Directors of property syndication promoter Pickvest have launched an application in the Pretoria High Court to have an incriminating determination by the Financial Services Board (FSB) reviewed and set aside.
The decision, which was made in February by the FSB’s Appeal Board, found that Pickvest’s directors acted dishonestly and without the care, skill and diligence expected of financial services providers (FSP) under the Financial Advisory and Intermediary Services (FAIS) Act.
This formed the basis of the Appeal Board’s dismissal of Pickvest’s appeal against an April 2013 decision by the board’s Registrar of Financial Services Providers to have its FSP licence withdrawn.
The Registrar withdrew Pickvest’s licence last year because it said the decision by the company’s directors (among them Durand Botha, brother of Sharemax mastermind Willie) to use investors’ money to pay for properties without first taking transfer of these properties amounted to a failure “to meet the personal standard of honesty and integrity required by s 8 of the [FAIS] Act of a fit and proper financial services provider”.
Pickvest promoted 22 different property syndication schemes known as Highveld Syndications (HS), a number of which are now under business rescue. Investors bought units (a mixture of shares and loan accounts) in any one of the HS companies by depositing money into the trust account of Pretoria attorneys Eugene Kruger & Co. Incorporated.
The FSB says the agreements signed by investors in response to the prospectus of HS 21 made no provision for the property syndication’s obligation to secure transfer of properties before withdrawing money from the trust account to purchase them. It thereby contravened a 2006 Department of Trade and Industry (dti) Notice gazetted in terms of the Unfair Business Practices Act (formerly the Consumer Affairs Act), which stipulates that investor funds can only be withdrawn from a trust account in the event of transfer of the property.
Pickvest claimed that Kruger advised it that the notice did not apply to them. The reasons given by Kruger for this opinion were chiefly that the dti continued to register company prospectuses after March 2006 even where these contained provisions that were not in accordance with the notice in question.
However, the FSB says it is plain that “any company which is a syndication promoter falls within the ambit of the notice”. The fact that registrations were affected by dti officials as Kruger points out “is of no moment”, according to the board, since these proclaim only the fact of registration and are not an expression of departmental approval.
That Pickvest’s prospectus in respect of HS 21 said nothing of the need to ensure transfer of properties before paying for them “obviously failed” to meet the requirements of the notice and “therefore failed to provide investor protection from the sort of outcome which eventuated”, the FSB says. This outcome is that “investors involved had bought shares in companies that were not, after all, the owners of the properties which were due to provide them with the promised returns on their investments. In short, they were left with tenuous rights of questionable, if any, value,” the Appeal Board’s ruling states.
FSB not investigating Pickvest further
The FSB says it is likely that the directors of Pickvest were aware of the relevant provisions in the notice and it is insufficient for them to “shelter behind what could have been nothing more than a brief oral assertion by Mr Kruger”. The board finds that Pickvest’s directors acted with a “dishonest state of mind” in their withdrawal of investors’ funds and “consciously closed their minds to pursuing lines of enquiry which could have informed them better but which would also have demonstrated to them that what they chose to believe was in fact and law mistaken”.
It is not clear how much money was withdrawn from Kruger’s trust account, but the FSB concludes it involved “a substantial sum” since HS 21 had more than R1 billion invested in it.
Caroline da Silva, deputy executive officer for FAIS at the FSB, says that the outcome of the review application with the High Court may determine whether there are grounds for claims against Pickvest and whether agreements signed by investors are null and void because they did not comply with the dti’s notice. According to the FSB, non-compliance with the notice constitutes a criminal offence punishable by way of a fine of R200 000 or five years’ imprisonment or both.
Manasse Malimabe, head of the FAIS compliance department, says the FSB has not initiated further investigations into Pickvest subsequent to the Appeal Board’s dismissal.
Pickvest’s directors did not respond to requests for comment. Business rescue practitioner Hans Klopper, involved with the HS companies, said he had no interest in Pickvest.