Advisor ordered to repay investor
Financial services Ombud says act was contravened
AFINANCIAL adviser has been ordered by the Ombud for Financial Advisory and Intermediary Services (Fais) to repay a pensioner the R107 000 she invested in Sharemax Liberty Mall, a property syndication scheme promoted and marketed by Sharemax Investments.
Heloise Aletta Jackson complained to Fais Ombud Noluntu Bam in April 2013 that her sickly husband had also lost his life savings as a result of following the advice of Johann Nell and Johann Nell Financial Services from Pinehurst.
They also had to sell their vehicle for them to survive and were in dire need of capital because they had now been left destitute, she said.
Sharemax collapsed in 2010 after an investigation found that its funding model contravened the Bank Act became public knowledge. This led to new investments drying up and Sharemax being unable to make monthly payments to investors. The registrar of banks laid charges against Sharemax in March 2012.
During 2012, the North Gauteng High Court sanctioned schemes of arrangement for several schemes within the Sharemax stable, resulting in several schemes being taken over by Nova Property Group Holdings and Sharemax investors being issued with debentures or shares in Nova.
Jackson said she invested R100 000 in May 2004 with Sharemax Comaro Crossing, which was subsequently sold at a profit, resulting in her receiving R107 000. In April 2007, she chose to invest the full amount in Sharemax Liberty Mall after Nell allegedly advised it was a good investment.
Jackson said she initially got about R600 to R700 a month but the interest payments stopped in June 2010.
Following a scheme of arrangement in January 2012, payments resumed but ceased again during May 2012.
In her determination, Bam said by Nell’s own admission, and in contravention of the Fais Act, no record of advice existed. Nell claimed there was no client advice record because everything was done orally.
Bam said apart from relying on the fact that Jackson previously invested in Sharemax, it was not clear how Nell concluded the investment was appropriate for her at the time.
She said Jackson relied entirely on advice from Nell, who had every opportunity to steer her away from a risky investment but failed to do so.
Bam said Nell had no appreciation of the magnitude of the risk involved in the Sharemax investment and there was no evidence Nell was even aware of the property syndication notice published by the government with the sole objective of protecting the consumer.
Given that the directors of Sharemax denied that this notice applied, “Sharemax was no place to go for sensitive investors” like Jackson, she said.
“To put it simply, Sharemax had set out to deny investors the legal protection afforded by the notice. That, in my view, should spell out the risk that investors were facing.
“Hence, long before the transfer of the immovable property, the directors withdrew investors’ funds from the attorneys’ trust account and did what they pleased. Investors were completely on their own here,” she said.
Bam added the Nell ignored the requirements of the Fais Act, which specifically placed an obligation on the provider to explain the risk in the financial product to the client and was not in a position to explain something he did not understand.