seca Trust is tans ingevolge regulasies van die Insolvensiewet met geheime ondervragings van beleggers besig.

Die seun van die man wat verlede week aan ’n hartaanval gesterf het, het vertel hoe sy pa die afgelope twee jaar gely het onder die wete dat al die geld wat hy vir hom en sy vrou se mediese onkostes op hul oudag gespaar het nou verlore is.

“Pretorius het soveel mense se lewe verwoes. Herman het alles wat my pa gehad het, gevat,” het die seun gister gesê. Die seun het gevra dat nóg sy naam nóg dié van sy pa gepubliseer word.

Die seun moes verlede week inderhaas van Pretoria na Kaapstad vlieg ná sy pa se hartaanval.

“Hierdie ou (Pretorius) het net soveel lewens verwoes. Die stres wat my pa die afgelope twee jaar gehad het, was geweldig. Dit het die hele tyd in sy kop gemaal dat hy dinge weer moet probeer regkry.”

Die oorledene se een groot vrees was dat daar op sy oudag nie genoeg geld sou wees vir die mediese onkostes van hom en sy vrou nie.

“My pa het 20 jaar lank dieselfde kar gery. Hy het geld by Pretorius belê om te spaar vir sy oudag. Hy was nie gierig nie.

“En só is daar mense in Riversdal en Riebeek-Kasteel . . . Dit is mense wie se hele lewe – soos my pa s’n – die afgelope twee jaar oorheers is deur stres. Dit is stres waarmee jy gaan slaap en opstaan. Dit gaan deur jou kop as jy eet of gaan stap.”

Pretorius, wat R2,2 miljard van beleggers ingevorder het in ’n piramideskema, het op 26 Julie 2012 ’n voormalige sakevennoot, Julian Williams, in die middestad van Kaapstad doodgeskiet en daarna selfmoord gepleeg.

In ’n kennisgewing aan beleggers waarin die redes vir die likwidateurs se insolvensie-ondersoek uiteengesit word, word genoem dat die Insolvensiewet daarvoor voorsiening maak dat enige persoon ondervra kan word wat moontlike inligting of dokumentasie het met betrekking tot die insolvente boedel wat ondersoek word.

Pretorius het, volgens die kennisgewing, nie behoorlik boekgehou nie en die likwidateurs beskou die geheime ondervraging van getuies as noodsaaklik om inligting te bekom

Lees Artikel in Die Burger

Fraud knows no Boundaries

15 Apr

Author Paul Kruger

Publications: InsuranceGateways

Date Published: 15 April 2014

Consumers at the lower end of the market are often more vulnerable when it comes to being defrauded.

The latest Ombud determination provides details of how the Reformed Christians for Truth Church became the victims of an “advisor” (himself a pastor) who was neither registered with the FSB, nor appointed as an agent of the licensed financial service provider he claimed to represent.

The agreement was that he would provide funeral cover for congregants of the church, and that claims would be paid out within 48 hours. The first claim arose in December 2012. When it was not paid by January 2013, the church conducted an investigation and established that “…no funeral cover was in place.”

They referred the matter to the FAIS Ombud. In response to an enquiry from the Ombud, the respondent undertook to settle the outstanding amount before 30 April 2013, but this never happened, and the respondent seems to have disappeared.

The Ombud concluded:

The second respondent’s conduct is not only illegal in terms of the FAIS Act. His conduct is also unlawful in terms of the common law and amounts to fraud. On that basis alone, the second respondent must be held personally liable for the entire amount claimed.

The respondent was ordered to repay the church’s R18 000 within 7 days from date of the determination, and interest hereafter to the date of final payment.

As in the two cases discussed last week, the perpetrator was aware that he needed to be licensed, and that he had to work through a licensed product provider. It appears that he blatantly lied about this. He even used the FSP number of a registered provider despite not being registered as a rep with them.

It is not clear how the church became aware of the office of the Ombud, but at least it managed to get a determination in its favour. What has happened since is anybody’s guess. By January 2014, the outstanding amount had still not yet been paid and the respondent, who undertook to repay the money by the end of April, is missing in action.

There is, of course, no way that the Regulator would have been able to establish or prevent this.

One can only speculate on how many other incidents of this nature occur without the victims having recourse to remedy through ignorance. It is likely that such occurrences are prevalent in this sector of the market. The only long-term remedy appears to be consumer education regarding the safeguards in place to protect them from such scams.

One of the recent amendments to the FAIS Act concerns fit and proper requirements. The following is an extract from a summary written by Alan Holton, a compliance officer and associate of Moonstone:

A new S 6A (Fit and Proper Requirements) has been added to this statute. In terms of S 6A, the registrar must classify financial services providers into different categories and determine fit and proper requirements for each category of providers.

The registrar must then, in each category of providers, determine fit and proper requirements for the key individuals of providers, representatives of providers, key individuals of representatives of providers and compliance officers.

The challenge, of course, does not lie in regulating those in the flock, in a manner of speaking – it is those who opt to operate outside the legal parameters that are most likely to cause harm.

There are currently a number of investment schemes offering above average returns. They do not operate under the radar, advertise brazenly and must be making millions if one looks at their advertising campaigns. Some may well be doing what they promise, but so did major property syndications before market conditions changed.

It seems that the starting point for many of these operators is to set up structures which fall outside the jurisdiction of the regulatory authorities. This appeared to be the case with the Relative Value Arbitrage Fund which camouflaged its business operations in such a way that the FSB was unable to detect anything untoward during an inspection in May 2011. During a further investigation a year later, Herman Pretorius shot his business partner and himself.

There are no easy solutions to the problem of rogue operators. Hopefully, the implementation of Twin Peaks will cast the net wider, and contribute to a safer financial services environment.

Professional Indemnity: Still No Clarity

13 Jan

Author:  Unknown

Publications: Fsb pi insurance

Date Publiched: 13 January 2014

 The fsb says that in earlyLabuschagne failed to render financial services
fairly, with due skill, care and diligence, and in the interests of his clients
and the financial services industry. While the written exam accounts for the
majority of your cet score, your GD and PI scores make between 14 and 15.
Consider the fidelity policy The insured in the fiduciary policy should cover
the fund, trustees, committee members and the principal officer. Risk,
hopefully, will have other resources to pay the compensation – that is, if he
loses his appeal against the determinations. The situation reached a level of
absurdity recently when the fsb, in effect, claimed that it could not be blamed
for not taking action earlier against the Relative Value Arbitrage. Ensure that
the rules of your fund have indemnity provisions 5). The workgroup realized that
it was not possible to eliminate or fully protect the fund against fraud. The
expenses you incur for professional development could be tax deductible. Billion
because the fund, managed by the late Herman Pretorius, did not fall under the
fsb. This includes monies stolen or any direct financial loss suffered by the
insured as a result of fraud or dishonesty by an officer of the fund. Consider
the cost of the cover and remember cheaper is not always better. So right now
the onus is on you to demand details of the PI cover your adviser has,
particularly to cover any potential compensation payable to you. On, the joint
industry workgroup circulated their recommendations on both the scope and extent
of cover in respect of delegated administration arrangements.

