FAIS Ombud refuses "opportunistic" leaderguard broker leave to appeal

A broker who was ordered by the FAIS Ombud to pay back clients the money spirited away in a Leaderguard investment scam has been told he is being "opportunistic"  by asserting the Financial Services Board must make good the loss.

FAIS Ombud Charles Pillai who ruled on 20 March 2007 that Ewing Trust Company Ltd must pay a KwaZulu-Natal couple, Selwyn and Christine Comrie, their investment of 28 477.43 Euros, was faced with a copious application for leave to appeal with "repetitive submissions".

In terms of the FAIS Act, an aggrieved party has a period of one month in which to lodge an appeal. Such an appeal can only be pursued with the leave of the FAIS Ombud.

In its application, one of the grounds raised by the Respondent was that since the Ombud had in his determination criticised the FSB for granting an exemption to Leaderguard Spot Forex, the FSB should, therefore, be held liable for the loss.

Responding to Ewing Trust Companys claim that the "direct cause of the loss suffered by Complainants was the improper issue of an exemption by the Financial Services Board in breach of its statutory duty," Pillai said this submission was "incorrect".

"It is evident from the various grounds of appeal raised by Respondent that it is blaming everyone else, from Leaderguard Spot Forex to the Financial Services Board, yet fails to give a full and proper account of its own conduct, in particular its enquiries into Leaderguard Spot Forex and its products.

"Indeed, it is clear from this application that the Respondent is being opportunistic".
 
Pillai said the Respondent had placed its own interpretation on his criticism of the manner in which the exemption that allowed Leaderguard to continue to render financial services in forex was allowed by the Registrar of the Financial Services Board.

"The fact that the Respondent is not licensed is but one of the aspects of non-compliance and failure to act with due skill, care and diligence as required by the FAIS Act, that I make reference to in the determination.

"Therefore, there is no merit to this ground of appeal and it is unlikely that the Appeal Board would come to a different conclusion," said Pillai.

Reacting to comments that it was not given an opportunity to fully present its case before the FAIS Ombud, Pillai said there was no basis for this complaint.

"At no stage of the investigation was the Respondent denied an opportunity to place all relevant facts before me;

"The Respondent made lengthy and comprehensive representations before me. Such representations were made with the assistance of Senior Counsel.

"There is, therefore, no basis for the Respondent to now complain that it was not consulted or given an opportunity to make full submissions to me."

Pillai also lashed out against the repetitive nature of the submissions made by Respondent and the "potentially contemptuous" manner in which it criticised his investigation of the matter.

"The repetitive nature of the respondents submissions and the unnecessarily lengthy papers filed do not assist the process and are in fact an abuse that should be avoided."

Pillai also rejected the various other grounds raised by the Respondent relating to its licence status, the appropriateness of advice as well as Respondents understanding of the risk involved in financial product recommended.

South Africans have repeatedly fallen prey to various bogus investment schemes. Loss to investors occasioned by the Leaderguard scheme has been estimated around R300 million.

Tragically investors in Leaderguard and other similar schemes such as Masterbond, Prozet, Platinum Asset Management and Chinza have been pensioners who lost their life savings and have been left destitute while the perpetrators have got away.
 
To make matters worse, attempts by some victims to get back their investments have been stymied by appeals against judgements.

Thus far, the FAIS Ombud has received applications for leave to appeal in every single matter involving investments in Leaderguard. The appeals have put on hold the obligation to repay investors their money.

Meanwhile the FSB was requested to present Parliament"s Portfolio Committee on Finance with a response after Pillai had been requested to address the committee following his determination in the Comrie case and his criticism of the FSB's regulatory failure in the matter.

Pillai told the finance committee that bogus investment schemes had to be stopped in their tracks. This could only be done if they were prevented from entering the system.

He said the only effective way to prevent them from entering the system was to ensure that in the licensing process, there was a thorough assessment of the fit and proper requirements.
 
The finance committee heard that the persons involved in the Leaderguard scheme were persons whose reputation had been tainted from having been involved in other fraudulent and pyramid type forex investment schemes.