Financial brokers who advise people to participate in a property syndication scheme can be held liable for the losses incurred by these investors in terms of the latest ruling from the Ombud for Financial Service Providers, Noluntu Bam.
In a recent ruling Bam criticised a Knysna broker for what she called “gambling” with one of the pensioner’s life savings by placing the entire investment into a single unlisted share.
Since her first ruling in June last year, Bam has ordered seven brokers to repay investors who had been advised to invest in a failed property syndication. She says that in many instances the investors are pensioners who were not in a position to take the risk of losing all their money.
She found that brokers who failed to do a thorough due diligence check on the property schemes and the investments were at risk of being forced to repay investors’ funds if the property syndication failed.
In her most recent ruling Bam found that DJ du Plessis of Du Plessis Compton Consulting had recommended that Oudtshoorn pensioner JB de Villiers invest R780k in a high-risk property scheme even though the pensioner had limited means and the money represented the entire proceeds of De Villiers’ pension fund.
The property syndication, Genesis Property Group Lords Walk went into liquidation and as a result, De Villiers was forced to sell his house just so he was able to feed himself and his wife.
De Villiers had advised to withdraw the R780k from his Liberty Life endowment policy that had conservative underlying investments in an income fund and a property fund.
Du Plessis, who had advised De Villiers on the investment, earned R17k in commission. Du Plessis apparently also told De Villiers that the investment was low risk and would provide a steady income stream. De Villiers received just R172k back from the Genesis Property Group Lords Walk investment after it was liquidated.
Du Plessis was ordered by Bam to pay compensation to De Villiers equivalent to the balance of his investment of just over R608k.
In a second case Bam found that a broker had abused the levels of trust built up with an elderly client and had sold this client a property development syndication that barely got off the ground.
David Kotze of Brackenfell in Cape Town managed the investments of pensioner William van Riel. Kotze recommended that Van Riel invest R300k in debentures in Homebound Investments, a syndication scheme that planned a residential scheme in Yzerfontein on the Cape’s West Coast.
Although Van Riel had received several newsletters claiming that ten homes and a convenience shop had been built on the site of the development, he was aghast to find, when he visited the site, that the land was undeveloped, the homes incomplete and the café was non-existent.
The development was never completed and Homebound was eventually liquidated.
Kotze was ordered to repay to Van Riel an amount of R300k with interest at 15,5% a year from the time the investment was made in March 2007 until the date of payment.
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