Another unregistered money market-type investment scheme, using property as the underlying investment, has run into trouble, suspending both interest and capital payments to investors, who have about R140 million invested in the “fund”.
And the victims have again included many pensioners seeking to achieve higher interest returns on their cash than those offered by regulated collective investment schemes and bank products.
The fund, which is invested in property developments and property bridging finance, stopped paying interest and stopped repaying capital last year, adding it to the ever-growing list of property syndication and property development “investments” that have gone very sour over the past few years.
In its collective investment scheme look-alike “fund fact sheet”, the troubled Premier Enhanced Cash Fund (PECF) states: “The fund will aim to earn a substantially enhanced return above that of money market funds.”
It says investor risk is reduced because a multi-manager approach is taken and extensive due diligence is performed on the underlying investments. The fact sheet does, however, state that the fund’s underlying investments are unregulated.
PECF was set up under the auspices of a small Stellenbosch financial services company, parading under the name of Premier Financial Services, but registered as a company under the name Premier Life (Pty) Ltd, for which it has a life assurance licence and Financial Service Provider (FSP) licence issued by the Financial Services Board (FSB).
PECF is very similar in structure to that of an unregulated money market fund of the imploding Pretoria-based financial services company, Dynamic Wealth, which has virtually closed its doors after the FSB succeeded in having its FSP licences withdrawn last month.
The FSB is still attempting to place various Dynamic entities under curatorship, including the unregulated money market scheme Specialist Income Ltd (SIL). SIL was initially an “investment club” but was converted to a company after it ran into trouble.
Converting “investment club” portfolios into companies reduced the rights of investors, because they became shareholders rather than investors, who have a preferential claim to any assets.
SIL ran into trouble after another unregulated money market fund, CMM Cash Management Fund, collapsed in the wake of investments in non-performing property developments. SIL had R230 million invested in CMM and was involved in property bridging finance.
An FSB appeal against a Pretoria High Court refusal to grant curatorship in the Dynamic Wealth case is expected to be heard by the Appeal Court soon.
The FSB’s grounds for the curatorship application last year included the claim that a number of investment portfolios offered by Dynamic Wealth under the guise of investment clubs, including SIL, were, in fact, illegal collective investment schemes.
Gerry Anderson, the FSB deputy executive in charge of market conduct, has confirmed that the FSB has already launched an investigation into Premier, which includes “consideration of whether there is a contravention of the Collective Investment Schemes Control Act (Cisca)”.
He says that from the initial FSB investigation “it appears that some 340 investors with a total investment of about R140 million are affected”.
Preliminary indications are that PECF was modelled on the Dynamic Wealth “association” structure, but last year was apparently converted to a company, and investors in the fund were issued shares proportionate to their investments.
Anderson says that any involvement of the licensed entity, Premier Life, is one of the issues that is being investigated, and the requisite action, if such involvement is or was indeed the case, will be taken.
He says when Premier Life was issued with its FSP licence on March 14, 2006, the people involved were found to meet the fit and proper requirements of the Financial Advisory and Intermediary Services Act and “have done so up to this issue coming to our attention”.
Meanwhile, Premier Life, the fund managers and the auditors are all pointing fingers at each other for who is responsible for investors not receiving their cash.
The chief executive of Premier Life, OD “Mannetjies” van Tonder, says the fund is not in contravention of Cisca and blames the problems on both the fund managers, who he says were in breach of the fund mandate in that they did not retain sufficient cash in the portfolio, and the auditors, who he says failed to pick up the transgression.
He claims that when a few property developments come to fruition within the next six to 12 months investors will receive their money. He says, however, that if there are losses, legal steps will be taken to recover them from the fund managers and auditors.
Over the period of the fund’s existence there were two fund managers, namely Interneuron Capital, which managed the fund for nearly two years until April last year; and Alpha Cube Capital, which is currently managing the fund.
The cancellation of the Interneuron mandate coincided with the move of the fund manager and a former Interneuron director, Riaan van der Vyfer, to Alpha Cube Capital, where he is a fund manager and director.
The auditors were the Durbanville company LDP.
Van Tonder claims that “an independent forensic investigation was done and the final report clearly alleges gross negligence on the part of the fund manager and LDP”.
But the fund managers and the one-time auditors all say they were not consulted in the forensic audit and have not been asked for comment or seen a copy of the audit report.
Van Tonder says the responsible auditor of LDP has acknowledged at various meetings that he followed improper auditing procedures and that he also does not have any solutions to the problem at hand. He says this can be confirmed by others who attended the meetings.
Jock de Jager, the chairman of the LDP group, says: “Our audit cannot and did not cause any losses, and unless the person or people claiming this provide proof to the contrary, we regard the accusation as slanderous and reserve our rights in this regard.”
He says that LDP was the auditor only in 2009 and he cannot see how they can be held responsible for something that happened in 2011.
De Jager rejected claims by Van Tonder “that we have admitted to any wrongdoing”.
“It would appear that the trustees are trying to absolve themselves of any responsibility and at the same time attempt to implicate their professional advisers,” De Jager says.
Willi Jonker, the chief executive of Interneuron, denies that his company ever invested outside the mandate.
“There was a forensic audit conducted during our management of the fund in November 2009 by Peter Kock, the chief investment officer of PECF, who gave us the all-clear.”
“We have been told that he alleges that Interneuron invested outside of mandate, but no specific allegation or claim has been put to us yet – almost one year after he did the audit. You can draw your own conclusions,” Jonker says.
Both Jonker and Van der Vyfer say they have never seen a copy of the second audit report.
Van der Vyfer says no new investments were made by Alpha Cube Capital after it took over the mandate.
HEALTH WARNING
When investing your money, always exercise extreme caution when:
* Interest rates and returns offered are above the market averages of regulated products. Remember the adage: If it sounds to good to be true, it normally is.
* A product is not regulated by the Financial Services Board (FSB). With regulated products, such as collective investment schemes, bank and life assurance products, you can have a lot more confidence.
* The investment is through an unlisted company.
You must also take care, when a company advertises it has a financial services provider (FSP) licence issued by the FSB in terms of the Financial Advisory and Intermediary Services Act, not to believe that its products are approved by the FSB. An FSP licence only entitles a company to sell certain financial products – it does not indicate approval of the products.