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Sharemax… a breaking case in favour of the adviser

12 December 2018 Myra Knoesen

Collapsed property syndication company Sharemax has made many headlines, with the Ombud often ordering advisers to pay back investors their money. In a breaking case, the High Court in Durban has ruled in favour of a financial adviser who placed an investment in Sharemax (The Villa).

The plaintiffs in this matter Shane Alan Symons (First Plaintiff) and Johanna Aletta Symons are the trustees of the Symons Family Trust. They seek damages against Rob Roy Investments, the defendant, represented by its sole member, Mr Peter Griffin, who is their former financial adviser and investment broker. The basis of the claim, as pleaded, is that on the defendant’s advice the trust invested a total amount of R5 million in Sharemax Investments, and lost the whole of its investment when the scheme collapsed.

An astute businessman

Symons and his wife are the two trustees of the trust. He was a 50% shareholder and director of a sales and merchandising company. He and his partner sold the business in 2009. This left Symons well off financially, so much so that he planned to retire early.

Griffin became Symon’s financial adviser in 2006. Griffin got to know Symons well, and said Symons was an astute businessman. He managed his own share portfolio and occasionally boasted about its performance.

During the period 2006 to 2008 Symons, either personally or on behalf of the trust, made a number of investments through Griffin. During May or June 2009 Symons received an amount of about R7 million, which represented one half of his share of the selling price of their business. He was to receive the balance in two later instalments. He mentioned to Griffin that he intended to retire early and that he was interested in an investment which would produce a monthly income.

Griffin mentioned the Sharemax investment to Symons on the phone, and they agreed to meet to discuss this further. When they met, he explained to Symons that the Sharemax product was an investment in a shopping mall which was being constructed in Pretoria, that he would receive 12.5% interest from the date of the investment, and after the occupation date a monthly payment from the rental income, which would escalate every year. He left some documents regarding the scheme with Symons.

Enquiries with Sharemax

A week or two later Symons phoned him and said he had made up his mind and wanted to invest an amount of R2 million in Sharemax. They met again on 24 June 2009. Symons signed a number of documents relating to the investment and gave Griffin a cheque for R2 million, made out to a firm of attorneys who represented Sharemax. Symons made a further investment of R1 million on 12 November 2009. He received regular interest payments on the two investments, and on 14 July 2010 invested a further amount of R2 million. He received no interest payments in respect of the third investment, and the monthly payments in respect of the first two investments also stopped.

When Griffin made enquiries with Sharemax as to what was going on, he was told that the Reserve Bank had raised a problem but that they were dealing with it. Griffin was in the same boat as he had invested an amount of R600 000 with Sharemax. Part of this was his money and the rest belonged to family members.

It later transpired that the Reserve Bank had intervened as it regarded the funding model as the unlawful taking of deposits from the public and directed Sharemax to change its funding model. It was not able to do so. As a result, it was unable to raise further money, the scheme collapsed and construction on the shopping mall came to a halt. It remains unfinished.

Pleaded by the plaintiffs

The case pleaded by the plaintiffs was as follows. The plaintiffs pleaded that during 2009 and 2010 the defendant advised and persuaded them to invest in Sharemax and represented to them that this was a low risk investment. He also advised them that in accordance with the prospectus issued by Sharemax they would receive an initial income yield of 11% per annum and a guaranteed return of the capital invested by them, after five years. The defendant advised them that the returns were guaranteed.

The plaintiffs pleaded that the defendant breached its contractual obligations by advising them to invest in Sharemax in circumstances where the investment carried a substantial risk, by advising them that the returns were guaranted when this was not the case, by failing to properly investigate Sharemax and its business model, by failing to exercise an independent judgment regarding the proriety of the Sharemax business and the contents of its prospectus and by failing to exercise the requiste level of skill and dilligence that it had represented to the plaintiffs that it possessed.

