FANews
FANews
RELATED CATEGORIES

Boiler room operators reel under R4 million penalty

19 November 2012 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

On 6 November 2012 the Enforcement Committee of the Financial Services Board (FSB) imposed a R3 million penalty on Advocate George Catsicadellis and a R1 million penalty on Monica Greyvenstein (nee Botha) for contravening various provisions of the Financi

Catsicadellis was an authorised Financial Services Provider (FSP) and conducted business under the name of Investcare, based in Cape Town. The Registrar of Financial Services Providers withdrew his licence on 8June 2011. Greyvenstein was a representative of Catsicadellis during the period relevant to the contraventions in the case. During 2008 to 2010 Catsicadellis and his representatives (including Greyvenstein), cold-called randomly selected members of the public and advised them to invest in Platfields Limited shares. They employed high-pressure selling tactics to convince their ‘marks’ to invest in the unlisted mining exploration company… Most of the shares marketed were owned by Catsicadellis.

A clever strategy to fleece unwitting investors

The Committee reveals that Catsicadellis purchased large number of shares in then unlisted gold and platinum mining company Platfields for around 80c per share. Catsicadellis, with the active assistance of Greyvenstein, operated a boiler room to on-sell these shares to unwitting investors. The term boiler room, according to website Wikipedia.org, refers to a room where salesmen work using unfair, dishonest sales tactics, sometimes selling penny shares, private placements or committing outright stock fraud. Catsicadellis made various misrepresentations regarding fictitious listing dates, listing prices and exorbitant growth projections of Platfields shares to lure investors in.

Through Investcare some R7 million worth of Platfields shares were sold to 736 investors. The shares, sold at around R3/share, eventually listed on the JSE Limited at just 7c/share. According to the Committee: “The fact that within days after the listing of Platfields shares, shares in the company were [changing hands] at 7c/share, goes far to show how misguided the 736 persons were and that an investment in Platfields was highly speculative”.

It found that the use of cold-calling was singularly inappropriate for this type of investment and condemned the conduct of strongly urging persons sought to be made clients to invest in what was plainly a highly speculative investment, at inflated prices, in shares owned by the seller. The Committee concluded that Catsicadellis’ conduct amounted to a flagrant disregard of the statutory directives of what is to be expected of an FSP.

The charges

We turn to the ‘charge sheet’ to find out where the respondents erred. Although six chargers are listed the bulk of the determination deals with the first, namely that the respondents “set about flogging Platfields shares in a deceitful manner for amounts well in excess of their intrinsic value [and also] touted for clients in an improper manner”. The Committee said that there had been improper conduct in attaining contact and communication with potential buyers of the shares and misrepresentations to potential clients regarding the merits of investing in the shares.

Its allegations were underpinned by 15 independent testimonies that confirmed a similar modus operandi in marketing the ‘opportunity’. Each of these ‘witnesses’ swore that they were approached telephonically by someone at Investcare. They added that the contact was unsolicited and that they had no prior businesses dealings with the company. In each case the investor was offered an opportunity to purchase Platfields shares with the promise of massive returns at listing – which date was falsely stated as mid-2009 – and substantial gains within two years after listing. (Platfields only applied for a listing in Q3 2010, which request the JSE granted on 3 December of the same year).

Smashing a disingenuous defence

Among his many ‘defences’ the respondent argued that none of the share purchasers were in fact clients when the cold-calling took place. In this regard, the Committee noted: “We consider that the purchasers of Platfields shares via Investcare became ‘persons who may be clients’ the moment they were earmarked by Investcare with the intention of urging them to purchase Platfields shares”. The Committee also dismissed the claim that calling on several persons to buy Platfields shares amounted to the rendering of advice to the general public… It determined that the conduct of both respondents fell squarely within Section 2 and 3 of the Code – namely General and Specific Duties of Providers – which duty they both contravened.

As for the remaining five charges, the Committee determined that Catsicadellis contravened Sections 14(1)(a) and b(i), (ii) and (iii) of the Code; Section 13(2)(b) of the FAIS Act; Section 15(2)(a) of the Code and Section 21(1) of the FIC Act. [Readers can view the full determination here]. It concluded that Catsicadellis did not obey the dictate that he should act in the interest of his clients; but acted solely in the promotion of his own interests. The use of misrepresentations in order to secure sales at relatively high prices for Platfields shares amounted to a complete absence of honesty and fairness.

Editor’s thoughts: South African investors have fallen victim to a number of “boiler room” scams in recent years. Although the Enforcement Committee action should be applauded it is too little too late for the affected investors. And one cannot help but wonder whether the punishment fits the crime. Do you think that the Enforcement Committee action should be followed up by criminal prosecutions? Please add your comment or send it to gareth@fanews.co.za

Comments

Added by Happyboy, 20 Sep 2018
I was also a victim but they deducted only once the amount of R400 which was to be deducted every month fortunate for me I lost my job and so they couldn't continue with the deductions I also have their correspondence
Report Abuse
Added by Elize Crous, 19 Apr 2018
Me and my husband invested R240 000 in those shares that Catsicadellis sold. I still have all the correspondence from his office as how they lured me in.I was such a fool and wish that I can get only half of our money back.
Report Abuse
Added by Craig A, 19 Nov 2012
This is outright fraud/theft. He should go to jail. They took in R 7m, but paid R3m in fines. Still sounds like a good deal to me! He should be fined for the full amount of the money he stole, plus get jail time. If a poor person steals a loaf of bread, they get jailed. There is no justice in this country.
Report Abuse
Added by RonelleB, 19 Nov 2012
Can someone please explain the role of the FSB to me regarding these type of schemes or do they wash their hands and hide their heads in the sand until the damage is done before they take action. What do they actually activlely do to PRTOTECT the public and PREVENT such marketing to take place?
Report Abuse
Added by Irene, 19 Nov 2012
As much as we want the FSB to be everywhere and control everything, nobody can protect people from their own ignorance or greed. When will people learn that "if it sounds too good to be true, then it is too good to be true" and stay away from such scams, especially when coming from "cold call" canvassers. There is still the principle of "willing buyer, willing seller" in all business dealings. We all have the RESPONSIBILITY to exercise our mind on the reasonableness of a price charged in any of our business and commercial activities or when advisers promise us above average returns. If people get overcharged on e.g. a car, furniture, etc who do they look to for redress? - also the government? All FAIS does is regulate the financial services sector to ensure competence and ethics prevails to protect clients and steps are taken to "weed out the undesirables" when they don't comply.
Report Abuse
Added by Ingrid D, 19 Nov 2012
Agree with Craig A. Even though they actually paid R4m in fines, 42% is still a good profit percentage. These scum belong in jail, minimum sentence 15 years.
Report Abuse

Comment on this post

Name*
Email Address*
Comment
Security Check *
   
Quick Polls

QUESTION

The shocking crime and motor vehicle accident statistics shared during a recent SHA presentation suggests that group personal accident and personal accident cover are a no-brainer. Do you agree?

ANSWER

Yes
No
Not sure
fanews magazine
FAnews April 2024 Get the latest issue of FAnews

This month's headlines

FAIS Ombud lashes broker for multiple compliance blunders
TCF… a regulatory misfit initiative?
The impact of NHI on medical malpractice insurance
Fixed versus variable: can you have your cake and eat it too?
The future world of work
Subscribe now