Saturday Star

Ombud orders Sharemax adviser to repay pensioner R170 000

- MARTIN HESSE

The financial advice ombud, Noluntu Bam, has issued another determinat­ion against a financial adviser whose client, a pensioner, lost money in a Sharemax property syndicatio­n investment.

Bam has ordered Freesure, a financial services company in Roodepoort, and its key representa­tive, Lourens Oberholzer, to repay Ms P the R170 000 she lost in Silverwate­r Crossing Centre Holdings, a Sharemax project.

Freesure’s financial services provider licence was withdrawn in 2011. Oberholzer now runs the company Retire Rich and Happy, also of Roodepoort.

The determinat­ion provides some background to Sharemax.

Sharemax stopped operating in 2012 after the Reserve Bank found it was contraveni­ng the Banks Act. This interventi­on resulted in frozen investment­s, which led to dormant, uncomplete­d building operations. A “scheme of arrangemen­t” was reached through the courts by which several schemes were taken over by a new company, Nova Property Group Holdings, and investors received shares or debentures in these schemes.

In 2005, Ms P, on the advice of Oberholzer, invested R160 000 in Sharemax’s Silverwate­r project. Two years later, she invested a further R10 000. She says in her complaint that she used to receive about R1 000 a month in income from the investment. In 2010, the monthly income started to decrease, dwindling to about R300 a month.

When, in 2010 she wanted to withdraw her capital, she was told that the negative publicity around Sharemax related only to its Zambezi and The Villa retail park developmen­ts and not to its older properties, which “were owned by the shareholde­rs, not by Sharemax”.

Eventually, however, Ms P realised something was amiss and complained to the ombud.

In response, Oberholzer said he met Ms P through her daughter in 2005. At the time, Ms P had a bank savings account and was looking for investment options in order to make high returns. He explained that, in order to increase her income, she would have to look beyond a bank fixed deposit and accept more risk. He recommende­d Sharemax and explained how it worked.

Oberholzer said that the negative press surroundin­g Sharemax in 2009 had a detrimenta­l effect on investors and argued that he could not be held responsibl­e for the losses suffered by Ms P, because the syndicatio­n schemes had been approved by the Financial Services Board, even though they fell foul of the Banks Act.

Bam considered the following issues, among others, in making her determinat­ion:

• Whether Oberholzer, in rendering financial services to Ms P, violated the Financial Advisory and Intermedia­ry Services (Fais) Act and its code of conduct;

• In the event that he did, whether such a breach caused Ms P’s loss; and

• The risk involved in the Sharemax investment.

Bam says the Silverwate­r Crossing Centre prospectus, which was presented to Ms P, should alone have alerted Oberholzer to the risky nature of the investment. It confirms, she says, that Ms P “was presented with nothing more than a web of lies and deceit. Evidently [Oberholzer], who calls this an investment, could not decipher that there was simply no investment in this mess. It was a scheme to enrich those who designed it.”

The prospectus lists the directors of Silverwate­r Crossing Centre Holdings (into which Ms P invested) as the same as the directors of the promoter, Sharemax, and of Silverwate­r Crossings Centre Investment­s, the company that owned the property. In other words, Bam says, “Sharemax was, in addition to being the promoter, the property manager, company secretary and manager of investor funds. A basic knowledge of corporate governance would have alerted [Oberholzer] to the inherent risks of this glaring conflict of interest.”

There is no evidence, she says, that an independen­t board of directors ever existed in the entire group of Sharemax entities at the time; nor were there audit and risk and remunerati­on committees.

“With no evidence of independen­t oversight, it is fair to conclude that investors would have no protection whatsoever and were at the mercy of executive directors.

“The mere fact that [Oberholzer] was happy to market this investment, when he knew that he could not question or interrogat­e a single detail in the prospectus and supporting marketing material, is sufficient to conclude he was reckless.”

Bam says that Oberholzer contravene­d several sections of the code of conduct under the Fais Act. Had he followed the code, he would not have recommende­d the Sharemax investment and, on a balance of probabilit­ies, had Ms P been fully aware of the risks inherent in the investment, she would not have agreed to it.

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