Redress for more investors who lost money in property syndications

THE OMBUD for Financial Services Providers, Noluntu Bam, has issued three more determinations against financial advisers who, almost a decade ago, persuaded their clients to invest their money in property syndication schemes, which subsequently collapsed.

The ombud is dealing with a backlog of complaints, mainly from pensioners who lost their retirement savings in these highrisk ventures.

1. Stephanus van der Walt/Huis van Oranje Financial Services.

Mrs P, both in her personal capacity and as executrix of the estate of her mother, Mrs R, filed complaints against Van der Walt and his company arising from two failed investments into Grey Haven Riches 11, a property syndication scheme promoted by Purple Rain Properties 15, trading as Realcor Cape.

Mrs R and Mrs P invested R1 050 000 and R120 000, respectively, in Realcor in September 2009. Mrs R, 88 years of age at the time, had already retired, while Mrs P was 55 and still working.

The investment was in Realcor’s Blaauwberg Strand Hotel. According to the complaint, Van der Walt told the two women that the investment was guaranteed, and they could withdraw their capital after a year. The monthly income payable to Mrs P was R1 200 and to Mrs R R10 300.

At the end of September 2010, the income dried up. Attempts to obtain an explanation from Van der Walt proved futile. At this point, Mrs R’s health deteriorated.

Mrs P took early retirement to look after her ailing mother, who died in June last year.

The gist of the ombud’s findings against Van der Walt is that he failed to advise his clients appropriately. This is supported by, according to the determination:

• His failure to identify that the prospectus of Grey Haven 11 violated a notice in the Government Gazette that sought to prevent unfair business practices in property syndication schemes;

• His failure to adhere to the general code of conduct of the Financial Advisory and Intermediary Services (FAIS) Act, which amounted to a breach of his duty to advise the two women appropriately;

• His failure to explain how it was possible for Realcor to pay 15% interest (much higher than marketrelated rates), 7% commission (also much higher than the market), other costs and fund the development of the hotel; and

• The fact that none of the risks involved in the product was drawn to complainants’ attention.

The ombud found that Van der Walt’s conduct caused the women’s loss, a loss that was foreseeable at the time of the advice. She ordered Van der Walt and his company to pay R120 000 to Mrs P in respect of her own investment and R800 000 to her in her capacity as executrix of her mother’s estate. (R800 000 is the maximum allowable in cases decided by the ombud’s office.)

2. Abraham Gouws/Advice at Platfin.

Mr H lodged a complaint against Advice at Platfin and its key individual and representative, Abraham Gouws. At the time the advice was provided, the entity traded as Abe Gouws Makelaars.

The complaint arose from failed investments made in July 2009 by Mr H, on Gouws’s advice, into two property syndication schemes, The Villa Retail Park, promoted by Sharemax Investment, and Highveld Syndication 21, promoted by PIC Syndications, or Pickvest. The funds invested, R1 million in total, had been held in a bank fixed deposit and were earmarked for Mr H’s retirement.

In his complaint, Mr H said he had initially suggested an investment into Allan Gray, as he believed it to be a reputable company. Gouws allegedly provided Mr H with quotations for both Allan Gray and Sharemax (The Villa), and explained that the Sharemax investment was a “better option with a higher return”. Mr H was, however, hesitant to place, in his words, “… all my eggs in one basket…”, which was when Gouws introduced him to the Pickvest scheme. On the investments, of R500 000 each, Mr H was assured of receiving an income of 12.5% a year over five years from both syndications.

In August 2010, no interest was received from The Villa and all income from the investment ceased. This was followed by a reduction in the income from Pickvest to 6%, which, despite assurances from Gouws, never returned to 12%.

The ombud found that Gouws’s conduct flouted the contract he had with his client, and, as a consequence, his failure to appropriately advise Mr H caused the loss. She ordered Gouws to pay Mr H the R1m he had invested.

3. Stephanus du Preez/Fanie du Preez Makelaars trading as The Meadow Group.

Mrs H, a teacher, lodged a complaint against The Meadow Group and its key individual and representative, Du Preez. It arose from a failed investment in March 2010 into Sharemax’s notorious The Villa. The funds invested, R10 000 in total, were the proceeds from Mrs H’s annual performance bonus.

In July 2010, Mrs H received her last income instalment. She charges that, not only was she assured that her capital would be guaranteed, but also that Du Preez failed to advise her of the high risks involved in the Sharemax investment, and that she could lose her capital.

The ombud’s reasons for ruling against Du Preez were similar to those in case 1, above. She ordered Du Preez to repay Mrs H her R10 000.