Determinations show that industry regulators need to get tougher

One of the messages that political leaders use the most when it comes to acceptance speeches or political campaigns is reminding the gathered crowd that they are instruments of change. Perhaps we have sat back too long and not lived up to this mantra, which is why there are an increasing number of determinations which involve blatant fraud.

This was once again the case in recent determinations which were handed down by the office of the Financial Advisory and Intermediary Services (FAIS) Ombud.

Losing patience with repeat offenders

The case involves Hendrik Thessener (hereafter referred to as the complainant) and Reginald Rabie (hereafter referred to as the respondent) who was at the centre of a previous determination that we profiled.

Reginald Rabie is known as the MD of iBear Global Investments, which has a registration number of 2002/019651/07. However, this registration number is invalid as iBear was deregistered in April 2009. Nevertheless, at all material times Rabie acted on behalf of iBear. Rabie was also a Director of Merlin's Private Equity Fund, the investment entity that the complainants funds were supposedly invested into.

In February 2007, while acting on the recommendation of Rabie, the complainant invested R20000 in Merlin's Private Equity Fund. When he tried to withdraw the money in February 2010, he encountered a number of excuses as to why he could not access it.

The Ombud points out that Rabie did not comment on his actions. However, Rabie gave his advice while acting on behalf of iBear while the company was not registered as a financial services provider, and the supposed investment entity Merlins Private Equity Fund was also not registered as a company. However, transactions concluded without the requisite authorisation are enforceable.

Seemingly fed up with Rabie's continuous disregard for the guidelines provided by the FAIS Act, the Ombud has handed over Rabie's case to the South African Police Services (SAPS). It further ruled that Rabie must pay the complainant the sum of R20000 plus interest at a rate of 15.5% a year for the three years. The full determination can be read here.

Complainants see red with platinum investment

If we look at the Rabie determination, we can see that once again, a poor understanding of the financial services industry played a role in the situation.

Another is where the public lacks significant knowledge in the world of investments and the performance of stocks. Here, the public relies heavily on the perceived knowledge of the fund manager who is viewed as an expert in his/her field.

Andrew and Deidre Parker are the complainants in this case and gave significant trust to Charlie Share, who is the first respondent in this case, and Dynamic Shares CC, who is the second respondent in this case.

After a referral by an ex colleague, Andrew Parker was contacted by the first respondent in 2009 who met with Andrew Parker at a later date.

At the meeting, the first respondent outlined a company called Platfields and stated that he was a broker for Platfields. The respondent said that shares in Platfields were about to be listed on the JSE and those shares would climb dramatically from R3 a share to between R12 and R14 a share.

The complainants asked for a few days to think it over. However, the respondent was so insistent that he contacted the complainants the very next day to arrange a follow-up meeting.

After a few meetings, the complainants invested R100000 into Platfields. When they asked the respondent how the commission would be structured, he assured them that he would be remunerated directly by Platfields. After being assured that this was a once in a lifetime opportunity, the complainants eventually invested R600000 into Platfields.

The promised listing never materialised and when the complainants contacted the respondent, they were subjected to one excuse after another. They then contacted Platfields and asked about the respondent. Platfields said that the respondent was never employed by them and that Platfields shares were never worth R3 a share. Platfields then issued a statement warning against any promises made by financial advisers and brokers.

After seeking restitution, the respondent did leave two share certificates giving the complainants 300000 shares. At a price of 4 cents a share, the shares came to R8000. The complainants then approached the Ombud saying that if Platfield had given them the correct information regarding the company, they would never have invested R600000 in the company.

After an extensive investigation by the Ombud, the complaint was upheld and the respondent was ordered to pay R600000 as well as interest at 15.5% a year to the complainants. A full version of the determination can be read here.

If it's too good to be true, it probably is

Again, this is a case of a lack of education associated with the financial services industry. However, no matter how low the levels of education are, one fact remains: if it is too good to be true, it probably is. Both of these cases could have been avoided if necessary background checks were done into the companies.

But one has to ask how long will it take before the industry regulators start engaging with authorities to resolve this on-going problem. The fact that the Ombud is referring the Rabie case to the SAPS is a step in the right direction. In essence, if a broker/adviser is going against the FAIS Act, they are breaking the law and will be liable for criminal cases by the Ombud and the Regulator.

Editor's Thoughts:
What the Ombud and the regulator need to realise is that not all policyholders are in a position to pursue legal cases against devious industry role players. The Ombudmen and the FSB possibly have the financial backing to do this, so they surely do have a role to play in punishing these individuals beyond mere determination rulings? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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