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Moonstone Monitor - 19 October 2017 |
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Paul Kruger
Author/Editor |
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One's first step in wisdom is to question everything -
and one's last is to come to terms with everything.
- Georg Christoph Lichtenberg |
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Distributed to 49,800 subscribers.
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From the Crow's Nest |
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High Court awards widow R2.7 million |
A bereaved widow, who was convinced to invest R2 million in the Sharemax
Villa scheme, finally saw justice a month ago in the Bloemfontein High Court,
when the judge held her financial advisor accountable for the loss.
The plaintiff was vulnerable in July 2010 when the defendant advised her. She
was a widow with a two and a half year old boy. Her husband passed away in
tragic circumstances some four months earlier. She experienced financial and
emotional difficulties. She had no experience of financial products and/or the
financial market. She received the proceeds of an insurance policy and wanted to
make a safe investment as the money was earmarked for her son’s upbringing.
The defendant was her deceased husband’s broker and she trusted him fully to
advise her in respect of the investment of the sum of R2m. During the meeting
with defendant when several forms relating to the investment were filled out for
signature, plaintiff emphasised that she could not afford to lose two cents.
Defendant suggested the Sharemax investment and said it was an investment “in
property” and “property cannot disappear”. The defendant made it clear that he
did not even want to suggest any other investments as the proposed investment
was “baie veilig – extremely safe”. He referred plaintiff to a bad copy of a
newspaper article containing negative comments about Sharemax investments, but
informed her that she had nothing to be concerned of as “hulle is jaloers - they
are jealous.”
Plaintiff accepted defendant’s assurance immediately without even reading the
article. In this regard it is to be noted that according to the pleadings
defendant admitted informing plaintiff that she did not have to be concerned as
he had spoken to Sharemax as well as his consultant.
This was not good enough. Defendant should have spoken to independent auditors,
attorneys or financial analysts. He should have insisted on financial
statements, such as income and expenditure accounts, cash flow analyses and a
balance sheet. He should have inspected the shopping complex. If he did that, he
would know that the investment could not possibly have an income stream at that
stage or even in the foreseeable future. The investment that defendant induced
plaintiff to make was a property syndication investment. The Sharemax investment
was known as The Villa. The company used as the investment vehicle was
registered in 2010 only.
This should have been a serious concern as well. The Villa shopping complex was
in the process of being built. Ex facie the photographs handed in as Exhibit B,
the buildings were still incomplete when the photographs were taken nearly six
years later in January 2016. Mr (Magnus) Heystek explained the potential dangers
of property syndication and also made the point that insofar as the companies
involved were unlisted, there was a lack of disclosure making it difficult for
financial analysts to make meaningful comparisons. Accordingly, as testified by
him, a FSP “should not advise an investment in something which he is not himself
able to fully understand.”
The judge then quotes from the Durr case:
“What he was not entitled to do was to venture into a field in which he
professed skills which he did not have and to give them assurances about the
soundness of the investments which he was not properly qualified to give.”
PI Cover Claim Rejected
The court case was not the only woes for the advisor. His PI cover insurer
refused to pay his claim for the full R2.5 million he was insured for. The court
set this aside, ordering the insurer to pay the maximum allowed. The insurer
filed a notice of application for leave to appeal.
The view of the judge on this is extremely important, and will be covered in a
separate article.
Judgement
The judge ruled as follows:
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Defendant is ordered to pay to plaintiff the capital amount of R2 000 000.00
and interest calculated to 27 July 2016 in the amount of R718 600.00.
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Defendant shall pay mora interest on the amount of R2 718 000.00 to plaintiff
at the rate of 10.5% per annum, calculated from 28 July 2016 to date of payment
thereof, both dates included.
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All legal costs incurred by the Plaintiff
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The insurer was ordered to pay the maximum PI cover under the contract as
well as all the advisor’s legal costs in this regard.
And so, yet again, another sorry Sharemax saga confirms how greed can cloud
clear judgment.
Click here to read the full judgement.
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Your Practice Made Perfect |
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Justice for All? |
Was justice fully served in the Oosthuyzen case before the High Court in
Bloemfontein last month?
From the perspective of the plaintiff, possibly yes, albeit it 7 years
later. Delayed, but at least not denied.
What about the advisor? Was he lulled into a false sense of security,
being a representative of the Unlisted Securities South Africa FSP
Network (Pty) Ltd (t/a USSA) in order to render financial services
regarding unlisted securities under an exemption granted by the FSB? He
regarded speaking to his Sharemax consultant as sufficient confirmation
that all was in order. What else he did he expect to hear?
The USSA network was specifically formed to sidestep legal obligations.
Why did no authority question a nation-wide network with thousands of
representatives, and only one key individual and one compliance officer?
The judge ruled that the decision by his PI cover provider to reject the
claim was wrong. The insurer, though, intends appealing the finding.
What about the promotors? Apart from the failed attempt by the FAIS
Ombud to pierce the corporate veil, they have gone along their merry
way, sailing the high seas without a care in the world.
The recent admission that some properties, and particularly the Villa,
were grossly overvalued, is nothing new. This was the essence of the
late Deon Basson’ criticism as early as May 2004, and is perhaps an
indication of the increasing impunity that marked later syndications,
and not only contributed to their downfall, but also to even bigger
losses for investors. It is reminiscent to what we see in the current
state capture debacle, where audacity grows as a result of the lack of
regulatory intervention.
