Tag Archives: iOL

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.

Adviser who put clients in RVAF must repay R1.6m

4 Apr

Author: Angelique Arde

Publications: iOL

Date Published: 4 April 2015

The financial advice ombud has handed down five scathing rulings against financial adviser Andrea Moolman of Vaidro Investments in Wilro Park, Roodepoort, for advising her clients to invest in the Relative Value Arbitrage Fund (RVAF), which is in liquidation following the suicide of Herman Pretorius, the architect of the scheme. 

Although it was promoted as a hedge fund, the RVAF was a Ponzi scheme, according to the ombud. The fund reportedly owes more than R2 billion to about 3 000 investors, and the trustees of the fund have said that most, if not all, investors’ funds have been lost. 

In the first of five rulings handed down last month against Moolman, the Ombud for Financial Services Providers, Noluntu Bam, said her office had received a number of complaints from the adviser’s clients who were invested in the RVAF.

he key issues in all complaints were identical, and the essence of Moolman’s response was to renounce liability for any breaches of the Financial Advisory and Intermediary Services (FAIS) Act, the ruling states. Additionally, Moolman claimed she had carried out a due diligence on the RVAF and that her actions were in the best interests of her clients. 

All the investors who have lodged complaints against Moolman say she advised them that, not only had the RVAF won a top award in 2008, but it was part of a financial services provider (FSP) known as Abante Capital, which had been in existence for years. 

“In reality, Abante Capital was a separate legal entity and was licensed as an FSP by the Financial Services Board (FSB), while RVAF was not,” Bam says. 

There was no mention of Abante or its licence number in the contractual documents between clients and the RVAF, and client funds were transferred directly into the fund without the protection of a nominee account, the ombud says. “Furthermore, there were no financials or even so much as a fund [fact] sheet.” 

Without these, Moolman could not have understood the economic activity that generated the returns, she says. 

When, in November 2011, the first complainant heard a warning about RVAF and its lack of transparency, he took this up with Moolman. She reassured him that the fund had weathered the recession and sent him a survey of South African hedge funds. 

Bam says the survey is pertinent because it was sent to substantiate her advice, yet the RVAF was “conspicuously absent” from the survey. Moolman’s action placated her client but “provides evidence that the RVAF did not exist as a hedge fund”, Bam says. When asked to explain the glaring absence of the fund among the funds listed, Moolman’s response showed that she relied on the supposition that Abante was the fund manager. 

Bam’s rulings against Moolman refer to her determination Inch vs Calitz, which unpacks all the issues on the rendering of advice to invest in the RVAF. These relate to the adviser’s failure to understand the RVAF and the risks to which clients were exposed. 

The Inch ruling was the first of 16 rulings by Bam against financial adviser Michal Calitz, who has the Certified Financial Planner accreditation and who is a member of the Financial Planning Institute. Calitz received R8.4 million in share profits from the RVAF. 

In terms of the FAIS Act, a financial adviser must recommend products that suit your needs and your investment objectives, and the risk inherent in the product must suit your risk profile. Your adviser is also obliged to ensure that the investment that he or she recommends is legitimate, and that the person offering the investment, or acting as an FSP, is licensed. Pretorius wasn’t licensed as an FSP. 

In the five rulings, Bam has ordered Moolman to pay back more than R1.6 million to the complainants. 

Under new regulations passed last month, hedge funds will be regulated by the FSB. They must, by March next year, be regulated as collective investment schemes, offering you, the consumer, a great deal more protection. 

Although they were not regulated at the time of Moolman’s advice, any advice rendered in respect of a hedge fund was subject to the FAIS code of conduct and a notice issued by the FSB. 

In terms of this code, a hedge fund service provider must obtain a signed mandate from a client before rendering any intermediary service to the client, and the mandate must be approved by the regulator. An additional signed mandate, confirming the contents of the first, is also required. 

Bam’s ruling states: “The legislature has made every effort to require not only that a client be appropriately appraised as to the risks inherent in, and the processes and strategies followed by, a hedge fund, but that the client confirms such disclosure having taken place.” 

Bam says Moolman was out of her depth in advising on the RVAF and failed in her duties to her clients. 

“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,” she says.

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.

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.

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.

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.

‘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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Hermanus ‘Ponzi property’ goes for R16.5m at auction

15 Apr

Author:

The courtyard of the Hermanus property.

The courtyard of the Hermanus property.

Publications: iOL

Date Published: 15 April 2013

A motley group of high-rollers and curious onlookers gathered yesterday to watch – and bid – as the luxurious Hermanus holiday home of a man suspected of running a huge Ponzi scheme was auctioned off as part of efforts to recoup a fraction of the money owed to investors.