See also: https://rvafmediareleases.wordpress.com/2012/10/21/winners-and-losers-in-indemnity-case/

Read Original: http://bywug.org/fsb-pi-insurance.html

‘Kommissie’ teruggeëis

11 Dec

Author: Marelize Barnard

Publications:  Die Burger

Date Publiched: 11 December 2013

            Net R469 000 was ‘egte wins’

             KAAPSTAD. – Herman Pretorius het R1 miljoen aan ’n makelaar geleen met slegs ’n handdruk om dié transaksie te beklink.
Boonop het Pretorius later R250 000 van dié R1 miljoen-lening aan die makelaar, Michal Calitz, gegee – ’n geskenk wat hy met nog ’n handdruk as afgehandel beskou het.En volgens ’n transkripsie van getuienis wat in ’n sekwestrasie-ondervraging deur Calitz gelewer is, het Pretorius gesê: “Ek sê vir jou ek het soveel geld gemaak . . . ek betaal vir jou ’n miljoen rand oor . . . dan kan jy dit weer vergoed vir my later (sic).”Dié inligting is vervat in ’n beëdigde verklaring van Lambertus von Wielligh Bester, een van die kurators van Pretorius se Rela­tive Value Arbitrage Fund.

Bester se verklaring is deel van ’n aansoek wat gister in die Wes-Kaapse hooggeregshof teen Calitz ingedien is om miljoene rande “kommissie” wat Pretorius aan hom betaal het, te verhaal.

Luidens die transkripsie van Calitz se ondervraging deur die kurators het hy Pretorius só beskryf: “Herman was een van daai mense . . . en agterna kom ons dit agter . . . wat hand geskud het en niks was op papier nie . . .”

Bester het in sy verklaring aangevoer dat Pretorius se Ponzi-skema ongetwyfeld een van die grootste skelmstreke van sy soort tot nog toe in Suid-Afrika was.

Die ondersoeke wat tot nou deur die kurators en ouditeurs gedoen is, het gewys dat die meeste van die beleggers boere of plattelandse inwoners is.

Bester het gesê Calitz se regsverteenwoordiger het bevestig dat beleggers verskeie klagtes teen Calitz en Impact Finansiële Konsultante by die Ombudsman van Finansiële Diensverskaffers ingedien het. Die Finansiële Diensteraad ondersoek ook Calitz en ander makelaars.

Bester voer aan dat Pretorius, ten einde te verseker dat makelaars “geesdriftig” bly en daar ’n gereelde kapitaalstroom van beleggers inkom, “kommissies of winsdeling” van tussen 5% en 7,5% van die beleggingsbedrae aan hulle betaal het. Makelaars het hul wins ontvang die oomblik wat beleggers se geld inbetaal is.

Ekstra “administratiewe fooie” is ook aan makelaars betaal.

Terwyl beleggers meer as R2,2 miljard aan Pretorius toevertrou en hy deurentyd “opbrengste” van tussen 14% en 25% per jaar op die beleggings verseker het, het die hele beleggingskema oor al die jare nie meer as R469 000 egte wins gemaak nie.

Daar word nou van Calitz en Impact Finansiële Konsultante (’n beslote korporasie waarin Calitz ’n 80%-aandeel het) verskeie bedrae aan “kommissiegelde” teruggeëis. Dit wissel van R489 000 tot R2,45 miljoen en R3,6 miljoen.

Die aansoek is tot 6 Mei uitgestel.

Lees Artikel in Die Burger

FAIS Supervision Annual Report

5 Dec

Author: Unknown

Publications: InsuranceGateways

Date Published: 05 December 2013

The FAIS Supervision Department of the FSB supervises financial services providers (FSPs) in terms of a risk-based approach. In response to the changing face of the regulatory landscape, international trends and outcomes of previous years’ on-site visits, the department introduced a new Medium to High risk category to define the risk of non-compliance more accurately.
A total of 10 297 FSPs were categorised. Interestingly, the number “only” decreased by 493, but a closer look at the table below shows a marked decline in the number of small FSPs from 6 839 to 3 362 – a loss of 3477, or nearly 51%. The table below reflects the categorisation of FSPs in terms of the new risk-based supervision approach as at 31 March 2013. The categorisation was changed with the introduction of a Medium-High Impact (MHI) category. During the period under review, the emphasis was placed on off-site monitoring of High Impact and MHI FSPs.

2012/2013

2011/2012

High Impact

283

262

Medium-High Impact (MHI)

973

0

Medium Impact

3 411

2 331

Small-Medium Impact (SMI)

2 268

1 358

Small FSPs

3 362

6 839

Total

10 297

10 790

Risk Assessment Visits to FSPs
A total of 643 FSPs received visits. Of these, 490, or 76.2% occurred at the medium to high impact categories.
The report states that the overall compliance of FSPs was satisfactory, and a definite improvement was noticeable during the period under review. The overall understanding of key individuals and representatives with regard to compliance was far better, which can mainly be attributed to the knowledge gained in their preparation for the regulatory examinations. The following issues of concern were noted:

Description

Percentage occurrence %

Sections 4 and 5 of the General Code of Conduct (GCOC): Disclosure of documentation is non-compliant

35.40

License conditions: Business information is not updated within 15 days of change taking place

26.55

Good business practices are not followed

20.06

None-compliance with part VIII of the Determination of Fit and Proper Requirements: FSPs not having a business continuity plan in place

16.81

Sections 11 and 12 of the GCOC: FSPs of which the Risk Management Plan is inadequate

16.22

No register/records kept of training undergone by key individuals and representatives

14.75

Section 7 of the GCOC: Disclosure made to client in terms of the product and services are inadequate

14.16

Non-compliance with part IX of the Determination of Fit and Proper Requirements: FSPs not complying with the financial soundness requirements

14.16

Section 3A of the GCOC: FSPs that have not adopted, maintained and implemented a conflict of interest management policy

9.44

Corporate governance measures are inadequate

8.85

Compliance Practice Visits
During the period under review, the Supervision Department reviewed 33 independent compliance practices. The majority of the compliance practices provided acceptable compliance services to clients.
However, there were some areas that needed improvement, which were identified and addressed with the respective practices. During the review of the risk-based framework, a process of recording of information on compliance practices was developed and is being introduced. It is envisaged that this will enable supervisors to focus proactively on specific concerns relating to external compliance officers.
Specific On-site Visits The Registrar of FSPs ordered an inspection into the affairs of Mr Herman Pretorius, RVAF and Polus Capital (Pty) Ltd. During the inspection, the RVAF scheme collapsed and it was established that 16 authorised FSPs were involved in soliciting clients on behalf of the late Mr Pretorius. On-site visits to probe their participation in assisting clients to place investments in the RVAF and other schemes offered by the late Mr Pretorius were conducted. At the end of the period under review, these investigations were still continuing.
Communication with FSPs
The FAIS Supervision Department implemented a comprehensive communication strategy during the period under review, including newsletters, information circulars, workshops, conferences and telematics broadcasts. Guest speakers at the conference and workshops included speakers from other FSB departments, as well as industry experts.
A joint exercise between FAIS Supervision and FAIS Registration was focused on the funeral industry. A large number of workshops were held to assist this part of the industry to understand the registration (licensing) requirements, as well as the ongoing requirements for maintaining a license. During these workshops, FSPs were specifically assisted to complete compliance reports and financial statements.
Specialisation Areas As part of the Department’s risk-based approach, supervisory staff members are involved in specialisation areas. Seven focus groups, including ones for unconventional FSPs (foreign FSPs, forex investment providers, retailers, motor dealers, estate agents and auditors), banking, medical schemes and compliance officers were tasked with providing guidance in these specific specialisation areas. Research into industry practices and thematic work, as well as focused on-site visits, was conducted. Issues that came to the fore led to the compilation of information circulars on bulk client transfers and the re-signing of client mandates, cash management system accounts, fee disclosure and material irregularity reporting by compliance officers.