Expert witnesses

Mr Anton Swanepoel (an expert witness who testified for the defendant) expressed the view that a reasonable financial services provider would have taken into account the reputation of the Sharemax group of companies. In other words, the sound property investments which Sharemax had offered since its inception, the probability of Sharemax failing to be negligible and that there was no indication in the propectus or any other document that the investment scheme was illegal in any way. Also, taking into account the involvement of reputable professional people, that a financial services provider is wholly dependent on information in the public domain, and is not required to act as an amateur detective and investigate the truth of public statements by reputable professional people and the representatives of the investment schemes.

Griffin testified that he had attended a number of lectures and presentations about Sharemax, and had to write an examination on it. He was impressed with its track record and the prospectus, and also by the involvement of professional firms of attorney, auditors and valuers. He testified that after the first meeting with Symons about Sharemax, he left him with a brochure and a copy of the prospectus. Symons said he only received a copy when he signed the documents. The judge in this matter prefers Griffin’s evidence in this regard because it is not disputed that he already had copies of the prospectus before the meeting.

Swanepoel further highlighted that the risk profile of the investor is a guideline and if, on the available information the investor is capable of making an informed decision, a financial services provider will not be at fault when he assists the investor to invest. Symons was an astute business man who managed his own share portfolio. Symons knew what he was letting himself in for.

Cohen, another witness testifying on behalf of the defendant, said that there was enough in the prospectus to enable the investor to make an informed decision. He said there was nothing unsound, unusual or extraordinary in the business model. The only difference was that the development was funded by investors instead of a bank. He expressed the view that the investment could probably have been successful if the Reserve bank had not intervened. 

The claim is dismissed

The cause of loss, according to the judge in this matter, was the intervention by the Reserve Bank and not any breach on the part of the defendant. The loss suffered by the plaintiffs does not seem to be linked closely or directly to any failure on Griffin’s part to explain the risks of the investment to Symons. Those risks had nothing to do with the intervention by the Reserve Bank.

If there was a failure to provide more information to Symons, then in the judge’s view such failure was not the cause of the plaintiff’s loss. The judge concluded that the plaintiffs have not established liability on the part of the defendant and the claim is dismissed with costs.

Editor’s Thoughts:
With regards to all the cases opened against advisers in the Sharemax issue, could the cause of the losses also be the intervention by the Reserve Bank and not any breach on the part of the advisers? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.


 The judgement can be downloaded here.


 

Comments

Added by Deon Pienaar, 11 Jan 2019
This is exactly what my case is about in the Pretoria High Court case no 26035/2017 where I have asked the Court to give me a declaratory order " Declaring that the administrative action and the exercise of their statutory powers by the SARB and the SARB 's officials were unlawful and unconstitutional."

This case was dismissed as was the leave to appeal and that is why next week the leave to the Bloemfontein leave to appeal will be filed.

Should my case succeed, it will open the doors for a delict claim for EVERY AFFECTED PARTY who had lost money as a result of the SARB's unlawful conduct. I'm also holding the SARB responsible for the collapse of other property syndications as well.

For more info contact me at deonpie@mweb.co.za

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Added by Aart Kampman, 21 Dec 2018
Thanks for the clear views that were presented by both sides and the correct verdict by the Judge. The big question still remains that at this stage nobody is willing to openly make a case against THEM that failed to ensure that all the hard working people whom invested in SHAREMAX and are holding debneture certificates for existing shopping centres and the Villa and if I understand this correctly are not even worth the paper they are wrtten on and were given the ensurance by a Hi Court verdict that they will receive back all their monies but are told again and again that there is no money as all monies received are needed to maintain/upgrade etc. plus awaiting offers to cover payments to the existing shopping malls by/to NOVA property that was appointed to act in the best interest of us the certificate holders but in the mean time they live a full life without any shortages.So can anybody please give me an answer or are we going to have to wait until all the pensioners that invested their monies and some of which are going through very hard times are not with us any more?
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Added by James, 20 Dec 2018


https://www.moneyweb.co.za/news/companies-and-deals/nova-teetering-on-the-verge-of-insolvency/
The advisors are not to blame for the cause of losses if i read todays report on Moneyweb.