Can the regulators wash their hands in innocence, claiming that the
structure of syndications schemes did not resort under their
jurisdiction? Did the fact that all those representatives of USSA were
also registered with the FSB not imply at least a wary eye on their
conduct with regard to selling unlisted shares which, after all, does
fall under the auspices of the FSB?
In the preamble to this judgment is a quote from the ground-breaking
Durr case, where the Appeal Judge said: “Hindsight is not vouchsafed the
common man as he picks his course through life. This must be kept
constantly in mind in a case like this one, where all is so obvious
now.”
Agreed, but why does it take so long for hindsight to lead to action? |
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Cost implications of Twin Peaks
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Some of the harshest criticism of the Financial Sector Regulation Act
concerns cost, with some claiming inadequate impact assessment,
specifically as far as cost is concerned.
Caroline Da Silva,acting Deputy Executive Officer for Insurance at the
FSB, noted the following in the latest Twin Peaks newsletter:
While implementing the Twin Peaks model will have cost implications, Da
Silva believes that from a market conduct perspective these costs will
be appropriate compared to the size of the financial sector’s assets and
revenues.
The extension of the jurisdiction of the FSCA to all financial
institutions including banking, and aspects of the conduct of certain
credit providers, means that these institutions will pick up the
appropriate portion of these additional costs where resourcing is
required to enable their supervision.
Over and above the extension of jurisdiction, the proactive, risk-based
and outcomes-focused approach to regulation and supervision under Twin
Peaks will require some different skills at the FSCA which implies
additional costs. These include strong research skills, data analytic
capability, Fintech capability and the use of Fintech to supervise and
regulate just as a few examples.
These initial costs however should be justified over time by greater
efficiencies and embedment of appropriate risk based supervision, which
for many will result in an alleviation of costs but not responsibility. |
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Regulatory Examinations
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Frequently Asked Regulatory Exam
Questions |
| 1. |
What exam must I write?
Both the RE 5 and RE are Level One exams. RE 5 is for Representatives and
RE1 for Key Individuals. The RE 3 exam is for licence category II
candidates.
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How much does it cost?
The FSB determines the fee. Currently it costs R1163 per exam, also in
the case of a re-write.
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What preparation material is available?
Fully updated resources are available for those requiring access to the
legislation applicable to the regulatory examinations:
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Please make sure that you first read the
FSB’s Preparation Guide to
make sure you follow the right process in preparing. Page seven includes
a recent amendment to guide candidates in studying in the correct
manner. |
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Click on the following highlighted sections to download the relevant
updated Inseta learning material for key individuals,
RE 1, and
representatives,
RE 5. |
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LexisNexis provides a “Legislation Handbook” together with a
“Preparation Guide” containing the qualifying criteria, with a link to
the relevant legislation. |
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The
Juta FAIS Pocket Statutes also contains a CD with a comprehensive
list of updated supplementary legislative material for reference
purposes. Please click here to order this from our online shop. |
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The FSB’s telematics broadcast on the RE 1 and RE 5
provides a good introduction and overview, and can also be ordered
online in: |
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DVD format or on a
USB memory stick
MP4 direct download - 2 Gb |
| 4. |
Where can I write?
Go to:
http://www.faisexam.co.za/show_venues |
| 5. |
What dates are available?
Go to:
http://www.faisexam.co.za/view_schedule |
| 6. |
What training is available?
As an Exam body we are not allowed to recommend companies that offer
face-to-face Regulatory exam classes. You can try Google for someone in
your area.
Bear in mind that this exam tests your knowledge about the laws
applicable to the provision of financial advice and intermediary
services. The questions are based on very specific qualifying criteria
set out in the FSB preparation guide. Any training that does not have
this as a basis will not prepare you properly for the exam. Do your own
research and don’t just accept what others say. |
| 7. |
Where can I buy old question papers?
There are no genuine “old question papers” available. Be very careful
when buying such preparation aids as some of those on offer are not in
line with the high standard prevailing in the actual exams and often
lead to a false sense of knowledge which is sadly exposed when
confronted by the actual exam. Follow the guidelines provided in the FSB
Preparation Guide and you are far more likely to achieve success. |
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Careers Platform
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www.moonstone.co.za
- enjoys an average of 15 000 visits and approximately 39 000 page views per month. |
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dedicated financial decision makers who receive 2 newsletters per week. |
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In Lighter Wyn |
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Candle in the wind |
Mrs. Donovan was walking down O’Connell Street in Dublin when she met
up with Father Flaherty. The Father said, ‘Top o’ the mornin’ to ye!
Aren’t ye Mrs. Donovan, and didn’t I marry ye and yer Hoosband two
years ago?’
She replied, ‘Aye, that ye did, Father.’
The Father asked, ‘And be there any wee little ones yet?’
She replied, ‘No, not yet, Father.’
The Father said, ‘Well now, I’m going to Rome next week, and I’ll
light a fertility candle for ye and yer hoosband.’
She replied, ‘Oh, thank ye, Father…’ They then parted ways..
Some years later they met again. The Father asked, ‘Well now, Mrs.
Donovan, how are ye these days?’
She replied, ‘Oh, very well, Father!’
The Father asked, ‘And tell me , have ye any wee ones yet?’
She replied, ‘Oh yes, Father! Two sets of twins and six singles, Ten
in all!’
The Father said, ‘That’s wonderful! And how is yer loving hoosband
doing?’
She replied, ‘E’s gone to Rome to blow out yer fookin’ candle!
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Tel: +27 21 883 8000 | Fax: +27 21 883 8005
info@moonstoneinfo.com
www.moonstone.co.za
P.O. Box 12662, Die Boord, Stellenbosch, 7613, Republic of South Africa
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