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Advisor must repay 87-year-old farmer for Sharemax loss

Ombud says he acted wrongfully and negligently.
The half-built Villa Retail Park in Pretoria. The implosion of Sharemax in 2010 was the biggest-ever collapse of a property syndication scheme in SA. Image: Moneyweb

The Ombud for Financial Services Providers (Fais Ombud) has ordered a financial advisor to repay an 87-year-old farmer the R200 000 he invested in two property syndication schemes promoted and marketed by Sharemax Investments.

Fais Ombud Nonku Tshombe said financial advisor Ernest Venter, trading as Ernest Venter Makelaars, was unlicensed to sell Sharemax products and there is no evidence on record that he acted as a representative and was supervised to sell these products to Hendrik Everhardus Grundling Du Preez.

Du Preez invested R100 000 in Sharemax Zambezi Retail Park Holdings in November 2008, and a further R100 000 in Sharemax The Villa Retail Park Holdings during November 2009.

Tshombe said Du Preez lost his capital and there is no prospect that he will recover any part of it.

This appears to be the first determination issued this year by the Fais Ombud related to a complaint about an investment in Sharemax.

Tshombe told Moneyweb in April there were 1 114 property syndication matters still open at her office.

Failed scheme

Sharemax collapsed in 2010 after the findings of a Registrar of Banks investigation 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 criminal charges against Sharemax for alleged contraventions of the Bank Act in March 2012.

About 18 700 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.

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Tshombe said the investment by Du Preez into Sharemax had been recommended by Venter.

She said over time interest payments from Zambezi began decreasing and during July 2010 payments from both the Zambezi and Villa investments stopped, with no further payments received since July 2010 for either of the investments.

Cancellation request countered with assurances

Du Preez instructed Venter in August 2010 to cancel the investments and get back his capital.

Venter gave an assurance that “everything was alright and we should be receiving our interest soon” but there were no further interest payments and Du Preez did not receive any response from Venter regarding the capital.

After numerous attempts by Du Preez to liaise with Venter, he approached the Office of the Fais Ombud.

In his response to the complaint, Venter disputed Du Preez’s version regarding the circumstances around the investment and claimed he had visited Du Preez at the farm because Du Preez needed assistance with a Sanlam policy.

Venter said it was on this occasion that he told Du Preez about Sharemax but Du Preez was well informed about investments, had already done his homework and came to the conclusion that Sharemax was the answer to his problem. In addition, Venter claimed Du Preez no longer wanted to invest in Absa because these investments only yielded an interest rate of 4-6%.

Venter, therefore, believed Du Preez was making an informed decision, saying that he had acted in the best interests of his client and carried out his work “absolutely correctly”.

He further claimed that no one could predict that Sharemax would go wrong.

The Fais Ombud listed a number of undisputed facts which were relied on for the resolution of the matter.

These included that Venter:

  • Requested a Sharemax consultant to explain the investment to Du Preez.
  • Did not provide Du Preez with a prospectus for either of the investments.
  • Did not explain the risks in the investment to Du Preez and didn’t deny that he informed Du Preez that Sharemax was a safe investment and that he had invested his own funds into it.
  • Informed Du Preez that Sharemax purchased property, rented it out and eventually sold it at a profit for the benefit of investors but failed to point out that the Zambezi and The Villa schemes were different from all the previous syndications marketed by Sharemax.
  • Did not carry out a risk analysis or needs analysis, with his record of advice confirming this.
  • Did not offer Du Preez any other or alternative financial products.
  • Failed to point out to Du Preez that Sharemax, in respect of Zambezi and The Villa, had no trading history and no independent means to pay commissions, and that investor returns and commissions and monthly interest payments in effect were to be made out of investor funds.
  • Failed to point out that Sharemax did not own any property.

Tshombe found that Venter failed to act honestly, fairly, with due skill, care and diligence; contravened the general code of conduct for financial services providers; and failed to act in the interests of his client.

Multiple failures

In addition, Tshombe said Venter failed to provide full and frank disclosure of all the material information about the Sharemax product to enable Du Preez to make an informed decision; failed to provide appropriate advice; and failed to identify a product that was appropriate to Du Preez’s risk profile and financial needs.

However, Tshombe stressed the fact that Venter was in breach of the Fais Act and code does not on its own mean that he was liable for Du Preez’s loss.

There must also be a breach of contract as well as a claim in delict, she said.

Tshombe said that as a result of the contract that exists between a financial service provider and the client, there was an express or implied term that Venter would comply with the provisions of the Fais Act and code in carrying out his obligations.

She said Venter was in breach of this term, a consequence of which was the loss of Du Preez’s capital, adding that Venter acted wrongfully and negligently.

Tshombe said even if it is accepted that Venter could not reasonably have foreseen that the scheme would be found to have contravened the Banks Act or foreseen any delinquent conduct by the directors of Sharemax, Venter was expected to make an evaluation of the product from the prospectus and give advice based on the client’s requirements and tolerance for risk.

Venter failed to do this and was therefore negligent, in this case possibly even dishonest, and is accordingly liable for damages, she said.

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Perhaps this could be a message to all those “experts” pushing MTI, Lifestyle Galaxy and other MLM schemes? Hopefully when their investors lose their money they will be able to get it back?

Unfortunately you cannot be governed by FAIS if you not regulated. These “experts” generally aren’t regulated to give advice. We need a greater education drive amongst the population to only deal with regulated individuals. Whatever your opinion of advisors/planners/brokers, they are regulated and as such there is recourse for individuals – as per the above article.

