In a recent determination by the Financial Advisory and Intermediary Services Ombudsman (FAIS Ombud), the complaint arises out of an investment gone wrong.
The complainant, Jeanne Peens, filed a complaint against the respondents; Huis van Oranje Finansiële Dienste Bpk (the first respondent), Barend Petrus Geldenhuys (the second respondent) and Stephanus Johannes Van Der Walt (the third respondent) requesting the respondents to return lost capital in an investment that was, according to her, inconsistent.
Background on investment
On the advice of the respondents, Peens invested a total amount of R125 000 in Purple Rain Properties trading as Realcor Cape, which is now liquidated.
Realcor used various subsidiary companies including Midnight Storm Investments (MSI), which owned the Blaauwberg Beach Hotel (hereinafter, the hotel), Grey Haven Riches and Iprobrite to raise substantial amounts of money from the public.
These funds were mainly earmarked for the construction of the hotel by issuing the investing public with debentures and shares. The debentures and shares were marketed as attractive to elderly persons making provision for post-retirement income on the basis that investors would receive monthly interest payments and dividends before and after the construction of the hotel. Realcor investors were promised more than 10% interest per annum.
Something fishy
Meanwhile the investment was publicised as safe and guaranteed and that there was minimal risk of loss of capital as the investment was “in property” such as the hotel. Pursuant to concerns and allegations raised by members of the public that Realcor was obtaining money from the public unlawfully, the South African Reserve Bank (SARB) conducted an inspection through PricewaterhouseCoopers (PWC) on Realcor.
The SARB found that Realcor had conducted the business of a bank without being registered or authorised to operate as a bank and thereafter took steps, by appointing PWC, to ensure that investors’ money is repaid.
Attempts to put Realcor under business rescue as an alternative to liquidation failed. Realcor was eventually liquidated. The hotel was eventually sold for approximately R50 million which, according to the determination, is likely to have been paid to FNB as one of the secured creditors.
As a result of Realcor’s liquidation, investors lost their investment capital, accrued interest and/or dividend payments.
The brokers who sold Realcor investments applied to Court for an order indemnifying them from their clients’ claims contending that the Reserve Bank’s intervention in Realcor was the cause of the Realcor collapse. The brokers asked the Court to hold PWC liable for losses of investors’ investments on the basis that investments were sold to the public whilst PWC were managers and in charge of Realcor.
However, the Court found that the Reserve Bank and PWC only supervised Realcor and did not take control of its daily operations.
The complainant’s version
Peens contacted the third respondent following a marketing campaign on Radio Pretoria in 2009. On the question of whether Realcor was a suitable investment during the course of the engagement, the third respondent responded positively. She stated that the forms where she committed to invest her funds were signed summarily on the date of meeting the respondents.
Among the forms signed was a record of advice document. This form in essence states that Peens did not want to give information necessary for a determination of her needs, which she contends was a lie. Her version is that at that particular time, she had not been aware that an “affordability and risk profile analysis” ought to have been conducted before the conclusion of the sale. According to Peens, neither the second nor the third respondent brought this to her attention.
The complainant states that her husband had spoken to the second respondent about the media reports suggesting that interest payments had stopped. The complainant states that the second respondent appeased their anxiety and the first respondent stated that “it was only a matter of time before Realcor recovered” and that he himself had also invested in Realcor.
When these assurances came to naught, she lodged a complaint with the FAIS Ombud seeking repayment of her investment capital.
Respondents self-defend
The essence of the respondent’s defense:
“Mrs Peens heard the advertisement on Radio Pretoria regarding the investment. She enquired about the investment and all information about the investment had been discussed. She has been a client of Realcor since July 2009 when she invested R100 000. It matured and she re-invested it in April 2010. In October 2010 she invested a further R25 000. The allegation made by the client that the representatives did not ask her for information to a needs analysis is not true as the client signed the “Record of Advice” document where she agreed that it is not necessary to do a needs Analysis.”
We summarised the determination for you but you can download the original determination here and read more on the findings. In determining the matter the FAIS Ombud ordered the respondents to pay the complainant the amount of R125 000.
Editor’s Thoughts
In the determination there is mention of the fact that the SARB appointed PWC to ensure that investors’ money is repaid. Soare the brokers not right in saying that PWC be liable for paying back the investors’ money? Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za
Comments
Added by Dipuo Selikane , 19 Jul 2019My grandfather invested almost R1,000,00.00 trough his broker Pieter Nel Brokers. As everyone know he lost all his money and still needs to work at the age of 81. Please advise me what i can do in order to help them to get the money back as they invested all there money in the hope of having a good retirement. Report Abuse