Tag Archives: hedge fund

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.

‘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.

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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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“I am deeply sorry” – Herman Pretorius broker

4 Sep

Author: Julius Cobbett

Publications: MoneyWeb

Date Published: 04 September 2012

Death threat and a summons for New Zealand-based, FSB-registered financial adviser.

JOHANNESBURG – In May last year, financial adviser Simon Morton got a new client. She was 61 years old. The client, Betty*, asked Morton to set up an investment portfolio for her retirement.

Morton’s advice was for Betty’s husband to withdraw funds of R1 150 000 from Stanlib. Morton recommended that half this money be placed in an unorthodox “hedge fund”. The other half was to be split between an unlisted company called SA Superalloys, a junior platinum company called Wesizwe, and a “new fund” called Abante Holdings.

Needless to say, this was bad advice. All of the above ………

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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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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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Abante 20% growth

14 Jun

Authorcristacesae

Publications: Portfolio Pitfalls

Date Published: 14 April 2012

Pretorius

Previous hedge fund employer Herman Pretorius and the organization, Abante, have concluded excellent results with regard to their traders — in the region of 20% since 2007. This could position him or her among the top cash managers in the United States as of 2013.

Pretorius has an unknown number of relatively rich private investors. Those known to SSL Trading are typically from smaller sized towns without special expertise in financial.

But 2 financial advisors – whose clients have cash spent with Pretorius – possess asked regardless of whether their returns …..

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