False hope has been given to the investors as far back as November.....
2010.
The SARB intervened in the case of Realcor as well due to operating illegally as a bank
"The management of cash became a problem because Realcor had to pay investors back some of the money initially raised because of non-compliance with the Banking Act."

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Added by James, 18 Dec 2018
Fact Sheet: Withdrawal of directives in respect of property syndication companies promoted by Sharemax Investments (Pty) Limited.
1. Following an investigation into the affairs of Sharemax Investments (Pty) Limited and various property syndication companies it had promoted, the Registrar’s Office found that the funding models were in contravention of the Bank’s Act.
2. This finding is not a conviction of criminality of the persons involved in the scheme. The Office of the Registrar, however, will report the findings to the appropriate authorities.
3. Following this finding, in September 2010 the Registrar’s Office issued directives to Sharemax and its property syndication companies to repay the funds obtained from members of the public.
4. The Registrar’s Office subsequently appointed independent inspectors as managers, to take control of the assets of Sharemax and its property syndication companies.
5. The majority of the funds were invested in fixed property and, as a result, it would
have been impossible to immediately give effect to the directives to repay investors. The only option would have been to liquidate the companies and to repay the investors. This option would have brought no return for the investors.
6. In the interim, the property syndication companies appointed new independent directors to their board.
7. The Office of Registrar and the appointment managers did not appoint the new board members.
8. The new board of directors requested that the Registrar’s Office grants them an opportunity to consider their options before the companies are liquidated.
9. The board of directors were granted a reasonable period to seek alternative options that would ensure that the companies were not in contravention of the Bank’s Act and that they complied with the directives to pay investors.
10. The board of directors opted to resolve the matter by means of schemes of arrangement as per section 311 of the Companies Act.

11. The Office of the Registrar had no objection to the proposals as the schemes of arrangement require approval by the vast majority of investors as well as the High Court.
12. The Office of Registrar had no influence on the schemes of arrangement and the facts provided in the scheme papers were provided by the property syndication companies.
13. The board of directors also considered the “business rescue” concept, which was introduced when the Companies Act came into effect in May 2011.
14. The fees of the inspection and management of Sharemax and the property syndication companies were paid for by the Office of the Registrar.
15. The appointed inspectors acted in the interest of the South African Reserve Bank and the investors.

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Added by Annette janse van Rensburg, 12 Dec 2018
Soos ek dit nou verstaan is die geld in die prokureurs se Trustrekening,oordrag is nog nie gedoen nie, dan kan die beleggers die geld terugkry?Wat is die probleem dan?
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Added by James, 12 Dec 2018
A letter was received from Chairman of the board of Sharemax investments ( PTY ) Ltd that the Registrar of Bank issued a directive in terms of section 83 of the Banks Act 1990, that the property company Sharemax constitutes the business of a bank and appointed messrs Neels Alant and Jaco Spies to oversee and manage the process in terms of the directive.

Fusrther in a newspaper article it stated that the funding model of Sharemax was in contravention of the Bank Act.

The report further states that Michael Blackbeard ( Deputy registrar of banks in the bank supervision department of the Reserve Bank ) that the mandate of the inspectors was to concentrate on the funding obtained from the general public, determine whether or not it constituted to illegal deposit taking and only to manage the” repayment of funds “.

The report states further that the managers were not empowered to also include an investigation related to notice 204 of 2006 which was issued in terms of the Consumers Affairs ( Unfair Business Practice ) act of 1988.

“No funds are invested by investors with Sharemax investments directly.
Investments funds are paid into Weavind and Weavind attorneys ( established in 1905 ) trust account ,where it falls under the protection and insurance of the Law Society of South Africa, until the funds for the purchase of the shopping centre have to be utilised only when the property is transferred into the names of the investor
Clause 4.8.1 of the Prospectus, that reads:

“4.8.1 The effective date of the property syndication will be on date of registration of transfer of the Immovable Property in the name of Sharemax Zambezi Retail Park which is expected in or about November 2009. All monies received from investors of the Company will be deposited in a trust account with the Attorneys who shall control the withdrawal of funds from that trust account. ... After the effective date, members of the Company will be paid interest on the Claims.”

