Failed fund claims hit R12.3m

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.

RVAF adviser ordered to repay R4.25m to clients

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.

RVAF adviser faces R3.5m repayments

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.

Investor obtains order for R500 000 refund in RVAF scam

Author: Roy Cokayne          

Publications: iOL

Date Published: 1 Jul 2014

Investor obtains order for R500 000 refund in RVAF scam

An investor in the Relative Value Arbitrage Fund (RVAF), which is in liquidation and whose manager and trustee Herman Pretorius committed suicide in July last year, has successfully obtained an order for the refund of R500 000 invested on the advice of his financial adviser.

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.