Continue reading this article

Pretorius ponzi probe bubbles on

4 Nov

Author: Julius Cobbett

Publications: The Citizen

Date Publiched: 4 November 2013

Brokers who sold the investment products of the late Herman Pretorius were paid commission of “at least” R100m, the most recent letter from the curators of his failed investment scheme, the Relative Value Arbitrage Fund (RVAF), says.

It has been more than a year since Pretorius shot first his former business partner and then himself. The incident confirmed what some had already suspected: Pretorius had been running a massive Ponzi scheme. It has been estimated that the scheme took nearly R2.2bn from 3 000 investors.

The Financial Services Board (FSB) and the Financial Planning Institute (FPI) have launched investigations into brokers who peddled the scheme. But there has been no disciplinary action announced as yet.

Likewise the financial advice ombudsman Noluntu Bam has yet to issue a determination connected with a Herman Pretorius investment.

Earlier this year the RVAF identified Michal Calitz as one of the more prominent brokers. Calitz, who was a close friend of Herman Pretorius, received more than R15m from the scheme. Calitz is still a representative of Impact Financial Consultants CC, which is an FSB-authorised financial service provider and is listed as an FPI member.

The FPI says it is finalising charges against members in relation to the RVAF, but it will pronounce on the matter only once a December disciplinary hearing has been held.

The FPI’s Disciplinary Regulations require publication of the outcomes of disciplinary hearings, but after finalisation only, it says.

The FSB says its own investigation into the Pretorius matter is not finalised; the “FAIS supervision department is still in a process of engaging with the identified financial services providers and other interested parties”.

The RVAF’s curators are trying to trace investor money that was moved by Pretorius to the UK and Switzerland.

Continue reading this article

Herman Pretorius brokers got at least R100m

31 Oct

Author: Julius Cobbett

Publications: MoneyWeb

Date Published: 31 October 2013

Financial Planning Institute says it is finalising charges against members.

JOHANNESBURG – Brokers who sold the investment products of the late Herman Pretorius were paid commission of “at least” R100m. This is according to the most recent letter from the curators of his failed investment scheme, the Relative Value Arbitrage Fund (RVAF). A copy of the letter can be downloaded here.

It has been more than a year since Pretorius shot first his former business partner and then himself. The incident confirmed what some had already suspected: Pretorius had been running a massive Ponzi scheme. It has been estimated that the scheme took roughly R2.2bn from 3000 investors.

Both the Financial Services Board (FSB) and the Financial Planning Institute (FPI) have launched investigations into brokers who peddled the scheme. But there has been no disciplinary action announced as yet. Likewise the financial advice ombudsman Noluntu Bam has yet to issue a determination connected with a Herman Pretorius investment.

Earlier this year the RVAF identified Michal Calitz as one of the more prominent brokers. Calitz, who was a close friend of Herman Pretorius, received more than R15m from the scheme.

Calitz is still a representative of Impact Financial Consultants CC, which is an FSB-authorised financial service provider.

Calitz is also listed on the FPI’s website as a valid member.

The FPI tells Moneyweb that it is finalising charges against members in relation to the RVAF. It says it will only pronounce on the matter once a disciplinary hearing has been held. The hearing is expected to be held in December, the exact date yet to be confirmed.

“In terms of the FPI’s Disciplinary Regulations the outcomes of disciplinary hearings will be published – however, this is done once the matter is finalised and the period for an appeal has expired,” it says.

Similarly the FSB says its own investigation into the Herman Pretorius matter is not finalised yet as the “FAIS supervision department is still in a process of engaging with the identified financial services providers and other interested parties”.

The RVAF’s curators are trying to trace investor money that was moved by Pretorius to the UK and Switzerland. The curators have appointed attorneys in both those countries to assist them trace the funds.

Continue Reading MoneyWeb

Staat het skelm skemas in sy visier

27 Sep

Author: Alet Rademeyer

Publications:  Die Burger

Date Publiched: 27 September 2013

PRETORIA. – “Moenie koebaai sê vir jou geld nie.”

Met dié nasionale veldtog wil die Suid-Afrikaanse Reserwebank 11 miljoen Suid-Afrikaners bereik en bewus maak van onwettige piramide- of ponzi-skemas.

Hlengani Mathebula, hoof van groepstrategie en kommunikasie by die Reserwebank, het gister hier op ’n nuuskonferensie gesê duisende Suid-Afrikaners word slagoffers van onwettige skemas wat hul geld vat en vinnige rykdom belowe.

Mense moet baie versigtiger wees en hul huiswerk behoorlik doen voordat hulle geld in enige skema belê…….

• Die publiek kan verdagte skemas by 0800 313 626 aanmeld en ook hier uitvind of instellings geregistreer is.

Lees Artikel in Die Burger

Ponzi scheme alert: How to know when it really is too good to be true

27 Sep

Author: Dawie de Villiers, CEO, Sanlam Employee Benefits

Publications:  Sanlam

Date Publiched: 27 September 2013

The extended economic downturn and interest rates hovering around the 5 or 6% mark make investment returns all too elusive right now. With many South Africans, in particular retirees, struggling to make ends meet, it is fertile ground for fraudulent investment schemes – known popularly as Ponzi schemes – to flourish.

The SA Reserve Bank recently launched a national campaign to increase awareness of pyramid or Ponzi schemes. The campaign encourages people to be careful when looking at potential investment opportunities.

South Africans seem to repeatedly entrust their hard-earned savings to operations which, at best, have short-term track records and, at worst, knowingly sell promises that they are unable to deliver on. Investors buy into these promises without fully understanding how these operators achieve their alleged returns.

Over the past six years the following schemes – which have had traumatic consequences for unsuspecting investors – come to mind: Fidentia, Leaderguard, Sharemax, King Group, the Herman Pretorius saga, and Defencex. There is a golden thread running through this list; each one promised a return far superior to that of the financial market, at a very low risk. In hindsight, such promises were too good to be true. But why do we continue to move from one such scandal to the next?

Spotting a Ponzi or pyramid scheme is actually relatively easy – here is a checklist ………

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Sharemax director warns against Fais Ombud complaints

24 Sep

Author: Julius Cobbett

Publications: MoneyWeb

Date Published: 24 September 2013

Dominique Haese claims investors might lose their right to investment returns.

JOHANNESBURG – Investors in Nova Group Investments have been cautioned against pursuing complaints with Fais Ombud Noluntu Bam. Investors have been warned that if they pursue their complaints, they may forfeit their rights to investment returns or repayments from the Nova Group

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Telematic Broadcasts Keeping you Updated

21 Aug

Author: Paul Kruger

Publications: Moonstone

Date Published: 20 August 2013

In the aftermath of the Herman Pretorius matter, and the latest warning from the FSB concerning an institution who offers a 25% return per month, it sounds like a good presentation to attend, and to ask some questions. ………

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Brief: Laat ook gierige makelaars opdok

16 Jul

Author:  Lesersbrief

Publications:  Die Burger

Date Publiched: 16 Julie 2013

Ek is reeds 33 jaar ’n onafhanklike makelaar en was ook ’n slagoffer van Herman Pretorius in 1992. Hy het briefhoofde van my maatskappy gebruik om Eskom-effekte mee te handel sonder enige toestemming.

