Ombud rules in favour of Ponzi scheme victims

Picture: ISTOCK
Picture: ISTOCK

BondCare Trust, a company that invited investors to advance their money at an attractive interest rate to potential home buyers who couldn’t afford transfer fees, was operated as a Ponzi scheme, the company’s liquidators told the ombud for financial services providers.

The FAIS Ombud ruled that an adviser who promoted the investments into BondCare must return R152,000 and R700,000, respectively, to two victims of the racket who were both unemployed, one being a disabled widow and the other a chronically ill divorcee.

The latest rulings follow earlier determinations by the previous ombud, Noluntu Bam, and come seven years after the company was liquidated. In addition, the rulings reveal that the adviser who convinced the victims to part with their money was himself involved in the Ponzi scheme.

In one case, Alesio Mogentale, of Introvest 2000, advised Anna Englebrecht and her husband to make a series of investments into BondCare over a period of two years, starting in 2009.

Englebrecht was unemployed and unable to work due to multiple sclerosis, and her husband was working until his death in 2012. The funds to invest were obtained from cashed-out insurance policies.

In the other case, Mogentale and Introvest 2000 advised Magrietha Pienaar to invest her entire retirement provision of R700,000 into the dodgy bridging finance operation. The divorcee suffered from Ménière’s syndrome and was unable to work formally, and did embroidery from home when she could. 

In the scathing Pienaar ruling, ombud Naresh Tulsie wrote: “The respondent was aware at all times that he and his colleague [a Mr Smit] were accountable to no-one but themselves, thereby putting investors’ funds into jeopardy. The harm that could materialise from these actions was therefore foreseeable. I can make no other conclusion than that the complainant’s money had been misappropriated.”

In the Engelbrecht ruling, Tulsie had a similar message: “[Introvest 2000 and Mogentale] was at all times aware that they were putting investors’ funds into jeopardy.” He also said the harm was forseeable and that the money had been misappropriated.

In both instances he wrote that Mogentale and Introvest’s actions, which contravened the FAIS Act and its code of conduct, caused the women’s losses. 

In both instances Mogentale failed to inform his clients about the risks involved or to offer advice appropriate to their circumstances. Mogentale had allowed BondCare to use his financial services provider (FSP) licence (which was subsequently withdrawn), as BondCare itself had never been licensed. 

The ombud also said his office had uncovered a conflict of interest as Mogentale had served on the board of trustees of BondCare for a period. The person who had invited him to serve was a Mr Smit, with whom he shared undisclosed commissions for signing up new investors. He then resigned due to internal conflict. He therefore clearly knew about the lack of governance. This was never disclosed.

BondCare Trust was also the subject of a Registrar of Banks investigation. Following this, BondCare Trust Association, trading as BondCare Trust, was formed, as well as an entity called BondCare Financing.

The ombud says in the Pienaar ruling: “The new model was a replica of what the original BondCare Trust was doing. It allegedly advanced investors’ money to conveyancing attorneys to provide bridging finance for immovable property. The only difference was that in advancing the money to the attorneys, BondCare acted as an agent of the investor, for a fee.”

The entire sordid affair resulted in the two women losing everything.  Engelbrecht, both in her own right and as the executor of her husband’s estate, and Pienaar both turned to the ombud after getting nowhere with trying to get their funds back. The liquidator told the ombud it is a very complicated case and is unlikely to be resolved soon.

In his response to Pienaar’s complaint, Mogentale attempted to convince the ombud that the trust had hidden money offshore and that both he and his clients had been misled. Based on previous rulings by the ombud’s office, with special regard to his relationship with Mr Smit, the ombud found this version of events doubtful.

“Earlier findings and determinations made by this office in respect of the conduct of the respondent and his partner, Mr Smit, would appear to contradict this claim,” Tulsie said. 

In both instances, Mogentale and Introvest 2000 were ordered to pay back  the victims’ full investments.

What are the lessons?

  • When considering any investment, always use an adviser who is licensed and invest in legitimate products from registered financial services providers. 
  • Your adviser should conduct an analysis of your personal situation in order to advise you on which products are appropriate to your situation.
  • Your adviser should conduct due diligence on any investments he or she recommends. This should include checking audited financial statements and how the investment can generate the promised returns.
  • Follow your gut — placing everything you own in a single, non-traditional investment should raise red flags. Research all companies and check FSP numbers on the Financial Services Conduct Authority’s website. Do your own due diligence if it is an adviser you don’t know.
  • While the ombud is here to protect you against unscrupulous charlatans or those who have not conducted their affairs with due diligence or skill, it is always easier to keep your money than try to recover it after the fact.
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