Illicit activities entangled in investors’ monies
In a recent determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud), the complaint arises out of a failed investment into a scam known as BondCare.
The complaint
During October 2010, Johannes William van Breda, the complainant, met with the first respondent, Alesio Mogentale in order to seek advice on how to invest his life savings. With all the savings he had at the time, Van Breda says he was cautious and carefully questioned Mogentale as to the stability of BondCare Trust.
Montgale gave him the assurance that all was well and that the investment was “as safe as houses”. Notwithstanding Montgale’s assurance, Van Breda was still concerned and explicitly mentioned that his investment in Bondcare was critical to his future financial needs and that he could not risk investments in debatable investments.
The first investment was made in October 2010 in the amount of R200 000. In March 2011, Van Breda made a further investment of R250 000. According to the statement from BondCare Trust, Van Breda’s investment had already grown to R262 260 in five months, this notwithstanding the monthly income paid. A further investment in the amount of R5 500 was made on 23 January 2012.
In June 2012, Van Breda received a note from Montgale’s colleague Jeremia Smit, (Smit) informing him of an investigation into the affairs of the BondCare group by the South African Reserve Bank (SARB). According to Smit, SARB was concerned that the BondCare group were conducting the business of a bank.
Further down the line
Smit further mentioned that they, as BondCare, had already responded to SARB stating that BondCare was a voluntary association. However, SARB was unimpressed by the response and went ahead with the appointment of a Mr Jaco Spies as Receiver.
Van Breda was advised by Smit that the Receiver would liquidate all the assets and divide them amongst the investors, after subtracting certain funds. Van Breda was further invited to direct any queries he might have to Spies.
Van Breda states that upon contacting Montgale for an explanation, the latter apparently confirmed the SARB investigation, adding that it would soon be settled. Subsequent thereto, Van Breda delivered a letter to Montgale on 30 July 2012 requesting immediate return of his capital. Having not heard positively from Montgale, he lodged the present complaint on 21 August 2012.
A piece of the puzzle
During November 2009 the Registrar of Banks appointed an inspector to establish whether BondCare or any of the entities associated with BondCare were conducting the business of a bank.
This resulted in a new model being introduced by BondCare in 2010. Two new entities were established known as BondCare Trust Association (hereinafter referred to as the Association) and BondCare Financing, referred to as BondCare.
Montgale and his colleague Smit, remained at the helm of BondCare as its only members. In the new model, which essentially mirrored what the original BondCare Trust was doing, investors’ monies were advanced to conveyancing attorneys to provide bridging finance. The only difference being, in advancing the monies to the attorneys, BondCare acted as the agent of the investor for a fee.
Investors became members of the Association and were entitled to receive interest on their investments. Investors were informed that the investment could be withdrawn at any time subject to notice and availability of funds in the attorneys’ trust account. Depending on the choice of product selected, investors could earn between 15%, 18% and 22% interest per annum. The new scheme was punted as low risk and BondCare was said to be a licensed Financial Services Provider.
According to the FAIS Ombud, in truth, no entity in the BondCare stable had ever been licensed. A little unknown entity known as Introvest 2000 (the second respondent), the members of which were Mogentale and his wife Tina Mogentale, allowed its license number to be used by BondCare in their expedition to defraud investors. During 2013, a request was made to the regulator to lapse the FAIS license of Introvest 2000.
Van Breda requests that respondent be held liable to pay his capital because according to him, Mogentale failed to appropriately advise him of the risk of being involved in the BondCare investment. This Office referred several letters to Mogentale inviting him for his response, only to be met with deafening silence.
The final say
The FAIS Ombud mentions that no investor knew what happened to their money after paying it into BondCare. In addition, there was no credible process of verifying what happened to the funds after they were paid into BondCare.
The Office states the claims made by Mogentale about the alleged safety of the BondCare investment were nothing more than lies to lure unsuspecting investors. Predictably, as soon as the money was paid into BondCare, Mogentale and Smit, hiding behind an undisclosed conflict of interest, started paying themselves undisclosed amounts of money from investors’ funds.
In summation, the FAIS Ombud says Mogentale failed to place Van Breda in a position where he could make an informed decision about the BondCare investment. Not only did Mogentale fail to disclose his interest in BondCare, says the Office, but he also failed to disclose the risk involved in the investment
The respondents, according to the FAIS Ombud, are ordered to pay the complainant the amount of R455 000.