Ek was nie verbaas dat makelaars op ’n handskud miljoene van hul kliënte se geld belê het nie. Die FSB het klagtes ontvang, maar steeds is met Pretorius se skema voortgegaan. My vraag is of die betrokke makelaars nie probeer het om ondersoek in te stel waarvandaan die buitensporige kommissie/winsdeling kom nie! Dié wat gely en baie geld verloor het as gevolg van gierigheid, verdien die pak.

Hoekom word die makelaars nie aangetree om terug te betaal aan beleggers wat hulle geskep het nie?

Makelaar

Bellville

 

Lees Die Burger

Unit trust manager received R15m from Herman Pretorius

20 Jun

Author: Julius Cobbett

Publications: MoneyWeb

Date Published: 20 June 2013

Financial advisers connected to RVAF Ponzi testify in insolvency inquiry.

JOHANNESBURG – An insolvency inquiry has revealed that one-time unit trust manager Michal Calitz received more than R15m from Herman Pretorius.

Calitz was one of Pretorius’s closest friends. A rare public photo of Pretorius shows him posing with his two sons and Calitz on the golf course. Calitz and Pretorius went to the same Bible study group, which met every second Friday.

Calitz referred many investors to Herman Pretorius’s Relative Value Arbitrage Fund (RVAF), which has since been exposed as a Ponzi scheme. It has been estimated ………

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Financial Services Board: we act within our mandate

16 Jun

Author: Dube Tshidi

Publications:Business Day

Date Published:  16 June 2013

THE Financial Services Board accepts that criticism comes with the territory and is to be welcomed. What is of concern is the manner in which this criticism has been levelled against the board in the aftermath of what has been referred to as the “startlingly inappropriate and lenient” sentencing of J Arthur Brown……………

Last year, the case of the late Herman Pretorius cast the spotlight on sophisticated pyramid schemes, with the suggestion that the board should have known what was going on and prevented the loss of investors’ monies. The fact is that although the bulk of financial investment activities in the country fall within the board’s jurisdiction, there are notable exceptions.

In schemes like the one operated by Pretorius, which operated outside of and in secret from the regulator, the board is not mandated to act. The regulator’s role is to continue to educate the public around the dangers of investing in companies ……..

* Dube Tshidi is executive officer of the FSB.

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Insolvency Act, 1936 (Act 24 of 1936)

5 Jun

Section 29 (1)

Every disposition of his property made by a debtor not more than six months before the sequestration of his estate or, if he is deceased and his estate is insolvent, before his death, which has had the effect of preferring one of his creditors above another, may be set aside by the Court if immediately after the making of such disposition the liabilities of the debtor exceeded the value of his assets, unless the person in whose favour the disposition was made proves that the disposition was made in the ordinary course of business and that it was not intended thereby to prefer one creditor above another.

Section 29 (1)

If a debtor made a disposition of his property at a time when his liabilities exceeded his assets, with the intention of preferring one of his creditors above another, and his estate is thereafter sequestrated, the court may set aside the disposition.

Ponzi Schemes – Who To Sue

5 Jun

Author: Unknown

Publications: Symington & de Kok Attorneys

Date Published:

  • Firstly, don’t count on getting anything back from the scheme itself. Your claim is normally against a company in liquidation, and whilst you should certainly investigate the advisability of pursuing your claim, it will be a concurrent claim and likely worthless.
  • Better news is that recent determinations by the FAIS Ombud have paved the way for claims against a range of other individuals and entities involved in producing, promoting and selling such products, whether the products are found to be fraudulent or just “inappropriate”. Financial advisers, their employers, brokers, “FSPs” (Financial Services Providers) – together with directors, compliance officers and “key individuals” of the actual product providers – have all been held liable for investors’ losses, with clear indications that the net may be cast even wider in appropriate cases.

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Bedrieglike beleggings vang jou só

12 Apr

Author: Hanlie Stadler

Publications:  Die Burger

Date Publiched: 12 April 2013

Dis ’n frase wat almal ken: As dit te goed klink om waar te wees, ís dit. En tog verloor duisende mense jaarliks miljarde rande in twyfelagtige en bedrieglike“beleggings”. Hoe keer jy dat jy ’n slagoffer raak?

VERSKILLENDE SOORTE BEDROG Geen swendelaar gaan jou ooit nooi om in sy Ponzi- of piramideskema of ander soort skelmspul te belê nie. Hulle gaan jou intrek met indrukwekkende syfers en woorde wat klink of dit wettige beleggingsinstrumente is.
In die geval van ’n Ponzi-én ’n piramideskema word jou geld egter nooit regtig in ’n werklike onderneming, eiendom of ander beleggingsinstrument belê nie. Die geld wat jy belê, word gebruik om die belegger voor jou se beloofde opbrengs te betaal. Net só word jou “opbrengs”betaal uit die geld wat die volgende belegger belê.

WAT IS DIE ROL VAN ’N FINANSIËLE TUSSENGANGER?
Voordat jy jou geld belê, vra die raad van ’n sogenaamde finansiële tussenganger – hy kan die titel finansiële raadgewer, gesertifiseerde finansiële beplanner (CFP) of makelaar hê. “Ervare raadgewers het al ál die skemas gesien en weet hoe hulle werk,” sê Came.

Uiteraard is daar enkele vrot appels in die bedryf vir finansiële tussengangers. Só was tussengangers by Herman Pretorius se bedrogspul betrokke. Die Fais-ombudsman het pas tussengangers wat beleggers se geld in Sharemax (’n eiendomsindikasie wat in duie gestort het) belê het, skuldig bevind aan ’n verskeidenheid oortredings.

Maar, sê Lubowski, baie min bedrieglike skemas laat hul produkte deur finansiële tussengangers verkoop óf hulle beperk hulle net tot enkele sulke tussengangers, wat dan ook gewoonlik ’n baie nou verhouding het met die“ghoeroe” van die beleggingskema.

Lubowski sê die rol van ’n finansiële beplanner strek baie verder as net die verkoop van versekerings- of beleggingsprodukte. “Hy moet jou éérs help om realisties en voldoende te beplan en dan te kyk na ’n portefeulje produkte. Enige beplanner wat net aan jou produkte wil verkoop voordat ’n behoorlike proses deurloop is, moet vir jou ’n rooi vlag wees.”

Lees Artikel in Die Burger

Makelaars oor Pretorius bekyk

29 Jan

Author: Marelize Barnard

Publications:  Die Burger

Date Publiched: 29 January 2013

KAAPSTAD. – Makelaars wat beleggers oortuig het om hul geld in wyle Herman Pretorius se beleggingskemas te “belê”, gaan deeglik ondersoek word.

Rynette Pieters, een van die kurators van Pretorius se Relative Value Arbitrage Fund Trust (RVAF), het gister bevestig die kurators is besig om die “makelaarskwessie” te ondersoek.

Pieters wou nie in dié stadium meer inligting verskaf nie.

Pierre du Toit van Mostert & Bosman Prokureurs, wat die kurators met hul ondersoek help, het gesê die meeste beleggers het hul absolute vertroue …….

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Investors need to wise up to Ponzi schemes

24 Jan

Author: DAWIE DE VILLIERS

Publications: iOL

Date Published: 24 January 2013

With many South Africans – and retirees, in particular – struggling to make ends meet, they become easy pickings for fraudsters operating get-rich-quick investment scams, also known as Ponzi schemes.

In their search for high returns on investments, South Africans seem to repeatedly entrust their hard-earned savings to operations which, at best, have short-term track records and, at worst, knowingly sell promises that they are unable to deliver on.

Investors buy into these promises without fully understanding how these operators achieve their alleged returns.

