This could make Leader Guard look small
On 4 April 2008 the FAIS Ombud made its first determination in a case involving monies invested with Fidentia Asset Management. Deputy Ombud for Financial Service Providers Noluntu Bam ordered that Sanlam Insurance Limited repay the complainant an amount of R254 000 plus interest, being the total investment she made through one of the company’s employee reps / agents. Fidentia collapsed in spectacular fashion and criminal trials involving the company’s director J Arthur Brown and financial manager Graham Maddock are still ongoing.
The complaint
Mrs Elizabeth September is one of 19 clients whose monies were invested with Antheru Investment Trust on the advice of Sanlam employee, Willie Jordaan. Antheru in turn placed these funds with Fidentia Asset Management. Early in 2007, When Fidentia’s activities were placed under the control of curators, 17 of these clients were still invested in Fidentia. Their collective investment amounted to approximately R2.19m.
September had approached Jordaan in 2004 to invest an amount of R254 000 (the proceeds from a lump sum paid on her retirement) to provide regular income. This income was forthcoming until February 2007 when payments ceased. The complainant learnt of Fidentia’s financial woes through the media. When she approached Sanlam to find out what had become of her investment she was referred to Antheru Investment Trust or Fidentia Asset Managers for further information. Sanlam “denied liability for any loss she may have suffered.
Sanlam further advised that if she was unsatisfied with the responses from the investment companies concerned she could approach the FAIS Ombud for assistance. This is exactly what she did. On 22 June 2007 September wrote to the asset managers (sic) to establish what had happened to her money. At the same time she approached the FAIS Ombud. Her complaint was that “as a direct result of a consultant, then in the employ of Sanlam” she had invested her pension with Fidentia.
Denying accountability
Sanlam told the Ombud that the 17 clients whose funds were invested with Fidentia would most probably lose the full value of such investments. However, they denied accountability, stating that Jordaan’s actions were contrary to their explicit rules relating to how investments be made. Sanlam felt that the negligent activities of their ex-employee were not grounds for liability and recommended that investors approach the curators of Fidentia for compensation.
The key consideration in this matter was whether a financial services provider should be held accountable for the activities of a ‘rogue’ employee. Sanlam’s defence was that Jordaan had not acted within the scope of his employment. They claimed that Jordaan had acted of his own accord in investing clients’ money with Fidentia. Jordaan’s contract was terminated in May 2007 following internal disciplinary proceedings. The company had also taken steps to debar him.
Company responsible for ‘rogue’ employee
In reaching the verdict Bam consulted with a number of other clients advised by Jordaan. From their testimony it appears they were put at ease by the fact Jordaan was an employee of Sanlam. “The common thread running through these complaints is that the complainant and other investors based their decision to follow Jordaan’s advice to invest in Fidentia because they met him at his office in Sanlam or because he was from Sanlam,” said Bam. It was held that “where the employee is partially promoting the interest of the employer and partially his own, the employer will be liable.”
There were further important considerations too. These include that Jordaan used the employers’ resources and that his investment avenues were restricted by the employer. “Sanlam is no doubt a major role player in the financial services industry. Hence the investors appear to have been lulled into a false sense of security because Jordaan was its employee.” This led to the conclusion: “Given these facts, I am of the view that Sanlam ought to be liable for the loss suffered by the complainant.” No doubt this ruling will force financial services providers to pay closer attention to the activities of their tied agents.
Editor’s thoughts:
Bam relied on the concept of ‘fairness and equity’ in making this ruling. She quoted a recent UK High Court decisions which said “whilst the ombudsman had to take account of the law, he was not required to decide a case in accordance with the law, as would a court, provided that his decision was fair and reasonable in all the circumstances.” It seems certain more Fidentia rulings are in the pipeline. Are any of your clients invested in Fidentia and do you fear similar interventions from the Ombudsman? Add your comments below, or send them to [email protected]
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