ClareMart Auction Group’s executive director, Andrew Koch, egged on prospective buyers before the liquidation auction for the seaside holiday mansion belonging to the late Herman Pretorius.

The Cape Town businessman shot dead his former business partner, Julian Williams, and then turned the gun on himself in a Foreshore office block in July last year, after which his billion-rand business empire came tumbling down.

The Cape High Court had recently found that evidence …..

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FPI probes advisers’ role in Ponzi scheme

24 Feb

Author: Laura du Preez

Publications: iOL

Date Published: 24 February 2013

The Financial Planning Institute (FPI), the body for professional financial planners, is investigating whether any of its members breached the organisation’s code of ethics in advising their clients to invest in the Relative Value Arbitrage Fund (RVAF).

RVAF was found to be a massive Ponzi scheme owing some 3 000 investors R3.1 billion and was placed in liquidation after its founder, Herman Pretorius, shot his business partner, Julian Williams, and then himself in July last year.

Prem Govender, chairperson of the FPI, says the FPI encourages you to use a professional financial planner who belongs to the FPI. The organisation therefore …..

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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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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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‘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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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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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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BK One to take part in Basileus Capital rescue

29 Aug

Author: Donwald Pressly

Publications: iOL

Date Published: 29 August 2012

BK One is poised to acquire a majority stake in various Basileus Capital businesses including a cash management services firm, prospecting rights, oil and agri-technology operations.

In an announcement yesterday, BK One announced its proposed acquisition of Basileus Capital’s interests “in select assets and renewal of a cautionary announcement”. This follows an announcement two weeks ago by Basileus Capital that it had initiated business rescue proceedings, following the killing of chief executive and co-founder Julian Williams allegedly by his former business partner Herman Pretorius on July 26. Pretorius turned the gun on himself afterwards.

Moneyweb reported that Basileus Capital was seeking to have its assets listed on the JSE through BK One. Private equity provider BK One’s preference shares are listed on the JSE but its ordinary shares are not. It is not clear whether the proposed transaction would be funded with ordinary shares or preference shares.

In terms of the rescue process, a majority of the affected creditors must approve the rescue plans.

BK One was launched by Basileus Capital and Kwanda Capital Investments. It raised R200 million in an initial public offering on the JSE after offering 20 million preference shares at R10 a share in December last year.

Three weeks after its chief executive’s death, Basileus Capital, which employs about 50 people, announced on its website that following “the tragic loss of Julian Williams… the board… has initiated business rescue proceedings”. “This measure was taken in order to protect all existing stakeholders, in particular the group’s current creditors, investors and staff.”

BK One reported yesterday that it would acquire “the target assets” from Basileus Capital subject to a number of conditions and the purchase consideration “will equal 90 percent of the value of the target assets”, as determined by the business rescue practitioners and confirmed by an independent valuer appointed by BK One.

There are seven target assets, three of which BK One already has an interest in.

n BK One currently has a 7.7 percent interest in Pure Ocean Aquaculture, a fish-farming firm. It seeks a further 86.3 percent interest, which is held by Basileus.

n Basileus Capital intends disposing of its 76 percent interest in physical cash management services firm Cash Connect to BK One.

n BK One seeks to acquire Basileus Capital’s 77 percent interest in Kawuleza Connect, which offers internet access services to customers throughout South Africa.

n BK One seeks to acquire Basileus Capital’s 98 percent interest in Lefatse Minerals, which is involved in the exploration and development of heavy minerals. It has prospecting rights over a deposit on the West Coast.

n BK One seeks to acquire Basileus Capital’s 94 percent interest in Burgan Oil Services, which is looking to develop fuel infrastructure facilities.

n BK One seeks Basileus Capital’s 100 percent interest in Tor Oil Infrastructure Construction, a new oil infrastructure development specialist.

n BK One will acquire Basileus Capital’s 82 percent interest in Agri-Technologies and Services, which provides technology solutions to the agricultural sector.

BK One noted that depending on the settlement mechanisms of the proposed acquisition – BK One ordinary or preference shares – the company “may be required to restructure its share capital”. This would require shareholder and JSE approval.

BK One executive director Dean Richards could not be drawn on a transaction price, but this would be determined by business rescue practitioner Alan Rennier of Ren Trust and independent valuers.

It is understood that existing Basileus staff will be absorbed and new staff will also be appointed.

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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Dead scammer’s trusts sequestrated

25 Aug

Author FATIMA SCHROEDER

Publications: iOL

Date Published: 25 August 2012

Cape Town – Two trusts linked to businessman Herman Pretorius, who shot dead his former business partner, Julian Williams, and then turned the gun on himself at a Foreshore office block on July 26, were provisionally sequestrated after two separate applications in the Western Cape High Court this week.