Over the past five years, the following schemes – which have had traumatic consequences for unsuspecting investors – come to mind: Fidentia, Leaderguard, Sharemax, King Group, and the Herman Pretorius saga.

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FPI investigates RVAF investment scheme

17 Jan

Author: RISKSA

Publications: RISKSA

Date Published: 17 January 2013

The Financial Planning Institute (FPI) has launched an investigation into possible breaches of its Code of Ethics and Professional Responsibility by members who may have advised clients to invest money in the Relative Value Arbitrage Fund (RVAF) investment scheme.

In July last year, Herman Pretorius, who ran the scheme, fatally shot himself and an associate, Julian Williams, after the Financial Services Board (FSB) announced its investigation of the RVAF. Investors are reported to have lost hundreds  ……….

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Call for new measures to stop scams

13 Jan

Author: Bruce Cameron

Publications: iOL

Date Published: 13 January 2013

The Association for Savings & Investment SA (Asisa) wants all investment products sold in South Africa to be brought under either an expanded Collective Investment Schemes Control Act (Cisca) or the Long Term Insurance Act.

Adopting either approach is the only way that individuals and companies that have malevolent intentions can be forced out of the shadows, Asisa chief executive Leon Campher says.

Asisa’s recommendation follows ……….

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FSB passes the buck on Ponzi scams

25 Nov

Author: Bruce Cameron

Publications: iOL

Date Published: 25 November 2012

The Financial Services Board (FSB) claims it is not the watchdog responsible for protecting you from scam Ponzi and pyramid investment schemes – and it also claims it is mainly the greedy rich who fall prey to scamsters.

The claims were made this week when the FSB was put on the carpet by the parliamentary finance committee against a background of ongoing scams and imploding so-called investment  schemes in which billions of rands have been lost by investors, many of whom are pensioners.

The losses have been in everything from property syndications to unlisted ……….

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Jurisdiction of the FSB

22 Nov

Author:

Publications:  MOONSTONE

Date Publiched: 22 November 2012

Was it coincidence?

I was working on this article on Tuesday, and on Wednesday saw an article in Sake24 entitled: Finansiële waghond ‘aan die slaap’. According to this report, the members of parliament felt that there was a lack of oversight on the part of the FSB as far as pyramid and Ponzi schemes are concerned.

Very often, the hands of the Regulator are tied, because the products that cause the problem do not fall under its jurisdiction. The most notable recent example was the Herman Pretorius saga.

In a media release on 10 August, in response to other, similar allegations in the media, the FSB reacted as follows:

During May 2011 it was brought ……………

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Finansiële waghond ‘aan die slaap’

21 Nov

Author: Jean-Marie de Waal

Publications:  Sake24

Date Publiched: 21 November 2012

Kaapstad. – Die Raad op Finansiële Dienste (RFD) het gister onder skoot gekom weens wat parlementslede beskou as ’n tekort aan oorsig oor piramide- en Ponzi-skemas.

Gerry Anderson, adjunkregistrateur van die RFD, sê egter die kritiek op die RFD is onregverdig. Op grond van die bestaande verdeling van magte in finansiële oorsig glo hy nie die RFD kon kulskemas soos wyle Herman Pretorius se Abante-trust of die Sharemax-eiendomsindikasie-debakel gereguleer het nie.

LP’s het laat blyk hulle glo die RFD was aan die slaap terwyl dié soort skemas wat ….

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‘FSB needs more powers to stop bad behaviour’

18 Nov

Author: Bruce Cameron

Publications: iOL

Date Published: 18 November 2012

…….. Momoniat also wants the FSB to be allowed to make on-site visits to unregulated entities that could be operating unlawfully.

(Recently, the FSB did not take pre-emptive action against asset manager, Herman Pretorius who ran a R1.8-billion Ponzi scheme, which has since collapsed, because the FSB  said it was an unregulated product and did not have the powers to intervene. Pretorius fatally shot himself and an associate, Julian Williams, when the FSB did eventually take action.)

Momoniat says he is particularly concerned about how people such as J Arthur Brown in the Fidentia case and Simon Nash (executive chairman of appliance company Cadac) “abuse the legal system to delay their trials”, and also attempt to discredit the regulators in an effort to reduce the charges against themselves……….

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Dwindling Sole Prop Numbers and Rent a KI

16 Nov

Author:  

Publications:  MOONSTONE

Date Publiched: 16 November 2012

Last week, we commented on the fact that there are only 2 492 sole proprietors in the industry, based on the latest FSB statistics.

One reader, speaking from personal experience, wrote as follows:

It is very possible that there has been a reduction in sole props, AND THERE WILL BE MORE. They have not disappeared, but are simply operating through, or off, the back of other intermediaries. This alleviates a lot of the admin and getting the required guarantees, etc. There are many that have merged their books but still manage their own portfolios.

Unless he requests a comprehensive compliance audit of the new business, he has no real idea of what transpired in the past. Even then, there are dangers, such as business transactions not declared in the audit, as we saw in the recent Herman Pretorius saga ……………

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Regstappe oorweeg oor RVAF-skandaal

29 Oct

Author: ALANI JANEKE

Publications: Landbou.com

Date Published: 29 October 2012

Beleggers wat miljoene ingeboet het weens die RVAF-skandaal oorweeg ’n groepgeding teen die Raad op Finansiële Dienste.

’n Belegger wat sowat R90 miljoen kwyt is weens die beweerde bedrog van wyle mnr. Herman Pretorius se Relatiewe waarde-arbitrasiefonds (RVAF-fonds) sê hy en ’n groep ander beleggers oorweeg ’n groepgeding teen die Raad op Finansiële Dienste (RFD).

Die RFD moes luidens ’n berig in Die Burger sedert Pretorius se skietdood bontstaan aangesien dit onder meer vir die regulering van beleggings aan die publiek verantwoordelik is. Die raad word daarvan beskuldig dat hy nie sy werk deeglik gedoen het nie, maar dit ontken dié aantygings ten sterkste.

Landbou.com het vroeër berig dat sowat 70 beleggers op Donderdag (18 Oktober 2012) in Bellville, Kaapstad ..…

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‘Ek het R89 miljoen verloor…’

26 Oct

Author: Jacques Dommisse

Publications:  Die Burger

Date Publiched: 26 October 2012

KAAPSTAD. – ’n Belegger wat sowat R90 miljoen verloor het as gevolg van die twyfelagtige skemas van wyle Herman Pretorius, het pas gesê hy en ’n groep beleggers oorweeg ’n groepregsgeding teen die Raad op Finansiële Dienste (RFD).

Oor sy verlore miljoene sê Mike le Sueur, ’n sakeman van die Strand wat verskeie van sy sake verkoop het om beleggings op advies van ’n “agent” by Pretorius te doen: “Man, ek is nou moeg van die storie en sit vir eers en wag en kyk wat gebeur.”

Le Sueur meen die netto bedrag wat hy by Pretorius belê het, was waarskynlik rondom R60 miljoen, “maar met die rente word ek sowat R89 miljoen geskuld”.

Dit sluit egter ook ander gesinslede se geld in en “ons familietrust”, het hy gesê.

“Wat kan ek sê? Ek voel blerrie sleg daaroor. Tot ’n mate voel  ………

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Winners and losers in indemnity case

21 Oct

Author: Bruce Cameron

Publications: iOL

Date Published: 21 October 2012

Some good news. Santam, as a provider of professional indemnity (PI) insurance to financial advisers, will no longer be financing advisers who wish to force consumers to take their complaints to the High Court, blocking access to the low-cost, accelerated process provided by the Financial Advisory and Intermediary Services (FAIS) Ombud.

