Ombud’s report details consumers’ horror stories
Of all the cases handled by the financial advice ombud, some of the most shocking relate to failed property syndications, in which ill-advised consumers – mostly pensioners – have lost their life’s savings. Angelique Ardé reports
While most complaints to the office of the Ombud for Financial Services Providers relate to the dispensing of advice in the selling of short-term insurance, property syndications and problems with these “complex” products feature prominently in the ombud’s latest annual report.
Also known as the financial advice ombud and as the FAIS (Financial Advisory and Intermediary Services) ombud, Noluntu Bam has handed down numerous determinations in recent years in favour of consumers who have lost money investing in ill-fated property syndications.
Her report for the year ending March 31, 2014 was released this week. It features the case of pensioner Jacqueline Bekker, who was persuaded by financial adviser Edward Carter-Smith to invest in a property syndication promoted by Sharemax Investments.
Before making the investment, Bekker was promised that her funds would be kept in an attorney’s trust account and paid over only in the event of the transfer of the properties into the names of the property syndication companies.
However, prior to transfer and contrary to the syndication prospectus, the directors authorised the withdrawal of funds from the attorney’s trust account.
Bam ordered Carter-Smith and other respondents, including syndication promoter Sharemax and its directors, to compensate Bekker for her loss. The respondents are appealing the determination.
In her annual report, Bam says what stands out in the case is Carter-Smith’s “apparent lack of appreciation of the risk inherent in the product”.
Bam’s report highlights another complaint involving Sharemax – citing it as a case of inappropriate advice – which ended well for the consumer.
“During September 2006,” the report says, “the complainant, who was 63 years old at the time, invested R16 000 with Sharemax on the advice of the [adviser]. In May 2011, the interest payments on the investment ceased. The complainant’s unsuccessful attempt to recover her capital triggered a complaint to this office. The office duly notified the [adviser] of the complaint. A few weeks later, the complainant informed this office that an agreement had been reached: the [adviser] agreed to repurchase the Sharemax investment from her. The settlement amount was R16 000.”
When a complaint is settled it means it did not necessitate a ruling from the ombud’s office – some advisers settle rather than face a ruling from the ombud, which carries the weight of a High Court order and is made public.
RISKY BUSINESS
Bam’s previous annual report, for the year ending March 2013, made mention of cases concer ning financial adviser Deeb Risk, who has had at least six rulings against him for advice relating to property syndications.
At the time, Risk had appealed against Bam’s rulings to the Appeal Board of the Financial Services Board (FSB). In her latest report, Bam says that Risk and his company have settled all but two of the cases directly with the complainants and abandoned the appeals relating to these cases. He is, however, still pursuing the appeals of the two matters with the Board of Appeal.
There are also review proceedings before the High Court in connection with these two matters.
South African investors have been badly stung by failed property syndications. The collapse of the Masterbond and Owen Wiggins Trust schemes in the early 1990s left thousands of investors destitute, many of them pensioners. And investors have again been hard hit by the more recent failure of Sharemax and Highveld Syndications, promoted by Pickvest. Investors in some Pickvest-promoted syndications, who will next week be asked to vote on a new proposed scheme of arrangement, have applied to the courts for permission to institute a class action against the scheme.
In the Bekker case and another deter mination, with far-reaching implications for investors, Bam held the master minds of Sharemax liable for investors’ losses. Both cases have been taken on appeal to the FSB’s Appeal Board.
While Bam’s office continues to accept and investigate complaints relating to property syndication investments, it has decided not to issue any determinations pending the outcome of these two crucial cases, which will be heard in January next year.
Meanwhile, property syndications continue to be marketed to South Africans. The FSB has recently warned the public not to do business with a syndication, Discount Mart Cleaning Services CC, trading as DMC Holdings (DMC).
The FSB says DMC has claimed that the regulator instructed it to dispose of properties by way of auction or private sale to refund investors. The FSB denies the claim.
An Australian outfit called Flipping4Profit, which solicits deposits from investors in exchange for a share of the profits made from “flipping” properties for profit, is now marketing itself in South Africa as a property syndication – according to an SMS sent to prospective investors.