Sharemax complaints to Fais Ombud unaffected by NPA decision not to prosecute

Hundreds of complaints lodged by investors in failed Sharemax property syndication schemes will be unaffected by the National Prosecuting Authority’s (NPA’s) decision not to prosecute any individuals in connection with the collapse of Sharemax in 2010.

The complaints were submitted to the Office of the Financial Advisory and Intermediary Services (Fais) Ombud, which at end-March 2021 still had a backlog of 1 036 property syndication complaints, many of them related to investments made in Sharemax schemes.

About 18 600 investors collectively invested R4.6 billion of their savings and pensions in Sharemax schemes, with almost all of these investments effectively lost.

Moneyweb reported last month that the NPA’s head of communications Bulelwa Makeke confirmed there “are no prospects of a successful prosecution” despite the Reserve Bank standing by its ruling that Sharemax’s funding model contravened the Banks Act.

Read: No prosecution for Sharemax implosion – NPA

Different mandates

Fais Ombud spokesperson Thuso Ngwagwe told Moneyweb this week the decision taken by the NPA will not have an impact on the decisions of the Fais Ombud Office, past and future, because the decision taken by the NPA had been taken in accordance with its mandate as derived from Section 179 of the Constitution.

Ngwagwe said the NPA’s constitutional mandate – as expressed in its Strategic Plan 2020-2025 – is to, without fear, favour or prejudice, institute criminal proceedings on behalf of the state, carry out any necessary functions incidental thereto and to discontinue criminal proceedings.

The National Prosecuting Authority Act is one of the statutes that was enacted to enable the fulfilment of this constitutional imperative.

Ngwagwe said complaints lodged with the Fais Ombud were done so in accordance with the provisions of the Financial Advisory and Intermediary Services (Fais) Act, and the two statutes have different mandates.

“The mandate of the Fais Ombud Office is derived from the Constitutional guarantees of equality before the law and the right to equal protection and benefit of the law.

“The Fais Ombud promotes this right of the South African citizens by providing an alternative dispute resolution mechanism in the financial services industry.

“Accordingly, the NPA is an institution established for dealing with criminal activity and the Fais Ombud is an institution established to ensure consumer protection in the financial services industry,” she said.

Ngwagwe added that the NPA exists to ensure justice for the victims of crime by prosecuting without fear, favour and prejudice and, by working with its partners and the public, to solve and prevent crime.

She stressed that the mandate of the NPA is thus directed at criminal activity and the mandate of the Fais Ombud arises from civil activity.

“Although the actions of financial services providers may amount to criminal activity, the Ombud Office does not deal with the criminal aspect but refers such cases to the NPA.

“Where the NPA issues a nolle prosequi against charges of fraud, theft and/or contravention of the Banks Act … this cannot mean that the provisions of the Fais Act, the Code of Conduct for financial institutions and other financial regulatory statutes have not been breached,” she said.

Despite the NPA’s decision not to prosecute any individual at Sharemax because of the alleged contraventions of the Banks Act, Ngwagwe said that as a matter of law, there may still be good cause for the NPA to prosecute “if the provisions of Paragraph 3 of Notice 459 of 2006 issued by the Department of Trade and Industry in terms of the Consumer Affairs (Unfair Business Practices Act, 1988) are considered”.

Notice 459 was gazetted after a report was compiled by the Consumer Affairs Committee into problems in the property syndication industry.

The notice aimed to provide consumers with greater protection from harmful business practices and scams in the property syndication industry.

In terms of Paragraph 3 of the Schedule to Notice 459 of 2006: “Any person who does not comply with these requirements commits a criminal offence and shall be liable on conviction, to a fine not exceeding R200 000 or to imprisonment for a period not exceeding five years or to both that fine and that imprisonment.”

The Office of the Fais Ombud failed to provide a response to the following questions:

• How many property syndication complaints lodged with Fais Ombud are still outstanding and have not been adjudicated?
• How many of these outstanding cases are complaints related to Sharemax?
• What is the current plan by the Fais Ombud to deal with the adjudication of these outstanding property syndication complaints?
• Are you able to provide any indication of when the Fais Ombud estimates her office will get rid of the backlog of property syndication cases?

Ngwagwe said the Fais Ombud has not responded to these questions because the office is “planning to issue a media release in the coming months to give an update on an action plan to address these matters”.

CIPC order

Moneyweb reported last week that the Companies and Intellectual Property Commission (CIPC) had ordered the Nova Property Group not to sell any more of its properties.

Read: CIPC orders Nova to stop selling properties

The report confirmed that the CIPC is driving an inter-regulatory process to re-evaluate the events that led up to Sharemax’s implosion and Nova’s failure to execute the rescue plan, with this process involving the South African Reserve Bank, The Hawks, and financial regulators such as the Financial Intelligence Centre and the Financial Sector Conduct Authority (FSCA).

In an official statement issued by the CIPC this week, the commission said it could not arrive at a satisfactory conclusion that Nova is not engaging in conduct prohibited by Section 22 of the Companies Act and reasonable grounds still exist that the company is in contravention of Section 22 (1) and Section 29 of the Companies Act.

This follows an assessment by the CIPC of Nova’s response to the commission’s notice in February 2021 for the company to show cause why it should be permitted to carry on business or to trade.

Read:
CIPC asks Nova to explain why it should not be closed down [Apr 2021]
CIPC concerned about Nova’s ability to repay debenture holders [Nov 2021]
Sharemax rescue vehicle makes a U-turn on payments to investors [Dec 2021]
Nova may be a bigger failure than Sharemax [Dec 2021]
‘Sharemax investors screwed twice’ [Feb 2022]
Nova continues to flog properties [June 2022]