These notification and report above were kept by me since end of 2010 .
I only received one and a half months interest on my 5 year investment.

To Conclude " My adviser is not to blame of any wrongdoing in this whole matter"
We still as investors do not own "The Villa or Zambezi mall"

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Added by James, 12 Dec 2018
• 25. Directors' responsibility, Promoters’ Confirmation and Undertaking
• 25.1 The directors of the Company collectively and individually accept full responsibility for theaccuracy of information given in this Prospectus and confirm that, to the best of their knowledgeand belief, there are no facts of which would make any statement herein misleading and that they have made all reasonable enquiries to ascertain and confirm all
• .25.2 The directors of the Promoter hereby confirm that a proper due diligence (commercially andlegally) with regard to the Immovable Property and their tenants have been done. The ImmovableProperty was purchased subject to the suspensive condition that the purchaser thereof wassatisfied with the results of the due diligence. A summarised due diligence report is attached as Schedule .
• The directors of the Promoter hereby confirm that a proper due diligence (commercially andlegally) with regard to the Immovable Property and their tenants have been done.
• The ImmovableProperty was purchased subject to the suspensive condition that the purchaser thereof was satisfied with the results of the due diligence. A summarised due diligence report is attached as Schedule L
• .25.3 The Promoter undertakes that in the event of the public property syndication as more fully described herein not proceeding, he will refund to Investors the amounts invested by them( Sharemax is Technically insolvent as they cannot refund us as investors or pay any amounts outstanding to the Developers or Contractors .
• The statement in their prospectus constitutes to Fraud / Missrepresentation )
• " No Funds are invested by investors with Sharemax investments directly.Investmen tfunds are paid into Weavind & Weavind attorneys (established in 1905 )trust account ,where it falls under the protection and insurance of the Law Society of South Africa,until the funds for the purchase of the shopping centre have to be utilised only when the property is transferred into the names of the investors
• .(The property has not been transferred as yet into the names of the investors ) Sharemax investments assists the investors by managing the shopping centres on their behalf.Should anything ever happen to Sharemax investments there will be no effect on any investor's investment,as the client's funds are not invested in Sharemax investments ,but directly in the shopping centre.
• ( A false statement and Sharemax would confirm that this is what was said to their investors these facts were presented to me as part of their marketing strategy )
• .Sharemax investments offer investors a product which,with low risk,delivers a very good monthly income as well the potential of capital growth,which protects the invested amount from eroding effect of inflation.
• ( I have not seen any capital growth on my " investment" and last received interest payment in September 2010 .)Sharemax Investments latest projects offers an initial income of 12.5 % per annum, which is paid out monthly plus good capital growth.
• ( False as the total income /interest i received on my " investment " was less than that over the period of time that i did receive an income . It seem more like that our " Invested " funds were used for Bridging Finance as we own nothing .The building/s are still not registered in our names.I wanted to use my "Share/debenture certificate as security against a loan at my bank but was informed that the investment certificate is a wothless piece of paper !" The investors have full ownership of the shopping centres and have sole voting rights when any big decision must be made,such as when an offer to purchase such centre must be made" The above are
• documented facts that were presented to us. "The former commisioner of police is currently serving a jail sentence for crime he committed" Similar allegations are being made against General Bheki Celeof the SAPS regarding property leasing deals and more recently we have another story about possible crime that was commited by the current head of the SAPS intelligence division.
• It is great to hear that our former and retired Judge stated in the certain media that no fraud or theft was commited by anyone who was part of the promoters of the Sharemax syndication scheme. Less than 75 % of the investors voted for the 311 scheme .
• Those that received their Proxy paper in time from Frontier to vote, made up less than the minimum of 75 % of the investors that voted although it is stated that 99 % voted in favour of the rescue plan.
• The Honourable retired Judge will tell you.....The Power Of JusticeIs That The Hour Of Justice doesn't Run Out Of Time
• Anywhere
• Slow justice is better than no justice
• Sharemax investments assists the investors by managing the shopping centres on their behalf.Should anything ever happen to Sharemax investments there will be no effect on any investor's investment,as the client's funds are not invested in Sharemax investments ,but directly in the shopping centre.
• ( A false statement and Sharemax would confirm that this is what was said to their investors these facts were presented to me as part of their marketing strategy )
• .Sharemax investments offer investors a product which,with low risk,delivers a very good monthly income as well the potential of capital growth,which protects the invested amount from erroding effect of inflation.
• ( I have not seen any capital growth on my " investment" and last received interest payment in September 2010 .)Sharemax Investments latest projects offers an initial income of 12.5 % per annum, which is paid out monthly plus good capital growth
• .( False as the total income /interest i received on my " investment " was less than that over the period of time that i did receive an income . It seem more like that our " Invested " funds were used for Bridging Finance as we own nothing .
• The building/s are still not registered in our names.I wanted to use my "Share/debenture certificate as security against a loan at my bank but was informed that the investment certificate is a wothless piece of paper !"
• The investors have full ownership of the shopping centres and have sole voting rights when any big decision must be made,such as when an offer to purchase such centre must be made" The above are documented facts that were presented to us. "A more recently we have another story about possible crime that was commited by the current head of the SAPS intelligence division. It is great to hear that our former and retired Judge stated in the certain media that no fraud or theft was commited by anyone who was part of the promoters of the Sharemax syndication scheme. Less than 75 % of the investors voted for the 311 scheme . Those that received their Proxy paper in time from Frontier to vote, made up less than the minimum of 75 % of the investors that voted although it is stated that 99 % voted in favour of the rescue plan. The Honourable retired Judge will tell you.....The Power Of JusticeIs That The Hour Of Justice Doesn't Run Out Of Time Anywhere Slow justice is better than no justice"


