New FAIS Ombud rules three times against errant Garek Broker

Barely a week after taking office, the new FAIS Ombud came out with guns blazing when she ruled against a broker three times in matters regarding the GAREK scheme which has seen more than 2000 investors lose millions of rands.

Ms Noluntu Bam, the Ombud for Financial Services Providers, found the Andre van der Merwe of Uvongo, KwaZulu-Natal, had caused three complainants to suffer financial losses because of his poor advice.

Last month the former FAIS Ombud Charles Pillai ordered Van der Merwe to repay Adolf Hare R30000 and Christina Hare R10000 after the promised growth in their investments had failed to materialise.

The Office of the FAIS Ombud has so far received at least 14 complaints relating to financial services rendered in the course of recommending investments in the GAREK scheme.

This week Ms Bam ordered Van der Merwe to repay three complainants, Jacobus Francois Meyer of White River, Mpumalanga; Catherine Elizabeth de Boer of Umtentweni, KwaZulu-Natal; and Renier Stephanus Meyer of Kyalami, Gauteng, a total of R140 000 after he was

found to have placed his clients at risk by inducing them to invest with GAREK.

All the complainants told similar stories of how they had been taken for a ride by Van der Merwe. They said they were never in a position to understand either the structure of or the risks involved in the scheme. All Van der Merwe was interested in doing was to place more pressure on them to act expeditiously given the imminent listings of GAREK.

Jacobus Francois Meyer told the Ombud that in December 2004, he was informed by his mother, an existing client of Van der Merwe, about a new investment opportunity: a company which was to list on the stock exchange in several countries.

He purchased R7 500 worth of shares from the respondent on 13 December 2004.

Later in the month, he was invited to attend a typical presentation by respondent. He was

introduced to GAREK, and provided information by Van der Merwe on the company and its prospects. He was advised of an imminent listing in three countries. Upon listing, shares purchased by complainants for R2, 50 were projected to reach R20.

This return was compounded by the fact that the structure of the investment was such that they automatically received two shares in GAREK for every MATRIC share purchased.

Van der Merwe promoted the company in glowing terms and made much of the fact that he himself had invested in excess of R1 million in MATRIC shares.

The assets of the company were reportedly substantial amounting to some R5, 4 billion. Complainant was shown an article in the Time magazine which painted the company in a very positive light and appeared to be supportive of Van der Merwe’s claims as to the soundness of the investment.

In reality this article was merely promotional material placed on a limited number of copies of TIME magazine. The information contained therein was neither endorsed nor verified by TIME magazine. In short it was an advertorial taken out by GAREK itself.

Van der Merwe pointed out an impressive list of company directors, amongst them the former president of Botswana, Sir Ketumile Masire.

No interview was conducted to assess whether the investment was suitable to either his future or present financial position.

The risks associated with the investment were never mentioned or discussed.

Van der Merwe advised Jacobus Francois Meyer that the opportunity apparently expired at the end of December 2004 and as such he was encouraged to act fast.

As such and acting on the advice of Van der Merwe, Jacobus Francois Meyer made a further investment of R7 500 on 31st December 2004.

The promised listing and several future listing dates never materialised. Various reasons were advanced for the delay, several of which supposedly offered increased shareholder value. In addition various company annual financial statements were not issued.

Renier Stephanus Meyer said he had been introduced to Van der Merwe by his brother who was an existing client.

Acting on Van der Merwe’s advice, he invested R25 000 on 12 November 2004, an additional R25 000 on 24 January 2005 and further a R25 000 on 22 April 2005.

He said he had been assured of the soundness of the investment by Van der Merwe, only to discover he was on a ticket to financial disaster.

Catherine Elizabeth de Boer said that acting on the advice of Van der Merwe, on 20 May 2005 she invested R50 000. At no point were the risks relating to the investment disclosed. In fact undue pressure was placed on her to make the investment.

She said the R50 000 investment, a car and a small pension fund represented the sum total of her assets, the consequence of a recent divorce,

She said she had specifically advised Van der Merwe that the funds were intended for her youngest daughter’s university fees,

No needs analysis or risk profile was conducted to ascertain if the investment was suitable to her needs.

The promised listing and several future listing dates never materialised. Various reasons were advanced for the delay, several of which supposedly offered increased shareholder value.

Five years later she was still waiting for the listing to take place.

Asked by the Ombud to respond, Van der Merwe replied with a lengthy explanation of the origins and interwoven share transactions of GAREK.

In so far as the risks of the investment were concerned, he said “the Complainants were categorically and specifically informed of the high risk coupled to unlisted shares”.  

Ms Bam found in all three complaints that Van der Merwe, as a result of his failure to carry out the most basic of due diligences, either lacked a proper understanding of the product or more seriously may have been complicit in a fraud perpetrated against innocent investors.

She said no disclosure documentation was provided to the complainants and Van der Merwe had failed to employ appropriate risk control measures.

She said the advice offered by Van der Merwe could not have met the complainants’ needs, given the fact that the shares themselves were worthless.

Van der Merwe had evidently not concerned himself with the fact that essentially he acted in a position of conflict of interest; his loyalties lying with GAREK and the commission which it paid.

Not only did he invest complainants in worthless shares but they had lost whatever growth they would have received, had the money been appropriately invested.

Ms Bam said she had no doubt that the many violations of the General Code of Conduct for Authorised Financial Services Providers were deliberate, and as such in inducing complainants to invest with GAREK, he knowingly placed them at risk from inception.

She ordered that all three complainants not only be placed back in the position they were in prior to the investment but that interest thereon accrue from the date that the monies were invested.