Complainant, Mrs Bettie Susann Bloem, an adult female pensioner whose details are on file with this Office, lodged a complaint against Johan Potgieter a representative and key individual of AJG Brokers CC, an Authorised Financial Services Provider (FSP), with license number 14209. The license lapsed in June 2011.
The complaint arose from a failed investment of R100 000, made by complainant in Grey Haven Riches 11 Limited, a subsidiary company of Realcor Cape, following advice received from the respondent. The complainant, who was 53 at the time and unemployed, was advised that she would be investing in the “Blaauwberg Beach Hotel” (correctly referred to as the Radisson Blu Hotel on the Blaauwberg beach front). The funds invested in Realcor came from the proceeds of a Sanlam retirement annuity and her personal savings. Respondent had allegedly advised the complainant that there were no risks, and that the complainant would receive monthly interest in the region of 10 – 15% per annum on the investment. Compared to the interest rates offered by banks, the proposed interest rates were attractive. The income however came to an abrupt halt in 2011 and the complainant, who now claims to be in deteriorating health and reliant on her children for financial assistance, lodged her complaint with this Office.
Purple Rain Properties 15 (Pty) Ltd t/a Realcor Cape (Realcor) was an authorised financial services provider registered with the Financial Services Board (FSB) under license number 31351. Realcor used various subsidiary companies for the purpose of obtaining funding from the public for its development projects. The subsidiaries included Grey Haven Riches 9 Ltd, Grey Haven Riches 11 Ltd and Iprobrite Ltd (collectively referred to as “Realcor”). Midnight Storm Investments 386 Limited (MSI), also part of the Realcor group, owned the immovable property on the Blaauwberg beach front on which the Radisson Blu Hotel was being constructed.
Having received neither a response nor any supporting documentation demonstrating why this investment was considered appropriate for his client’s circumstances, the matter was considered on the basis of the complainant’s version. It cannot be disputed that the parties had an agreement that the respondent would render financial services to the complainant. The specific form of financial service that this complaint covered was advice. This advice, without a doubt, had to meet the standard prescribed in the FAIS Act and the General Code of Conduct.
The respondent failed to provide any evidence that he had exercised due diligence. Had the respondent conducted due diligence as demanded by section 2 of the Code, he would have realised
then Realcor was not a proper investment and directed his client elsewhere. The respondent’s conduct was a clear attempt to disregard the Code. Section 8 (1) is clear in its instruction that a
provider must, prior to providing advice, take reasonable steps to seek appropriate and available information from the client, conduct an analysis and identify suitable products. It was the
respondent’s duty to determine the suitability of the investment, and not that of the complainant.Furthermore, section 8 (2) states that the provider must take reasonable steps to ensure that the
client understands the advice and is in a position to make an informed decision.The essence of the Ombud’s findings against respondent is that the respondent failed to appropriately advise complainant. This is supported by the following:
- The prospectus itself conveyed the message that Realcor had no interest in conducting its business in line with sound corporate governance practices.
- Most importantly, there is no evidence that there was ever an independent board of directors within the entire Realcor group. Thus it would appear that the directors were accountable to themselves, and had the power to decide their own remuneration.
- Without the existence of an independent board, the directors were free to spend investors’ funds as they desired.
- In spite of the complainant’s circumstances and respondent’s duty to provide advice that is suitable (section 8 (1) (a) to (c) of the Code), respondent recommended the Realcor product.
- Respondent’s failure to identify, process and advise his client of the implications of the violations of the law. In this regard, the prospectus literally proposed to violate Notice 459 of Government Gazette 28690. Notice 459 was sanctioned by the Minister of Trade and Industry to prevent unfair business practices in property syndication schemes.
- Respondent could not appreciate the implications of the obvious poor governance practices. Given the lack of proper independent oversight and the fact that the directors were accountable only to themselves, respondent still recommended that complainant invest in Realcor.
The Ombud found that respondent’s conduct flouted the very contract respondent had with the complainant, as well as ignoring provisions of the Code. The contract was to render financial services to complainant. The Ombud considered the Realcor prospectus and the provisions of Notice 459, and concluded that the respondent had no legal basis to recommend this investment to his client, given the complainant’s circumstances.
In light of the above the Ombud could only conclude that the respondent, in violation of section 7 (1) of the Code, failed to appropriately advise the complainant and apprise her of the risks involved in Realcor. The complainant was therefore not in a position to have made an informed decision about the Realcor investment.
The Ombud ordered respondent to pay the complainant an amount of R100 000.