…….. The situation reached a level of absurdity recently when the FSB, in effect, claimed that it could not be blamed for not taking action earlier against the Relative Value Arbitrage Fund – a Ponzi scheme masquerading as a hedge fund in which investors may lose R1.8 billion – because the fund, managed by the late Herman Pretorius, did not fall under the FSB ………

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Wees bedag op kulskemas

16 Oct

Author: Hannes Smuts

Publications: PSG Konsult

Date Published: 16 October 2012

Nog ‘n kulskemabom het onlangs gebars. Die RVAF (“Relative Value Arbitrage Fund”) van wyle Herman Pretorius en sy trawante het in duie gestort. Nog goedgelowige beleggers lek hul wonde; Baie steier onder die terugslag . Uiteindelik het hulle hulleself te blameer. As die koeël reeds deur die kerk is, is dit die moeite werd om weer hierdie holruggeryde onderwerp te takel? Beslis JA en  vir , ten minste , die volgende redes: Alle beleggingsadviseurs, ons inkluis, het ‘n plig teenoor ons professie en, meer belangrik, teenoor ons kliënte en ander beleggers om tot vervelens toe die gevare van dié tipe …

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FSB News

10 Oct

Two recent artiles on the FSB. In the moneyweb artiles the FSB is struggling to pass candidates  for the  Financial Services Board’s (FSB) FAIS regulatory exam.  The deadline has yet again being postponed for a further six months.

Solidarity has asked for a moratorium on all examinations for financial advisers. Their accusation claims that due to poor management from the FSB, only about 68% of  representatives have passed the exam by the beginning of June.

Read the articles:

Financial reps struggling to pass FSB exams

PRETORIA – Financial representatives are struggling to pass the Financial Services Board’s (FSB) FAIS regulatory exam. Two weeks before the deadline for those who have written at least once, but failed (September 30), the FSB has announced that the deadline will be extended by another six months.

The extension comes after the FSB stated on numerous occasions that it will not ……… (Read More)

Union calls for moratorium on FSB regulatory exams

PRETORIA – Trade Union Solidarity has handed a memorandum to the Financial Services Board (FSB) that calls for a moratorium of at least a year on all regulatory examinations for financial advisers.

The first deadline for financial advisers to write the regulatory exams was the end of June, but various ……… (Read More)

Fais Ombud – A Toothless Tiger with no Real Power?

20 Sep

Author Self

Publications: RVAF MEDIA RELEASES

Date Published: 20 September 2012

As the RVAF saga draws on, the role of the FSP and Fais (ombud) is even more unclear than 3 months ago. We heard that Herman Pretorius was or was not registered with the FSB, but would that have helped?

First we saw a declaration from them, washing their hands in innocence:

Herman Pretorius: Clarity on the Financial Services Board’s investigation

FSB explains its probe into Herman Pretorius

and seems that if they do make a ruling, its not enforcable!

Rogue broker ignores Fais Ombud

JOHANNESBURG – A victim of bad financial advice is struggling to enforce a Fais Ombud ruling.

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.

McCarter’s difficulties in enforcing the Ombud’s ruling may be a common theme for other victims of bad advice.

Garek broker unfazed, unrepentant

Ordered to refund three more investors, broker continues to peddle shares.

JOHANNESBURG – In the face of fresh punishment, rogue financial adviser Andre van der Merwe is unfazed and unrepentant.

What’s you’re thoughts?

Boere R2 miljard kwyt in beleggingskema?

11 Sep

Author: JAN BEZUIDENHOUT

Publications: Landbou.com

Date Published: 11 September 2012

Tot R2 miljard is glo deur boere in ’n beleggingskema van wyle mnr. Herman Pretorius verloor.

Wes-Kaapse boere was skynbaar van die groot verloorders in ’n aanloklike beleggingskema waarin sowat R3 miljard soos mis voor die son verdwyn het.

Die belegger aan wie dié boere hul geld toevertrou het, wyle mnr. Herman Pretorius, se werksaamhede word nou ondersoek weens die omvang van beweerde bedrog. Pretorius het op 26 Julie selfmoord gepleeg in die dieselfde kantoor waar ‘n kollega van hom doodgeskiet is.

Die lokmiddel in die skema was rente van tot 25% wat aan beleggers belowe is. Te midde van grootskaalse speurwerk om dié verdwene miljard nou op te spoor, word ontstellende bewerings gemaak dat selfs landbou-produksielenings .…

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Your pension choice a worry for govt

2 Sep

Author: Bruce Cameron

Publications: iOL

Date Published: 2 September 2012

Questions about FSB’s scam control

The Financial Services Board (FSB) could soon find itself being grilled by Parliament for not being more effective in curtailing scams that recur with alarming regularity, with losses of billions of rands of the savings of consumers, including retirement fund members and pensioners, who fall prey to the schemes.

And National Treasury concedes that the FSB is not doing enough to protect you.

The latest scam to hit the headlines was the high-drama collapse of a Ponzi scheme masquerading as a hedge fund, the Relative Value Arbitrage Fund (RVAF).

The scamster, Herman Pretorius, shot his business associate, Julian Williams, during an altercation, before turning the gun on himself following a belated FSB raid more than a year after the scam was first reported to it.

The roughly 3 000 investors in RVAF, most of whom are from the Western Cape, invested about R2 billion in the scheme. Once again, many are pensioners, who now face destitution because their money went into a high-return, extremely high-risk, unregulated “investment”.

Personal Finance asked the FSB to investigate the scheme in May last year, and the FSB merely accepted replies given to it as fact, allowing what amounted to a gigantic Ponzi scheme to continue operating under its nose. (A Ponzi scheme uses the capital of the most recent investors to pay out high returns to earlier investors, who, in turn, spread the word about the “fantastic” returns.)

After the bubble burst, the FSB attempted to justify its laxness by making a claim to the effect that Pretorius was virtually exempt from FSB action because the product he was flogging was not subject to regulatory oversight.

Cope MP Nick Koornhof raised the issue at parliament’s finance committee meeting this week, asking how the FSB will be transformed in line with government’s twin-peak policy where all market conduct of financial institutions will be placed under the control of the FSB.

“How long must we wait for it? There have been so many tragedies since Fidentia. How long must we wait for real action, for the FSB to have all the teeth it needs?” he asked.

Koornhof told Personal Finance that he will raise the issue again next week with the committee and ask for a special meeting to call the FSB to account.

His concerns were echoed by Ismail Momoniat, deputy director-general of the National Treasury, who told the committee he believed the FSB has sufficient legislative teeth. The problem, he said, is how the teeth are used.

He candidly admitted that the FSB should have picked up on some of the attacks on retirement funds and other scams.

However, Momoniat says, ways have to be found of dealing with campaigns to vilify the FSB and others by parties such as Arthur Brown, who faces criminal charges relating to the implosion of Fidentia, and Simon Nash, who is facing criminal charges arising from the alleged illegal removal of pension fund surpluses in the 1990s.

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Gobbledygook makes it easier to pick your pocket

26 Aug

Author: Bruce Cameron

Publications: iOL

Date Published: 26 August 2012

Taking refuge in opaqueness helps the malevolent to succeed in major scams, such as the R1.8-billion apparent Ponzi scheme called the Relative Value Arbitrage Fund (RVAF).

Just as the FSB must up its game in dealing with the excesses of the regulated financial ser-vices industry, so it has to improve its performance dramatically in clamping down on the cheats, such as Herman Pretorius, who controlled RVAF and, from what I have heard, used a silver tongue and much confusing language to bamboozle investors.

