Hidden truths are spoken lies
Author Fyodor Dostoyevsky once said, “the man who lies to himself and listens to his own lie comes to a point that he cannot distinguish the truth within him, or around him, and so loses all respect for himself and for others.”
This was the issue in the recent determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud). The case was between Clement Bezuidenhout (hereafter referred to as the first complainant), Maria Jacoba Bezuidenhout (hereafter referred to as the second complainant), Alesio Mogentale (hereafter referred to as the first respondent) and Introvest 2000 CC (hereafter referred to as the second respondent).
The complaints lodged by the complainants arise out of a failed investment known as BondCare, held in the name of Introvest 2000 CC, an entity that was controlled by the first respondent.
One wrong move
BondCare was registered in 2004 with its trustees being one Louis Jeremia Cornelius Smit and Alesio Mogental. In September 2009, the first complainant invested R222 643 in the fund, and R100 000 in January 2011. The second complainant also invested R228 984 in September 2009, and according to the contracts signed by the complainants, they were both promised 18% interest per annum in respect of all three investments.
The complainants alleged that these investments were made in pursuance of the advice of the first respondent who at the time had advised them that BondCare was a safe investment that paid an attractive interest rate, and that all the entities associated with BondCare complied with the applicable laws; as the fund was regulated by the Financial Services Board (FSB). This implied that complainants did not have to concern themselves with the safety of their capital as BondCare and its associated entities were law abiding citizens.
A lie is a lie
In July 2012, the complainants received word that BondCare was experiencing financial difficulties. Therefore, they took the matter up with the respondents requesting that their investments be immediately withdrawn from BondCare and paid out to them. Instead, the respondents requested the complainants to invest more money, advocating that their investment was safe with BondCare.
At the beginning of 2013, the complainants received further news of BondCare’s financial woes. It is at this point that the respondent conceded to BondCare’s financial difficulties. Allegedly, he persuaded the complainants that their monies would be paid with interest eventually, albeit later. The complainants later learnt about the investigations instituted by the Registrar of Banks into the affairs of the BondCare entities, the subsequent winding up of BondCare Financing CC and sequestration of the estates of BondCare trust and Smit.
The complainant’s claim that, had it not been for the advice of the first respondent, they would not have invested in BondCare. Accordingly, they requested the Office to order the respondents to repay their investment with interest.
At the beginning of April 2014, the FAIS Ombud requested the respondents to resolve the complaints with their clients, to which no response was received.
On 25 April, the Office further invited the respondents to furnish the Office with their version of events together with any supporting documents. These included their records of advice, copies of any needs analysis performed on their clients’ and evidence of having determined suitability of the BondCare products in relation to the complainants’ circumstances.
The respondents were further warned that they may be held liable for the financial damage complained of by the complainants and yet, to date, no response has been received from the respondents notwithstanding the invitation. With the respondents having failed to provide their version, what remained was for the Office to determine the matter on the basis of the facts at hand; whether there was any violation of the FAIS Act and/or the General Code when the respondents rendered the financial services to complainants and if so, whether such violation was sufficiently connected to the loss complained of by the complainants.
Failing legal obligations
BondCare had never been licensed as a financial service provider. The second respondent, the entity that was led by the first respondent, was the licensed provider. Clearly, the claim was made to deliberately mislead the complainants to believe they were dealing with a properly licensed entity.
The first respondent was aware that there existed no governance and no controls to manage risk of theft and fraud in the business. Once money was paid into the account of BondCare, clients were at the mercy of Smit and whoever else came into contact with the money. The second respondent knew at the time that a return of 18% per annum was out of kilter with what large commercial entities, which had long been in the business of investing money, were paying. The first respondent also knew there was no real economic activity to generate the lofty returns and thus, failed to disclose the risk involved in the BondCare product.
The respondents had a duty to disclose this information. They failed to provide suitable advice to the complainants, which also is in conflict with Treating Customers Fairly (TCF). The respondents appear to have been preoccupied with peddling the BondCare product, whether or not it was suited to the complainants and their circumstances and were not concerned with complying with the FAIS Act and General Code.
The first complainant’s amount claimed is R222 643, while the second complainant claims R222 984 and R100 000, bringing the total amount claimed to R545 627. It is reasonable to conclude that complainants’ capital has been stolen and was unlikely to be recovered.
Both complaints are upheld and the respondents are ordered to pay, jointly and severally, the one paying the other to be absolved, to first complainant, the amount of R222 643 and the second complainant, the amount of R322 984 with an interest at a rate of 9%.
Editor’s Thoughts:
An adviser must take reasonable steps to ensure that the client understands the advice and that the client is in a position to make an informed decision. Poor advice from a few is a major contributor to some of these determinations handed down by the FAIS Ombud. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
