Fais ombud Charles Pillai comments on regulatory failures.

JOHANNESBURG - Fais ombud Charles Pillai has noted that there are major cracks in property syndications. He was commenting on regulatory failure in investment markets at the launch of his office's annual report.

Pillai also said it was a "sad indictment on the regulatory and prosecutorial authorities and the financial services industry itself that South African investors had fallen prey to unscrupulous service providers who were encouraged by the clear lack of effective enforcement of regulation."

As an example, Pillai points to the Leaderguard scam, where nearly 2 000 investors lost an amount of about R380m. Virtually all of these victims invested in Leaderguard on the advice of financial advisers, who received generous commission for recommending the forex scheme.

That Leaderguard was a fraudulent scheme is not in question. Its promoters pleaded guilty in Mauritius, but received a paltry fine and no jail time. One of them, Renso du Plessis, is even sales manager at JSE-listed Verimark (JSE:VMK).

"It saddens me to note that the [Leaderguard] perpetrators are still at large notwithstanding a report to the National Prosecuting Authority, Parliament and the Regulator," lamented Pillai.

"This lack of effective prosecution encourages similar schemes. Currently there are major cracks in property syndications and Ponzi schemes are rife. If there is not effective, pro-active regulation and enforcement, these types of practices will flourish to the detriment our stable financial system. Unfortunately it will consistently hit the pockets of innocent citizens," Pillai noted.

The recent collapse of two high-profile property syndications, King Group and Bluezone's Spitskop development, has meant that the Fais Ombud's office is likely to receive a flurry of related complaints.

As with Leaderguard, the majority of syndications are sold by financial advisers who are registered with the Financial Services Board.

Many brokers who sold Leaderguard products sold and still sell products from Sharemax, the country's largest property syndication company. These brokers were members of a network called Hamilton Solutions. Hamilton Solutions and Leaderguard held shares in each other.

Hamilton Solutions recently had its financial services provider licence application rejected by the Financial Services Board (FSB).

Hamilton Solutions founder Hendrik Lourens (Kip) van der Westhuizen is a former director of several Sharemax syndications.

In a press release posted on the Fais Ombud's website, Pillai noted that Leaderguard investors' money had been channelled through Van der Westhuizen's personal bank account.

He wrote: "However investors' funds were transferred from their individual bank accounts to accounts in the name of either Jacobus Venter (Basie Venter), or Hendrik Lourens van der Westhuizen. These two individuals had accounts held at Investec Bank in Mauritius. From these accounts, investors' funds would be transferred to an entity known as GNI in the name of Leaderguard Limited or Hamilton Worldwide Solutions; both companies falling within the Leaderguard group of companies."

Another scheme identified by the Fais Ombud is Garek, which has been the subject of a government report. The report detailed several alleged transgressions of the Companies Act by Garek's directors and promoters but to date news of any attempted prosecution has been scarce.

In a 2007 speech, Pillai made the following reference to Garek:  "We have started looking at another scam involving unlisted shares known simply as Garek shares."

To date, Pillai has not issued any determinations relating to Garek. Some of the Garek complaints made to his office have been settled.

Andre van der Merwe, Uvongo-based Garek broker, first appeared on Moneyweb on November 10 2005. The DTI report into Garek identified Van der Merwe as the single largest broker-beneficiary of the scheme. He received payments totalling R4.5m. To date, Van der Merwe retains an FSB licence.

Write to Julius Cobbett: julius@moneyweb.co.za

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Run for the woods One must be very naive to invest in such syndications. by Pietie on October 23 2009, 16:32 Find this comment inappropriate? Report it

What about the others..... It does seem strange and very disturbing that although Bluezone's and Kingfin's licences have been withdrawn (and both companies subsequently liquidated), all the other MAJOR players and outright fraudsters remain licenced and authorised - by the . .more FSB - to sell "investment products" to an unsuspecting public who invariably forks out life-savings to them (I suppose based largely on them being "legitimized" by the FSB).... Sharemax (ex-Hamiltons and even itself), Fedbond, Garek brokers, PIC, an outfit called Gardener Ross International Finance (which was the frontrunner of AcRoss, the VERY suspicious listed property group), MCubed (which indirectly led to the downfall of one Arthur J Brown, but which remains licenced in the PSG stable), Investec (need I say more). Unfortunately the list is long, and the FSB remains largely responsible for perpetuating their criminal acts and unlawful impoverishing of loyal, trusting, law-abiding and tax-paying citizens. . .less by L Pienaar on October 24 2009, 00:54 Find this comment inappropriate? Report it

@ Julius Cobbett Why don't you invite Charles Pillai to an open debate about the FSB's role in the BANKRUPTING of South Africa?? Should they not be held criminally and civilly liable for continued failure to act??!! Or get Gerry Anderson to answer this....... by A-FSB on October 24 2009, 00:58 Find this comment inappropriate? Report it

Crooks everywhere you look THis bloody place has a skabengu in every bush, hut, townhouse, mansion, mance and money scheme. It is just staggering how we just seem to accept the theivery on every level as normal. I cant even get my millionaire neighbor to pay his half of the . .more garden service without threatening him with a legal option. Someone needs to take a lead pipe to this SOB"s to send out the message that South African's are tired of been robbed. . .less by GT on October 25 2009, 20:49 Find this comment inappropriate? Report it

Investec again? How come Investec's name seems to crop up time and time again when it comes to scams? by Cynical on October 25 2009, 21:05 Find this comment inappropriate? Report it

The law is like ... a spider web ... it catches the butterfly, but the elephant walks right through by HKGK on October 26 2009, 18:50 Find this comment inappropriate? Report it

The law The elephant is going to fall into the pit because it did not see the butterfly by @ HKGK on October 26 2009, 20:08 Find this comment inappropriate? Report it

That's life isn't it....... a poor hungry man gets nailed for pinching some food whilst big time crooks use their stolen loot to keep prosecution at bay. It's an indictment on humanity because it happens throughout the world. I'm 65 and in my life time have seen a collapse . .more of values and ethics. Woe is the future. . .less by Dave on October 26 2009, 20:29 Find this comment inappropriate? Report it

FSB arrogance The incompetence of the FSB as the responsible regulator allows such schemes to flourish. The root of all evil lies with the FSB. They are trying to wash their hands of their own incompetence and to blame others for their evil schemes. . .more Well, if the FSB knew what was going on what are they doing about it? Thank the incompetent, mainly BEE, staff at the FSB, and the even more incompetent senior management. Try and deliver documents to them, they lose the documents. Get them to sign for documents, and they lose them again. Try and get an answer out of them, and they stagnate and avoid giving any answers. When they are warned of an illegal scheme, what do they do? Nothing!!! Blame the incompetent FSB. . .less by Ma'at on October 26 2009, 22:40 Find this comment inappropriate? Report it

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