Dear Bobby Dollar.
I joined MTI out of my own free will. It didn’t cost me a cent in joining fees. It didn’t cost me a cent in putting funds into the pool. The only cost I incurred was from Altcoin Trader side when my FIAD was converted to bitcoin and when I transferred from them to MTI. From MTI side there where no fees.
The person who invited me to a presentation didn’t force me, did tell me he/she was an expert financial advisor or even a financial advisor at all. Nor did the person in the presentation claimed any of that.
In NONE of any of the Zoom meetings EVER, was it said that any of the MTI personnel or members are financial experts. In EVERY meeting it is stressed that we ARE NOT financial advisor nor tax specialist and for expert advise on any of these subjects, you need to contact the relevant expert.
I for one will NEVER EVER try and confince anyone to go all in with all their money or investment and pool it into MTI. But again it is YOUR choice and decision.
We just put the facts of past history of the trading on the table and people can decide for themself.
There is no lock in period of how long your investment need to stay in. I invested an amount snd after only 7 days took it out again. I received it within two hours. No fees or penalty fees for early withdrawal at all. After 2 werks I returned the investment.
Do they take commission from my investment for doing the trade? No.
They do take a cut of the dsily profit they make for me but I can see on a daily basis how my investment grows bitcoin wise. If I’m lucky with the normal investing with an normal expert financial advisor, I am lucky to get a statement of my investment every 3 months.
If MTI doesn’t make a profit, they don’t take a cut to cover costs.
Your financial advisor will quickly tell you he take commision no matter what to manage your investment as he/she has expenses to be covered.
Tell me Bobby, ever been contacted by Platinum life and given a gift for giving them references to call and tell them they got that persons name from youto contact and therefore creating a trust relationship?
What about Outsurance offering a better deal on your insurance in exchange for names.
Rewards programs are nothing new my friend

Well done! Please go after all “Financial Advisors” who are selling products for commission and not investment advice…

Hopefully next is Floris from Exponent who talked a lot of rubbish on Kyknet every morning and misled thousands of investors!

If the Covid Command Council put in the effort to do a needs and risk analysis before they implemented lockdown measures the economy would have been in better shape and many lives would have been saved.

They are liable for resulting carnage. They acted negligently and out of self-interest. These scientists and politicians have the blood of those who commit suicide because of business failures on their hands. Shame on them

As Financial Advisor it’s good to see some action taken on this pyramid-like scheme at last. ‘Advisors’ and the Directorate of Sharemax should both be held accountable.

When it sounds too good to be true, it’s normally too good to be true. I recall Sharemax approaching me to ‘sell’ their properties/investments at above the regulated commission rates- for the time. (5+ %) Ever so thankful that I resisted.

Am I the only person that feels nothing for the investors here.

Investor rule 101.
If you do not understand it then do not invest in it.

Investor rule 102.
If it sounds to good to be true then it’s probably not

Investor rule 103.
Your bench mark ROI is Goverment Bonds, anyone offering you higher ROI knows something you don’t

Investor rule 104.
Investing is about the balance of Risk Vs Reward, the higher the reward the higher the Risk.

Investor rule 105.
Don’t use money which you cannot afford to loose.

Financial education is something which I’ve been teaching my son since he was 3 years old, the world is changing fast and the big bad wolves are ready to blow do your house when you least expect it.

I think you are quite harsh on the investor in this case. If you look at the facts here, you can’t fault the 87-year old farmer. For example:

1) He was c. 76 years old (given he is now 87) when he started investing in this scheme. He was probably ready to retire and wanted to invest in something that will provide him with a decent dividend yield and some nice capital growth. He invested R200k – assuming he built up a nice nest egg over time, R200k was probably not such a significant amount of his entire portfolio (only assumptions).

2) At this age, he probably wanted above normal returns on his investment, as you don’t know if you’ll be alive in 10 years’ time. In other words, he probably would have liked his capital to at least double in value in 5 years or less, making that a CAGR of at least 15%. On the run 10-year gov bonds would have yielded within a range of 8% – 9% during 2010 and 2011, with inflation averaging between 4-5%. Real return growing way too slow for his purposes.

3) He is a farmer – without knowing all the facts, one can easily assume that he doesn’t have a good financial education / knowledge and requires the “advice” of financial planners / financial advisors. Bad financial education and greed have a multiplier effect, which can turn out ugly for normal, uninformed retail investors.

4) Assuming point (3) holds, financial advisors which over promise can easily persuade less financially educated/informed people to commit money to all sorts of products (very easy to over promise and under deliver). That is also a main reason so many older folks fall for scams (get rich quick scams).

5) Further to point (3) and (4) above, the farmer in all probability did not have time to invest in something that would have yielded a nominal c. 8.5%.

6) Also, he started seeing Venter just after the GFC, and probably wanted to invest in something that would eradicate some losses incurred in 2008/2009 (again, all assumptions). As equities rallied in 2010 and beyond, Venter should probably just have invested his money in the JSE Top40 or even S&P500.

Although Du Preez is also probably to blame, albeit in a much lesser capacity, Venter should not have allowed Du Preez to be able to invest in such schemes based on his risk profile, age, needs analysis etc.

Circling back to my initial point, I think you are probably a bit harsh on Du Preez in this instance.

Under normal circumstances, yes, I agree with all your points. But this case probably had some mitigating circumstances.

The high court has been scathing with regard to the Ombuds procedures in adjudicating Sharemax complaints – forget about this Avenue of redress – it is a waste of time.

One swallow does not a summer make. The high court has been less than complimentary about the FAIS ombud and her actions.

End of comments.

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