Fais Ombud calls for high level invetigation into leaderguard

The following determination arises from a complaint to the FAIS Ombud by KwaZulu-Natal couple, Selwyn and Christine Comrie, against Ewing Trust after they lost their investment in the failed forex services scheme known as Leaderguard Spot Forex.

The criminal nature of certain violations has warranted the determination being sent to the National Prosecuting Authority as well as the Minister of Finance and Minister of Trade and Industry.

Concurrently with this determination, the FAIS Ombud, Charles Pillai, also issued a further three determinations relating to similar Leaderguard investments. They are Ludewig and Another v van der Merwe and Another FOC 661/05/GP (1); George Pickup v Johann de Klerk and Another FOC 937/05/WC (5); and Riana du Plessis v Wilma Willemse and Another FOC 1176/05/GP (1).

In this determination, the FAIS Ombud said:

"Based on pertinent historical information, it is fair to say that South African citizens have repeatedly fallen prey to various bogus investment schemes.

"Tragically investors in many of these schemes, many of whom are pensioners, lose their life savings and are very often left destitute with only promises of attractive returns in their hands and nothing more.

"The perpetrators of these schemes usually get away and no money is ever recovered.

"It is unfortunate that in South Africa we have a long history of such schemes emerging from time to time - Masterbond, Prozet, Platinum Asset Management, Chinza and now Leaderguard.

"It is interesting to note that the latter four entities were in some way or the other related. Loss to investors occasioned by the Leaderguard scheme is largely estimated around R300 million."

In the determination in the Comries matter, as also in the case of the aforementioned three cases, the FAIS Ombud confirmed that Leaderguard Securities (Pty) Ltd  ('LS') was not licensed to deal in forex investments, but was merely operating in terms of an exemption granted by the Registrar of the Financial Services Board.

While investigating the Comries' complaint, the FAIS Ombud questioned the legal basis for the Registrar of the FSB granting the exemption, as well as the conflict of interest allowed to come about by the Registrar relating to one Chris dela Guerre.

Dela Guerre was the CEO of Forex Investment Association, a recognised body with delegated authority from the Board authorised to deal with licences. In this capacity, Dela Guerre was in constant liaison with the FSB and engaged in correspondence with applicants for licences on behalf of the FSB. 

"At the same time, Dela Guerre had signed the application for and on behalf of
LS as director. He is also set out as the key individual of LS and had applied to
be recognised as compliance officer for LS.

"It is not in dispute that Dela Guerre had an interest in LS and the Leaderguard
group of companies.

"In effect, LS was allowed to make application for their licence to be considered
on behalf of the registrar of the FSB by their own compliance officer, director and
key individual.
 
It is self-evident that the objectivity to consider the licence application could not,  therefore, exist.

It thus comes as no surprise that the FIA in fact recommended that LS' licence
be finally approved.

The Ombud found that Dela Guerre had effectively written an e-mail to himself confirming LS' licence status. [Paragraphs 59-80]

The Comries alleged that on the advice of Michael Shacklock of financial services firm Ewing Trust, they had invested 28 477,43 Euros (about R281 352)  for their retirement in LSF through its South African marketing arm Leaderguard Securities (LS).

The Comries submitted that they were advised by Shacklock that any loss sustained would be limited to only 20 percent of their investment.

They said Shacklock had advised them that Leaderguard was 'FSB approved', and that this was 'a significant factor' influencing their decision to make the investment. 
  
In respect of the Comries complaint, the Ombud held that:

 Respondent provided a financial service without being authorised to do so;
 Respondent failed to disclose fees as required in terms of FAIS;
 Respondent's advice to Complainant was inappropriate in that LS operated under an 'exemption', its licence was still pending, LSF was not an approved foreign forex services provider, Respondent itself was not authorised to sell forex, commissions were above industry expectations, performance figures provided by LS and LSF were false, the investment itself was unsustainable.

The Ombud ordered Respondent to compensate the Comries in the amount of 28 477.43 Euros, together with interest at the rate of 15,5%.