Does one bad apple spoil the bunch?
This was the issue in the recent determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud). The case was between Ntombendleko January (hereafter referred to as the complainant), Magajana Financial Services (hereafter referred to as the first respondent) and Lindiwe Mtasa Magajana (hereafter referred to as the second respondent). The first respondent was represented by the second respondent, a key individual and sole member of the first respondent.
The writing on the wall
In October 2010, the complainant paid an amount of R100 000 into what she believed was an investment entity that was operated by the respondents, on the understanding that the capital would generate a return of R750 per month.
The agreement between the complainant and the respondents stated that interest in the amount of R750 was payable to the complainant as and when requested, a further 10% was payable upon withdrawal and notice of 60 days was required for all withdrawals. However, it was not clear from the agreement whether the additional 10% was on the R750 or the capital amount.
According to the complainant, in January 2011, she gave the respondents notice (as stipulated in the agreement) of her intention to withdraw from the investment. The complainant’s claim against the respondents is based on their failure to act appropriately. In terms of the agreement, the capital and whatever interest due, had to be paid at the end of March 2011 but it was not paid. Instead, the respondents made numerous promises, which were not kept.
A background check as to the license status of the respondents indicates that the first respondent was licensed as a Financial Services Provider (FSP) until the registrar withdrew the license in January 2012.
The proof in the pudding
To resolve the matter accordingly, the Office referred the complainant to the respondents with a request that they resolve the matter with the complainant. Immediately, the respondents acknowledged their indebtedness to the complainant and promised to pay the amount outstanding in installments.
However, up to date, the respondents have not lived up to their promises to the complainant. Instead, the respondents have been making payments into the complainant’s bank account as and when it suits them and not as per the installment agreement.
The last payment was made in September 2014. To date, the total of such payments stands at R75 000. There is no action of any calculation of the amount of interest that is due to the complainant and despite all efforts, the respondents have refused and neglected to put forward a proper computation of the amount outstanding and have failed to pay such amount.
The complainant was lured into the so-called investment policy by what appeared to be reasonable interest.There is no indication that there was a money market investment as it is not clear what exactly generated the returns that were promised to the client by the respondents.
What is also disturbing is that there is/was no proper infrastructure in place to safeguard monies collected from clients. Clearly, the payments were/are coming directly from the second respondent’s personal bank account, which means the safety of the client’s funds would have been compromised from the start.
Determining the case
Clearly, the respondents failed to act honestly and such conduct is indicative of ignorance of the basic legislative requirements.
The respondents either ignored, or were unaware of the legislative requirements. Instead they appear to have recklessly conveyed advice to their client
The respondents have paid the amount of R75 000 to the complainant. Accordingly, the complaint must succeed for the remaining R25 000.
In a nutshell, the respondents failed to meet the requisite requirements as set out in the FAIS Act. Accordingly the complaint is upheld and the respondents are ordered, jointly and severally, to pay to the complainant the amount of R25 000.
Editor’s Thoughts:
It is unfortunate that only a few incidents like the one written about can cause damage to the whole industry. As an industry we are much more professional now than ever before, but it takes one person to spoil it all. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
