Tag Archives: Ombud

RVAF adviser faces R3.5m repayments

13 Aug

Author: Roy Cokayne

Publications: iOL

Date Published: 14 August 2014

THE OMBUD for financial services providers has issued a seventh order against financial adviser Michal Johannes Calitz along with his consultancy, increasing to more than R3.5 million the total amount to date that they have been ordered to repay to investors for giving advice to invest in the Relative Value Arbitrage Fund (RVAF).

In her latest determination, the ombud, Noluntu Bam, ordered Calitz and/or Impact Financial Consultants to repay Johannes Matthys Coetzee R500 000.

Bam previously ordered Calitz and/or Impact Financial Consultants to repay Loredana Hansen from Durbanville, Cape Town R630 000; Garvitte Lombard of Ferndale, Johannesburg R700 000; Dr Craig Stewart Inch of Mpumalanga R500 000; Martha Jooste R165 000; Dr Johannes Hartshorne from Cape Town R460 000; and Robert Whitfield-Jones R600 000.

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.

Coetzee said he was introduced to Calitz by a friend in 2007 and Calitz had invested his pension fund monies in unit trusts and a money market fund in February 2008.

He said Calitz had advised him a year later to disinvest R500 000 and place it into the RVAF Trust when Coetzee visited Calitz to discuss the performance of his unit trusts and money market fund.

Coetzee said he had relied exclusively on the advice and recommendation of Calitz when making this investment, stressing that he had no prior knowledge of the RVAF and neither the risks nor the product were explained to him.

He contacted Calitz on July 12, 2012 because of negative publicity surrounding the fund but was assured by Calitz that there were no risks and that there was no need for him to retrieve his investment.

Coetzee added that he had e-mailed Calitz on July 20, 2012 with an urgent request for the financial adviser to provide him with written feedback on the allegations against the RVAF and advice on the continuation of the investment but did not receive a response.

He said that Calitz did not properly apply his mind when advising him to switch a substantial amount of his investment to RVAF and as a professional adviser should have properly investigated and assured himself of the credibility of the fund.

Coetzee stressed that Pretorius was taking in millions of rand in investments but was not registered with the Financial Services Board, the RVAF never produced any financial statements, was not audited and did not have any third party verification of returns.

Calitz claimed he discussed alternative investments, such as hedge funds, and the workings of a hedge fund with Coetzee in 2008, regular statements were sent to Coetzee, there was no reason to believe the investment was not above board, and the option to invest in hedge funds was not in contradiction with Coetzee’s risk profile.

Bam in her determination referred to a previous determination, which dealt with key issues pertaining to the rendering of advice to invest in 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.

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.