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FSB investigates brokers for punting ‘Ponzi’ fund

16 Aug

Author: Unknown

Publications: justmoney.co.za

Date Publiched: 16 August 2012

The Financial Services Board (FSB) has confirmed today that it is investigating financial advisors and brokers that promoted the Relative Value Arbitrage Fund (RVAF) managed by Herman Pretorius and is appealing for people with more information to come forward. A spokesperson said: “I can confirm that we are receiving information from various investors regarding the financial advisers and brokers that recommended the late Mr Pretorius’ investment ………………

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Activities ‘not unlawful’

13 Aug

Author:  Staff Reporter

Publications:iOL

Date Published:  13  August 2012

The business dealings of Herman Pretorius, one of two businessmen who died in a central Cape Town shooting last month, was red-flagged as far back as May last year, the Financial Services Board (FSB) has reported.

Pretorius and Julian Williams, 37, a chief executive of Basileus Capital, were found dead in an office in the Icon building on the Foreshore on July 26. Williams was shot in the neck and stomach. Pretorius had a bullet wound to the head. A 9mm pistol was found at the scene.

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Rules for investing in unregulated products

12 Aug

Author: Ian Hamilton

Publications: iOL

Date Publiched: 12 August 2012


This guest column is written by Ian Hamilton, the founder and chief executive of the IDS Group, a specialist administration company that administers over R60 billion in hedge funds, private equity and unit trust funds. Hamilton warned the Financial Services Board seven years ago about the dangers of the Relative Value Arbitrage Fund.

In 2009, I sounded a warning to pension fund trustees at their annual convention about ……..

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FSB needs to wake up

12 Aug

Author: Bruce Cameron

Publications: iOL

Date Publiched: 12 August 2012

 The Financial Services Board (FSB), despite having extraordinary powers to take action against miscreants in the financial services industry, is increasingly giving the impression of being a sleeping watchdog that allows thieves to slip by under its nose.

At a recent symposium, the FSB huffed and puffed about how it plans to get tougher on offenders, ………

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FSB Press Release – 10 August 2012

10 Aug

HERMAN PRETORIUS: CLARITY ON THE FINANCIAL SERVICES BOARD’S INVESTIGATION

In the wake of the shooting by Mr Herman Pretorius (“Pretorius”) in Cape Town, with indications of massive losses to investors that invested in his schemes, the Financial Services Board (“FSB”) would like to offer some perspectives on the regulator’s actions and investigations which it could legally have done and did do with respect to the business activities of the late Pretorius.

There have been varying concerns expressed and questions raised from the media and the industry, all of which the FSB understands to be ultimately focused on the likely losses to be suffered by investors arising from the activities of Pretorius and culminating in his death. To the extent that the questions have been raised and the concerns have been expressed in the interests of investors, the socio-economic effects of the losses to investors and the public interest, the FSB takes to heart all the concerns that have been expressed and the questions that have been raised. Accordingly, the FSB finds it necessary to actively engage on this issue to, among other things, explain how, in certain circumstances, investment relationships exclude the regulator’s power. It is emphasized that the FSB’s engagement and extent of disclosure in this regard is, as set out above, motivated by the need to do so in the public interest as envisaged in the provisions of Section 22 (1)(b) (iv) of the Financial Services Board Act of 1990 (“the FSB Act”).

As a starting point, the manner in which members of the public may invest their savings may or may not, depending on the nature and structure of a particular investment vehicle, be subject to FSB regulation. For instance, the following types of investment vehicles would

NOT be subject to FSB regulation:

  • A partnership where individuals invest their monies in a partnership and utilise the capital to produce positive returns.
  • An investment club where persons with a commonality of interest pool their monies to make an investment.
  • A company formed for investment purposes in which investors obtain equity.
  • A trust in which beneficiaries’ monies would be pooled, but which would fall outside the ambit of the Collective Investment Schemes Control Act, due to the nature of the underlying investments or because it is a private arrangement between persons involved in a private business arrangement.

Certain investments may also not involve a “financial product” as contemplated by the Financial Advisory and Intermediary Services Act (FAIS Act). Becoming a member of an investment club or a beneficiary of a trust is not an acquisition of a financial product by the investor, even though the monies invested may be used by the investment vehicle to acquire a financial product, for example a share or derivate instrument (the latter being typically the types of products in which hedge funds invest).

Secondly, apart from having to scrutinise the type of investment vehicles which may be utilised to attract investors, it is also necessary to consider the manner in which investors are attracted. 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. Whilst product suppliers may be required to be authorised under the FAIS Act when giving advice relating to their products, the selling of such products by a product supplier directly to the public may not amount to an intermediary service, such as a company doing a private placement of equity.

It is against the above background that the activities of Mr Pretorius and the capacity of the regulator to intervene as well as the level of intervention from the regulator should be considered.

During May 2011 it was brought to the attention of the FSB that Pretorius was “selling shares in unlisted companies” and “promoting these ventures” by making representations to the community.

As the selling of unlisted shares may constitute a financial service as contemplated by the FAIS Act, the FSB followed up on the information which it subsequently received in order to establish whether or not Pretorius was acting in contravention of the FAIS Act, given also the fact that he was not licensed in terms of the FAIS Act.

Based on the information supplied in response at the time the FSB was satisfied that:

  • The private equity or venture capital projects embarked upon or supported by Mr Pretorius did not constitute an activity which was subject to FSB regulation.
  • Pretorius’s activities did not require a FAIS licence at the time.
  • The manner in which Pretorius indicated that capital would be raised from investors and the investment vehicle used for the raising of such capital also did not point towards any activity which was subject to FSB regulation or otherwise unlawful, because:
    • Pretorius was acting as the principal (product supplier) and not as an intermediary when interacting with potential investors.
    • The investment vehicle as envisaged at the time, was a company. The FSB does not regulate the offering of shares in a company to the public. When such shares are offered, the company acts as a product supplier and must comply with the Companies Act.
  • The explanations provided to the FSB concerning the nature of the trusts as investment vehicles were such that it could not be established with certainty that their activities were subject to FSB regulation. Some of the ventures were designed for individuals who could properly be considered to be involved in a private domestic affair.

Following further complaints received by the FSB in May/June 2012 against Mr Pretorius it was decided that a formal inspection should be conducted on his affairs of Pretorius and the various investment vehicles utilised in order to establish whether or not the activities of the investment vehicles were subject to FSB regulation. The inspection was underway at the time when Pretorius allegedly committed suicide.

Questions have been raised about the speed at which the FSB reacted to these allegations and complaints, with some suggesting that the regulator should have acted sooner. There are media reports indicating that concerns were raised with the FSB more than 8 years ago regarding Pretorius’ involvement in hedge funds. In this regard, the FSB wishes to clarify that at that time that these concerns were raised the regulator could not establish any evidence of Pretorius’ activities in hedge funds or any irregularities with regard to the issues that were raised at the time. Further, the FSB wishes to categorically state that, as detailed above, appropriate action was taken from the time that the allegations first surfaced, and that the investigation into this matter is on-going.

Concerns have also been raised about how the FSB “allowed what amounts to a gigantic Ponzi scheme to continue under its nose.” Once again, it must be remembered that schemes that are operated outside of and actively in secret from the regulator cannot be said to be operating under the regulator’s nose. Accordingly, to the extent that there was a Ponzi scheme in Pretorius’ activities, such a scheme would have been operated in strict secrecy from the FSB.

