Tribunal sets aside FAIS Ombud determination against Sharemax advisor

Orders the case to be referred back to the FAIS Ombud for reconsideration.
Image: Moneyweb
The Financial Services Tribunal has set aside a determination by the Ombud for Financial Advisory and Intermediary Services (FAIS) that ordered a financial advisor to repay a retired married couple the R450 000 each of them invested in two property syndication schemes promoted by Sharemax Investments.
The tribunal panel further ordered that the matter must be referred back to the FAIS Ombud for reconsideration.
This follows an appeal by Johan Stander Finansiele Dienste, trading as Johan Stander Brokers in Mossel Bay, to a determination by the FAIS Ombud ordering him to pay Daniel Hendrik Pelser the R450 000 he invested in The Villa and his wife, Althea, the R450 000 she invested in Zambezi Retail Park Holdings.
Stander had provided investment advice to the couple during July and August 2008 and in May 2009 prior to them making these investments.
The couple received interest on both these investments up until July 2010 when the payments stopped.
Daniel Pelser filed complaints with the FAIS Ombud against Stander on March 18 2011.
This followed Sharemax’s collapse in 2010, which was precipitated by the findings of a registrar of banks investigation that Sharemax’s funding model contravened the Bank Act, becoming public knowledge.
This led to new investments drying up and Sharemax being unable to make monthly payments to investors.
The Registrar of banks laid criminal charges against Sharemax for alleged contraventions of the Bank Act in March 2012.
About 18 000 investors invested an estimated R5 billion in Sharemax’s various property syndication schemes. At the time it imploded in 2010, it was the biggest-ever collapse of a property syndication scheme in South Africa.
The tribunal panel that heard the appeal said the Ombud’s findings may be flawed if consideration is given to the legal points raised.
It said the authorities have endorsed that to determine negligence, both factual and legal causation must be satisfied, adding that by simply alleging there was non-compliance with the Code of Conduct and the Act is not enough.
“Legal liability must be proven, namely that the financial service provider acted not only negligently, but caused the loss as well.
“In other words, was the non-disclosure of negative publications on the part of Stander, the cause of the Pelsers’ losses? The necessary inquiries in order to determine negligence on the part of the applicant would have given conclusiveness,” it said.
This was in response to claims by the Pelser’s that there was a duty on Stander to have informed them about negative articles published about Sharemax product investments and information pertaining to risks in investments in both The Villa and Zambezi Retail Park products that were within Standers’ exclusive knowledge.
In handing down its decision to the appeal, the panel questioned whether the Ombud applied the principles in regard to negligence correctly.
In addition, the panel said they deemed it appropriate that the matter be referred back to the Ombud for reconsideration in light of the different versions of the respondents (the Pelsers and Ombud); the material conflicting versions regarding the investments; the nature of the Sharemax investments, both The Villa and Zambezi Retail Park; and the lack of consideration of the expert evidence.
FAIS Nonku Tshombe said her office had to properly consider the decisions of the tribunal and was therefore unable to comment on them at this time.
However, Assistant FAIS Ombud Thobile Masina told Moneyweb in December last year that one of the challenges facing the FAIS Ombud’s office was the inconsistencies in the decisions by the Financial Services Tribunal.
Masina said the FAIS Ombud had previously taken one of the decisions of the tribunal on review to the High Court but it had ruled it was unable to assist them because the tribunal is “part of your own entity”.
She added that the High Court’s view was that this was something the FAIS Ombud needed to resolve with the tribunal and Financial Services Conduct Authority (FSCA).
Masina said this has resulted in a situation where respondents to complaints rely on the decisions that favour them and the FAIS Ombud relies on the decisions that favour it.
“That is part of the reason why we can’t resolve those complaints informally and they have to go to determination,” she said.
Masina confirmed the FAIS Ombud is getting legal advice on what steps it can take, given the previous decision taken by the High Court.
The FAIS Ombud did not receive any property syndication related complaints in the year to end-March 2019 and reduced the backlog of complaints to 1 147 from the about 2 000 complaints that were shelved in 2013.
The complaints were shelved pending the outcome of an appeal that was lodged to determinations of the FAIS Ombud in the Siegrist and Bekker complaints that held the directors of Sharemax Investments jointly liable for the losses of complainants.
The appeal was decided in April 2015, with the outcome resulting in the FAIS Ombud only able issue determinations against the broker or financial advisor and not being able to hold the directors of property syndication schemes liable.
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