Appeal Court vindicates FSB in its battle with Dynamic Wealth
Some years ago, Personal Finance revealed that the Dynamic Wealth group was, among other dubious activities, running so-called ‘investment clubs’ that contravened the collective investment scheme regulations. The Financial Services Board investigated and
The Financial Services Board (FSB) won an important but pyrrhic victory recently when the Supreme Court of Appeal overturned a Pretoria High Court judgment that rejected the FSB’S application to place the now defunct Dynamic Wealth group of companies under curatorship last year.
Judge Malcolm Wallis, who wrote the judgment, with four other judges concurring, found that Acting Judge AJ de Vos had erred in rejecting the FSB application.
However, Judge Wallis found there was little point in now granting the curatorship application because Dynamic Wealth has effectively closed down following the withdrawal of the financial services provider licences of two of its subsidiaries, Dynamic Wealth Management and Dynamic Wealth Stockbrokers, and Metropolitan Collective Investments taking control of the seven unit trust funds that Dynamic Wealth managed and marketed using Metropolitan’s collective investment schemes licence.
The Supreme Court awarded costs against Dynamic Wealth in favour of the FSB.
Judge De Vos’s erroneous decision in February last year enabled Dynamic Wealth to continue its ways, increasing investors’ potential losses.
The Pretoria High Court rejected the FSB’S curatorship application mainly on technical grounds, ruling that an FSB inspection report, on which the application was based, was inadmissible.
The FSB’S grounds for the curatorship application included its claim that a number of investment portfolios offered by Dynamic Wealth under the guise of investment clubs were, in fact, illegal collective investment schemes.
The FSB application for curatorship gained momentum when another financial services company, Corporate Money Managers (CMM), into which one of the investment clubs had placed R230 million, ran into trouble in 2009. This money is now at risk.
After the intervention of the FSB, Dynamic tried to avoid attention by converting the investment clubs into companies. For example, the club invested in the troubled CMM money market fund became Specialist Income Limited (SIL).
Converting the “investment club” portfolios into companies reduced the rights of investors, because they became shareholders rather than investors with a preferential claim to any assets.
Judge Wallis ruled that the Pretoria High Court had erred in not admitting the FSB’S inspection report and that the Dynamic Wealth companies should have been placed under curatorship.
He also found that Dynamic Wealth’s “investment clubs” were, in fact, unlicensed investment schemes that should have been subject to the Collective Investment Schemes Control Act.
Over the years, following reports about and investigations into the company’s activities, Personal Finance received a number of what transpired to be hollow threats of legal action from Dynamic Wealth.
Among other things, Personal Finance revealed that Dynamic Wealth:
Was running illegal “investment clubs”;
Was placing investors in offshore investment structures that were not subject to local regulation; and
Had a business relationship involving property bridging finance with Attie du Plooy, who had run an illegal pyramid structure, Jean Multi- Management, which was closed down by the Reserve Bank.
J e a n Mul t i - Mana g e ment received R200 million from Angus Cruikshank, the owner of now defunct linked-investment services provider Ovation. Cruikshank stole the money from the illegal Common Cents money market fund, and committed suicide when the FSB moved in on him.