INVESTIGATION INTO PRODUCTS WAS ‘SUPERFICIAL’

THE Eastern Cape High Court ruling involves Mr and Mrs K and their IT consultancy company, who brought a case against advisory firm Atwealth, its representative, Andrea Moolman, and another entity, Vaidro 172 CC, which employed Moolman at a later stage.

Between 2009 and 2012, Mr and Mrs K invested £565 000 (about R9.5 million at the current exchange rate) and a further R700 000 through “holding company” Abante in the Relative Value Arbitrage Fund (RVAF) and associated investments, MAT Abante UK RVAF Fund and MAT Worldwide. They said they were told that the investments generated high returns (20% a year) and were legitimate.

However, the judgment says the investment vehicles were not registered as financial institutions or products and did not produce any financial records.

When the investments were wound up, the couple was unable to recover any of the money they had invested.

According to the judgment, the couple argued that Moolman had failed to comply with certain common law and statutory legal duties in investing their money.

Moolman responded that Mr and Mrs K had attended a presentation on the RVAF investments, and she had not personally given the couple any financial advice, only “factual information”.

After hearing arguments for both sides, the judge, AJ Molony, said he was satisfied that Mr and Mrs K had received financial advice as contemplated in the Financial Advisory and Intermediary Services (FAIS) Act. The judge observed that Moolman could not appropriately explain the legal relationships among the various investment companies, nor could she distinguish between the definitions of a financial product, a product supplier and a financial services provider.

He said in his judgment: “The outcome is that [Moolman] did not possess the necessary skill and knowledge to market hedge funds. She did not attempt to comply with the requirements of the code [of conduct under the FAIS Act] or the Discretionary Code [that applied at the time to hedge funds]. In particular, she did nothing more than a superficial investigation in regard to Abante and its related products.”

He said that, even if one were to hold Moolman to the lowest possible standard as an adviser, it would still emerge that she was negligent in providing the advice that she did to Mr and Mrs K.

Referring to the Financial Services Board Appeal Board’s decision that the RVAF fell outside the ambit of the FAIS Act, the judgment says: “[Considering that the Appeal Board had previously upheld the ombud’s devisions] what emerges clearly is that the decision by the Appeal Board is contentious at best. It is also not binding on this court.”

The judge found in favour of Mr and Mrs K, ordering the defendants to pay them what they had invested and costs.