Unit trust investors urged to switch to doomed scheme

ACCORDING to news reports, Thomas Stringfellow, the Johannesburg-based financial adviser and chief executive of the Stringfellow Group, whose private investment scheme collapsed recently, persuaded investors in his secure unit trust fund investments to switch their money to the risky, unregulated scheme, promising better returns than the poor returns the unit trusts were delivering.

The Star recently reported that an investigation by the Financial Sector Conduct Authority (FSCA) into the scheme expected the amount lost by investors to be over R100 million.

Stringfellow’s two unit trust funds – operated under the Boutique Collective Investments (BCI) licence, the Stringfellow BCI Flexible Fund of Funds, and the Stringfellow BCI Stable Fund of Funds – hold about R80m and R50m respectively, according to their May 31 fact sheets. The flexible fund delivered 4.28% a year on average over five years, while the stable fund delivered 4.7% a year over the same period. The funds have been in operation for more than a decade.

The money in the two unit trust funds is safe, owing to the regulated nature of collective investment schemes in South Africa.

But it appears that Stringfellow had persuaded investors in these funds to move their money across to an unregulated, private scheme linked to the Lorna Jane boutique franchise, operated by Stringfellow and his wife Leigh, which has closed down.

An investor who did not want to be named told Business Day that Stringfellow had advised clients to invest in loan agreements to fund Lorna Jane, an Australian sportswear franchise. He said Stringfellow had guaranteed investors their capital and told them they would receive 14%, and up to 20% in dividends annually.

Investors became alarmed earlier this year when they stopped receiving dividends. The ensuing investigation by the FSCA and the police resulted in Stringfellow handing himself over at the Honeydew police station, and being arrested on fraud charges.

According to Business Day, the chief executive of BCI, Robert Walton, said BCI had taken over the management of the two unit trust funds. He said the R130m in the two funds was safe, but that investors had recently withdrawn about R100m from the funds.

It appears that much of this money went into the doomed scheme.

Speaking to the Star, the FSCA’S chief investigator, Gerhard van Deventer, said the 14% return and guaranteed capital promises Stringfellow made to investors were red flags. “That is just too good to be true. It is always a red flag if you’re promised very good returns. You have to ask yourself how will this person be able to outperform the entire market.”

Many of the investors were pensioners, with savings of up to R14m in the scheme.