FAIS Ombud orders full refund of investment
Durban venture company Tyraz Investments which promised unrealistic returns on capital outlay has been ordered by FAIS Ombud Charles Pillai to repay a client the full amount that had been invested.
Pillai, the Ombud for Financial Services Providers, ordered the company which paraded fake proof of application for an FSP licence, to compensate the full amount invested in 2004 by Cornelius Johannes Ferreira of Bellair, Durban.
Ferreira responded to a newspaper advertisement in which Tyraz Investments promised 70 percent capital guarantees under normal trading conditions and “a monthly income of three percent or compound your profits to 42 percent per annum”.
Ferreira placed R50 000 from his retrenchment package with Tyraz Investments for dealing or trades to take place in a managed trading account with trading platform, FX Active Ltd.
However, upon review of his managed account via the internet, Ferreira discovered that his capital amount had been reduced to R6 033.
Following numerous visits and a letter of demand to the Respondent, represented by Jan Hendrik Van Zyl, the Complainant was unsuccessful in obtaining payment. Ferreira then lodged a complaint with the Office of the FAIS Ombud.
In his complaint, Ferreira said that his dealings with respondent began when, in response to an advertisement, he contacted Van Zyl who explained how the investment worked.
After he spoke to Van Zyl he was initially not comfortable investing because the respondent was not registered with the Financial Services Board.
Van Zyl assured him they were in the process of registering and a copy of a document headed “FSP Application Progress” was given to the Complainant at a meeting on 14th October 2004. Accordingly a contract of investment was signed.
Save for a telephone conversation in September 2007 between the Office of the FAIS Ombud and Van Zyl in which he stated that the investment occurred prior to the jurisdiction of the Financial Advisory and Intermediary Services Act No 37 of 2002, (‘FAIS Act’), and that the matter had been referred to his attorney, the respondent had not replied to the complaint.
As respondent was not listed as an authorised financial services provider with the FSB, a copy of the document provided by complainant and headed “FSP Application Progress” was forwarded to the FSB in order to ascertain if respondent had indeed applied for a licence. The document appeared to be a screenshot or computer printout of a page from the FSB website.
The FSB later advised that there was no record of an application having been received from the respondent and that the document provided appeared to be “bogus”.
The issues that then had to be determined were firstly whether the Respondent rendered a financial service within the jurisdiction of the FAIS Act; whether in rendering a financial service the Respondent contravened any provisions of the FAIS Act or General Code; and whether the contraventions of the Act resulted in a loss, and if so the extent of such loss.
The FAIS Ombud contended that while the jurisdiction of his Office came into effect on 30th September 2004, and initial discussions took place prior thereto, the crucial advice and investment took place after his Office assumed jurisdiction.
“In order to fall within the jurisdiction of the Office, a financial service must have been rendered on or after the date of commencement of this act.
“Section 1 of the Act defines the rendering of a financial service as giving advice; or giving advice and rendering an intermediary service; or rendering an intermediary service.
“The definition of advice is broad and incorporates any recommendation, guidance or proposal of a financial nature furnished by any means or medium, to any client or group of clients.
“Considering the advice aspect I have no doubt that the actions of Van Zyl in explaining the investment on 14 October 2004 clearly fall within the definition of advice.
“In simple terms even if discussions took place prior to the jurisdiction of this Office, there can be no doubt that the critical discussions, and hence advice, took place well within the jurisdiction of the Office.”
While investigations confirmed that respondent was not registered as a financial services provider, in terms of Section 7 (1) of the FAIS Act, a financial service rendered to a client by a person not authorised is not unenforceable between the provider and the client merely by reason of such lack of authorisation.
“However, the lack of authorisation is just one aspect of non compliance… simply taking clients money under the pretext of being a discretionary FSP trading in a forex investment…would at the very least have required a category II discretionary FSP licence, a category of licence that carries with it strict compliance requirements.
“It follows that the respondent had not even complied with the most basic pre-requisites to provide financial advice.
“There can be no doubt that not only was the complainant not advised but even more alarmingly fraudulently led to believe that he was dealing with a duly licensed FSP in order to convince complainant to part with his money,” the Ombud ruled.
Pillai found that these contraventions directly resulted in a loss to the Complainant.
“The R50000 was part of a retrenchment package which Complainant is dependent upon to see him through retirement. Given his circumstances, Complainant who said that for him ‘every cent counts’ can ill afford to risk money on speculative schemes, particularly those operating outside the ambit of the law.
“Had respondent been registered and followed the requirements of the Code, there is little doubt that the Complainant’s money would not have been invested in this manner.
“Although the complainant had appeared to accept that he could lose 30% of his investment, such a decision could only have been made when properly appraised of all material information as required by the Code.
“The extent to which complainant was misled into believing that Respondent was in the process of being registered, coupled with the lack of necessary documentation and promises of unrealistic return, is so material that I have no hesitation in concluding that 100% of the loss was directly attributable to respondent,” said Pillai.
The Ombud ordered the respondent to compensate the complainant in the amount of R43967 (R50000 less R6033, 00) plus interest.
Click here to read the full determination (PDF file 49kb)
