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FSB Appeal Board again rules against FAIS Ombud

Published

2017

Wed

12

Jul

 

In May 2016 we published an article titled Ombud holds insurer liable for Sharemax loss.

Briefly: A Momentum representative (Marais) introduced the client to a broker (Storm) who had a Sharemax contract. The representative was not allowed to conduct business with the property syndication in terms of his contract of employment with Momentum. When the client expressed interest in a Sharemax investment, Marais introduced him to Storm.

The Ombud held the broker, the representative and Momentum liable for the loss.

At the conclusion of the article we noted:

It will be interesting to see whether this determination will be tested at the Appeal Board as it is bound to have severe repercussions for all FSPs who employ representatives.

It was, in fact, referred to the Appeal Board, despite the Ombud again denying the three parties the right to do so. The Deputy Chair of the Appeal Board allowed the appeal.

The original complaint was directed against CS Brokers CC (the FSP), and Emile Storm, a representative of this FSP.

The Board notes that the appeal is "an appeal in the ordinary strict sense, that is, a re-hearing on the merits but limited to the evidence or information on which the decision under appeal was given, and in which the only determination is whether that decision was right or wrong."

“The Ombud is an adjudicator of fact and not a specialist organ such as a registrar who makes administrative decisions in an administrative context.”

The Ombud, “…in response to the application for leave to appeal, found it necessary to justify her determination of more than 40 pages with a "judgment" of nearly 40 pages in which she made findings that were not in her determination and never put to the two, Storm or Marais.”

“The Ombud defined the complaint as being that "Marais and Storm" had given inappropriate advice to the complainant. However, in her second set of reasons, she conceded that the complainant had not lodged a complaint against Marais and/or his employer. Marais was also not served with a section 27(4)(a) notice. She nevertheless made a determination against them in spite of the decision of this Board in Sharemax Investments (Pty) Limited and others v Siegrist and Bekker (FAIS cases 00039/11-12/GP1 and FAIS0661/10-11/WC1) which held that she could not do so.”

“One of the important findings of the Ombud was that Storm and Marais had "collaborated" in advising the complainant in making the investment. The allegation of collaboration ("collusion" in the words of the complainant) was made in the course of the investigation by Wallace in supplementary statements. The statements were never put to Storm. This is a breach of the first principle of adjudication, namely audi alteram partem.”

“There are other findings of a like nature. In one instance she found in her second set of reasons that Marais had written his advice after the event and falsified it. In another she found that Storm knew that the Sharemax scheme was a Ponzi scheme. Both findings were based on suspicion or conjecture and nothing more.”

The Board then discusses at great length the failure of Storm, the broker, to conduct the required due diligence, and therefore being unable to advise the client with the required skill and diligence.

The final decision by the Appeal Board was that Storm was negligent, and liable for the client’s loss. It found that Momentum and Marais were not.

In the Siegrist and Bekker case referred to above, the Ombud held the directors of Sharemax liable for the clients’ losses, despite the fact that they were not included in the original complaint. The same applied in this case, yet the Ombud saw fit to hold Momentum and its representative liable despite not being cited in the complaint.

The Siegrist and Bekker cases were landmark decisions, particularly in view of determining accountability, and the Ombud’s powers to involve parties outside of the complaint.

In the Prigge appeal we discussed last week, the Board said:

“Matters like this (there are other instances) add fuel to the allegation that the Ombud is biased against financial service providers and sees her role as champion of disappointed clients. The Act requires her to deal with complaints impartially (section 20(4)) and whether or not she does so, depends on the facts of each case.”

 
Source: Paul Kruger: Moonstone Compliance (Pty) Ltd
 
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