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Added by CraigA, 12 Dec 2018
Unfortunately, no one really won this except the owners/directors of Sharemax. It was a pyramid scheme from the beginning. If it was a legit investment, why were they paying double the regulated commission? And then still paying much higher returns? It couldn't sustain itself. Millions and millions were lost. Where are the owners? They should have their assets taken to reimburse the investors.
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Added by Andries Bester, 12 Dec 2018
I fully agree with the judge.
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Added by cynical simon, 12 Dec 2018
Despite the unequivocal respect I have for mr Swanepoel ,I do not think celebrations are in order just yet. Painting ,[or is it TAINTING ?] the reserve bank as the big bad wolf seems rather ..odd! Have everybody forgotten Deon Basson? Why did Highveld Syndication , blue zone and other -property syndication's all failed ,quite handsomely so, without the help of the reserve bank. I expect an appeal. My considered advice....Do not start the jubilation yet.
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Added by Andre, 12 Dec 2018
It has always been my perception that the intermediary becomes the scapegoat. This will make it easier to debunk this untruth in future.
Anton did an excellent job of putting our case and also show how vulnerable intermediaries are in the field...
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Added by Elna, 12 Dec 2018
I am saddened every day when I drive pass this building on Delmas Rd, one wanders what it would have looked like there was no intervention of the Reserve Bank? Well done Anton Swanepoel!!
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Added by Johann Frederick van Zyl , 12 Dec 2018
Dankie die Vader hiervoor , Sharemax het Wonderlik gedoen vir Baie jare tot die Reserwe Bank sy neus in hul sake gesteek het ! Ek het
SELF n saak teen my en miskien gaan HIERDIE net die keerpunt wees !
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Added by Piet Swart, 12 Dec 2018
And how I agree with Ayanda and Anton Swanepoel !! Hopefully all the other companies like Realcor that followed suit in Sharemax footsteps will now have something to think of.

Hoog tyd dat ons adviseurs ook n kans kry om nie skuldig te wees nie.
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Added by Ayanda, 12 Dec 2018
With regarD to this case, at last a little sanity prevails.
As stated, an FSP cannot become an “amateur detective” to check each of the institutions offering investments. He can rely only on what is in the public domain and what he is told by the institution and by his client. This applies equally to the matter of insurable interest and ‘average’.
Hopefully Ms Bam is paying attention.
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