The FSB is of the view that if there was any non-compliance by Pretorius, it was well-designed not to be subject to regulatory scrutiny. 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.

It has in the meantime come to the FSB’s attention that the RVAF Trust was placed under provisional sequestration on 2 August 2012 by the Western Cape High Court. The Regulator supports this action and encourages investors to take the necessary legal action to attempt to recover their monies, especially to the extent that the investments were made via schemes falling outside of the regulatory net. As the investigation into this matter unfolds the FSB will, in so far as matters fall under its jurisdiction and mandate, urgently take appropriate action.

-ENDS-

Release: Immediate

Enquiries: Ms Tembisa Marele

FSB: Communications Specialist

Email address: Tembisa.Marele@fsb.co.zaq

Telephone: 012 428 8025

083 754 2052

Pretoria 10 August 2012

FSB explains its probe into Herman Pretorius

10 Aug

Author:  FSB

Publications: MoneyWeb

Date Publiched: 10 August 2012

If there was any non-compliance by Pretorius, it was well-designed not to be subject to scrutiny – FSB.

In the wake of the shooting by Mr Herman Pretorius (“Pretorius”) in Cape Town, with indications of massive losses to investors that invested in his schemes, the Financial Services Board (“FSB”) would like to offer some perspectives on the regulator’s actions and investigations which it could legally have done and did do with respect to the business activities of the late Pretorius.

There have been varying concerns expressed and  ……….

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Herman Pretorius: Clarity on the Financial Services Board’s investigation

10 Aug

Author Unknown

Publications: Consumer Gateways

Date Published: 10 August 2012

In the wake of the shooting by Mr Herman Pretorius (“Pretorius”) in Cape Town, with indications of massive losses to investors that invested in his schemes, the Financial Services Board (“FSB”) would like to offer some perspectives on the regulator’s actions and investigations which it could legally have done and did do with respect to the business activities of the late Pretorius.

There have been varying concerns expressed and questions raised from the media and the industry, all of which the FSB understands to be ultimately focused on the likely losses to be suffered by investors arising from the activities of Pretorius and culminating in his death. To the extent that the questions have been raised and the concerns have been expressed in the interests of investors, the socio-economic effects of the losses to investors and the public interest, the FSB takes to heart all the concerns that have been expressed and …….

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Details Emerge About HF Manager’s Murder-Suicid

9 Aug

Author: Jing Chen

Publications:   eVestment

Date Publiched: 09 August 2012

What prompted a South African hedge fund manager to shoot his former business partner to death before turning the gun on himself?
Forbes reported that Herman Pretorius killed Julian Williams on July 26 after Pretorius was visited by South African regulators at his office regarding his Relative Value Arbitrage Fund. His hedge fund had been under scrutiny by South Africa’s Financial Services Board for a few months following an article in a South African publication questioning the fund’s ………

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Murder-Suicide at Center of Potential $245 Million South African Ponzi Scheme

8 Aug

Author:  Jordan Maglich,

Publications: Forbes

Date Published: 08 August 2012

A South African fund manager is dead, along with a former business partner, in an apparent murder-suicide after questions mounted over the legitimacy of his hedge fund and South African financial regulators opened an investigation. After a visit by South Africa’s Financial Services Board (“FSB”) regarding his Relative Value Arbitrage Fund (“RVAF”), Herman Pretorious allegedly then shot and killed Julian Williams at Williams’ private equity firm, Basileus Capital, in Cape Town, South Africa.  Many ominous details about RVAF have since emerged, with authorities suspecting that Pretorious may have operated a massive Ponzi scheme with investor losses approaching up to $250 million.

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A Private Equity CEO Was Shot Dead In His Office

27 Jul

Julia La Roche

Author:  Julia La Roche

Publications: Clusterstock

Date Published: 27  July  2012

The CEO of private equity firm was allegedly shot dead by a former business partner who then killed himself, MoneyWeb’s Julius Cobbett reports.

The CEO was Julian Williams, 37, the chief executive and co-founder of Basileus Capital.

He was allegedly shot by  Herman Pretorius, a former business partner at hedge fund Abante Statistical Arbitrage.

MoneyWeb points out that the pair had a big dispute earlier this month over the payment of dividends for a company called SA Superalloys.

Here’s Williams’ bio from Basileus:

Julian Williams graduated with a Masters in Commerce from the University of Cape Town. He successfully completed his board examination and following the completion of his training contract with PriceWaterhouseCoopers Inc, he obtained his CA (SA) professional membership from the South African Institute of Chartered Accountants.

In Business:

In 2001 he was responsible for launching Penryth (Proprietary) Limited, a specialist securities lending business in South Africa. This led him to move across and establish an investment Group of companies which comprised: a Financial Services Board registered investment manager; and a private equity company and related companies.

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Former hedge fund boss in dividend dispute

5 Jul

Author:  Julius Cobbett

Publications: MoneyWeb

Date Published: 05 July 2012

Argument over unlisted pref shares failing to pay their 15% coupon.

A war of words has erupted over the failure of unlisted public company SA Superalloys to pay dividends on its preference shares. The shares were sold to various investors by Herman Pretorius, who recently featured on Moneyweb for his unorthodox investment vehicle, the Relative Value Arbitrage Fund (RVAF).

In the article, Moneyweb noted that the RVAF had reported consistent returns of about 20% a year for the past five years, but that there is no obvious way to verify this performance. The RVAF does not appear to have an auditor or third party administrator, and Pretorius is not licenced with the FSB.

Many of the RVAF’s investors also hold preference shares in SA Superalloys. There are about 500 preference shareholders, mostly from Cape-based farming communities, who have invested roughly R140m into SA Superalloys.

Moneyweb can reveal that Herman Pretorius has personally lent about R40m to SA Superalloys so that it could afford to pay generous dividends to its preference shareholders.

However, the dividends ran dry this year, which has sparked some unhappiness among investors.

The SA Superalloys shares were sold by Pretorius and brokers affiliated to him as far back as 2006.

SA Superalloys is a 55% shareholder in Avalloy, a Pelindaba-based manufacturer of special alloys for, among others, the aerospace and power turbine industries.

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Former hedge fund boss’s returns questioned

14 Jun

Author:  Julius Cobbett

Publications: MoneyWeb

Date Published: 14 June 2012

Update: *responses from Momentum and the JSE MAP.

JOHANNESBURG – On the face of it, former hedge fund boss Herman Pretorius and his company, Abante, have delivered excellent returns for his investors – in the region of 20% a year for the past five years. This would rank him among the top money managers in the country.

Pretorius has an unknown number of relatively wealthy private investors. Those known to Moneyweb are typically from small farming towns such as Moorreesburg, Porterville, Hopefield, Malmesbury, Durbanville, Riversdale and Sasolburg.

But two financial advisers – whose clients have money invested with Pretorius – have asked whether his returns can be verified.

One financial adviser wrote to Moneyweb: “There are a number of red flags that go up for me with regards to Abante but nobody (as far as I know) has really scratched around.”

One of the biggest concerns for this adviser was the consistency of the investment performance. “Their performance is just too consistent. I am not aware of a single negative quarter for this fund. They seem to average anything from 20-30% per annum every year. Even through the global financial crisis.”

The investment, called Relative Value Arbitrage Fund (RVAF), also does not have the type of safeguards that apply to most hedge funds.

Pretorius is not licensed with the FSB and claims he is not required to do so. What’s more, the statements issued to investors are basic in the extreme. An example  …..

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