The applications come just more than three weeks after Pretorius’s Relative Value Arbitrage Fund (RVAF) was sequestered …..

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Hawks to probe trust owing as much as R1.8bn

14 Aug

Author: Unknown

Publications: iOL

Date Publiched: 14 August 2012

The Directorate for Priority Crime Investigation (Hawks) will probe a Cape Town trust that may owe investors up to R1.8 billion, according to court documents. The RVAF Trust was run by Herman Pretorius, who police believe shot himself dead after gunning down former business partner Julian Williams in July. “A criminal inquiry will be opened after documentary evidence and/or affidavits from the liquidator and/or investors have been received,” police spokesman Captain Dennis Adriao …………..

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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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FSB statement greeted with shock

12 Aug

Author: Donwald Pressly

Publications: iOL

Date Publiched: 12 August 2012

The Financial Service Board’s statement at the weekend that certain financial transactions fell outside of its mandate – such as in the case of late unlicensed broker Herman Pretorius – has been greeted with shock by the Cape Chamber of   Commerce and Industry.

“They are looking to absolve themselves,” said chamber president Michael Bagraim, …………………………..

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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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Murder as friends fall out

5 Aug

Paramedics remove one of the men involved in the shooting incident that occurred at Basileus Capital at the Icon Building in Cape Town. Photo: Leon Lestrade

Author: Donwald Pressly

Publications: iOL

Date Publiched: 5 August 2012

Paramedics remove one of the men involved in the shooting incident that occurred at Basileus Capital at the IconBuilding in Cape Town. Photo: Leon Lestrade.

Beware of elegant men wearing patent leather shoes trying to sell you investments that are too good to be true is the warning from the …………

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Fall-out from ‘hedge fund’ shooting

5 Aug

Author:  Bruce Cameron

Publications: iOL

Date Published: 05 August 2012

The shock waves from the shooting and suicide involving two dodgy asset managers in Cape Town last week are reverberating widely, with indications that investors in a “hedge fund” could face losses of almost R2 billion.

The high drama surrounding the Relative Value Arbitrage Fund (RVAF) started when the person who ran the fund, Herman Pretorius, was visited by inspectors from the Financial Services Board (FSB), whereupon he went to see his business associate, Julian Williams. During an altercation, Pretorius apparently shot Williams twice before turning the gun on himself.

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Investors hit by R1.8bn scam

4 Aug

Author:  BIANCA CAPAZORIO

Publications:iOL

Date Published:  04  August 2012

Cape Town – A new R1.8 billion financial scandal, to rival the Fidentia scam of 2007 and the collapse of Masterbond in 1992, has been blown wide open following the shooting of two businessmen who died in a Foreshore office block last Thursday.

The scandal centres on the financial dealings of Herman Pretorius, who shot dead his former business partner Julius Williams, then turned the gun on himself. The details began emerging when attorney and ………….

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Hunt for R1.8bn invested with financier

3 Aug

Author:  Staff Reporter

Publications:iOL

Date Published:  03  August 2012

The master of the Western Cape High Court is expected to appoint a curator to track down R1.8 billion owed to investors by a trust fund set up by Herman Pretorius.

Earlier this week a judge ruled that a curator should take over Pretorius’s Relative Value Arbitage Fund.

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Mystery over gun in office shooting

30 Jul

Author:  STAFF REPORTER

Publications: iOL

Date Published: 30 July 2012

Police ballistics experts are examining the 9mm pistol found in the city office where two businessmen were shot and killed last week.

Julian Williams, 37, was found on the third floor of the Icon building on the Foreshore at about 5pm on Thursday after staff reported hearing shots coming from the boardroom.

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Equity group CEO shot dead – report

27 Jul

Author: SAPA

Publications: iOL

Date Published: 27 July 2012

The chief executive of private-equity group Basileus Capital was shot dead in his Cape Town office, it was reported on Friday.

Moneyweb online reported that Julian Williams was shot in his …….

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Business meeting turns deadly

27 Jul

Author: Natasha Prince

Publications: iOL

Date Published: 27 July 2012

Two men were shot dead after a business meeting in an upmarket building in Cape Town’s city centre went sour, say police.

Police are now investigating the circumstances of the shooting in the Icon building on the Foreshore, during which a 37-year-old and another was killed.

On Thursday afternoon, police responded to the shooting in the third floor offices of Basileus Capital in the Icon building. They cordoned off the third floor for a few hours and ………

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