Ad­vice about forex in­vest­ment ‘bor­dered on reck­less’

Weekend Argus (Saturday Edition) - - GOOD WEEKEND - NEESA MOOD­LEY-ISAACS

A pen­sioner who in­vested part of his re­tire­ment sav­ings in for­eign ex­change (forex) in­vest­ments on the ad­vice of his fi­nan­cial ad­viser will be re­im­bursed for his losses fol­low­ing a rul­ing by the fi­nan­cial ad­vice om­bud this week.

Charles Pil­lai, the Om­bud for Fi­nan­cial Ser­vices Providers, or­dered Wayne Gray and the Gaut­eng-based com­pany he rep­re­sented, Quan­tum Leap Forex, to pay R100 174 plus in­ter­est of 15.5 per­cent to Ian Scott.

Pil­lai ruled that Gray’s ad­vice bor­dered on reck­less con­duct, given that the Fi­nan­cial Ser­vices Board (FSB) had re­peat­edly warned him that both the trad­ing com­pany and the clear­ing firm he dealt with were not li­censed. This crit­i­cal in­for­ma­tion was not re­layed to Scott at any point.

In Au­gust 2004, Scott in­vested R270 000 in a forex in­vest­ment on Gray’s ad­vice. The money was de­posited di­rectly with Rey­mount In­vest­ment, based in Jer­sey in the Chan­nel Is­lands, and the in­vest­ment was traded by Ker­ford, a Gaut­eng­based com­pany.

In its li­cence ap­pli­ca­tion to the FSB in 2004, Quan­tum Leap Forex named Ki­ran Thiruvengadam as its key rep­re­sen­ta­tive, al­though Thiruvengadam was ac­tu­ally em­ployed by Ker­ford.

Ac­cord­ing to the ap­pli­ca­tion, Thiruvengadam would be re­spon­si­ble for all trad­ing on be­half of Quan­tum Leap Forex. Quan­tum Leap Forex only in­tro­duced clients to Ker­ford and did not han­dle any in­vest­ment funds: clients in­vested di­rectly with Rey­mount and the funds were traded by Thiruvengadam.

In April 2004, Quan­tum Leap Forex be­came aware of an email be­ing cir­cu­lated by the Jer­sey Fi­nan­cial Ser­vices Com­mis­sion, warn­ing the pub­lic against in­vest­ing with Rey­mount, be­cause it had never been reg­is­tered un­der the Fi­nan­cial Ser­vices Law in Jer­sey. When Gray queried the email with Ker­ford, he was told that the warn­ing ap­plied only to res­i­dents of Jer­sey. Quan­tum Leap Forex did not make any at­tempt to con­tact the Fi­nan­cial Ser­vices Com­mis­sion to ver­ify the con­tents of the email.

Scott in­vested an­other amount – R130 000 – with Rey­mount in Jan­uary 2005.

The FSB warned Quan­tum Leap Forex in May 2005 that Ker­ford’s li­cence to ren­der fi­nan­cial ser­vices had been de­clined and that Rey­mount would not be recog­nised as a clear­ing firm for forex trad­ing. But Scott was not in­formed of ei­ther of th­ese warn­ings and made a fur­ther in­vest­ment of R200 000 with Rey­mount in July 2005.

Al­though Scott’s in­vest­ments were in forex trad­ing, Quan­tum Leap Forex, in con­junc­tion with Ker­ford, de­cided to switch them into gold in Septem­ber 2005. They held the gold in­vest­ments un­til April 2006, by which time all their in­vestors’ ac­counts were down by 90 per­cent.

Al­though Gray cited sev­eral rea­sons for hold­ing on to the gold in­vest­ments, Pil­lai found that Gray was “sim­ply looking for ways to jus­tify what hap­pened to their clients’ funds, when [Quan­tum Leap Forex] ac­tu­ally do not have a clue as to the fate of those funds”.

In May 2006, Gray be­came aware of an ar­ti­cle in the Chicago Tri­bune, de­tail­ing how fed­eral agents had con­fis­cated the as­sets and frozen the bank ac­counts of Puthankote Aboobaker, who was al­legedly be­hind both Rey­mount and Ker­ford. When Gray showed this ar­ti­cle to Thiruvengadam, he fled the coun­try.

Pil­lai’s rul­ing took into ac­count that Scott had re­ceived R134 514 in monthly pay­ments over the term of his in­vest­ments with Rey­mount and that he re­ceived R95 311.25 when he closed the in­vest­ments in June 2006.

He could not make a rul­ing on Scott’s ini­tial in­vest­ment of R270 000, be­cause it was made be­fore his of­fice was es­tab­lished in Septem­ber 2004.

Gray also did not tell Scott at the time the in­vest­ments were made that Quan­tum Leap Forex was trad­ing un­der an ex­emp­tion, and that its li­cence ap­pli­ca­tion was still pend­ing with the FSB, Pil­lai found.

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