FSB investigates brokers for punting 'Ponzi' fund

By Staff Writer

The Financial Services Board (FSB) has confirmed today that it is investigating financial advisors and brokers that promoted the Relative Value Arbitrage Fund (RVAF) managed by Herman Pretorius and is appealing for people with more information to come forward. A spokesperson said: “I can confirm that we are receiving information from various investors regarding the financial advisers and brokers that recommended the late Mr Pretorius’ investment schemes. The FSB is currently investigating all the affected advisers, and we encourage other investors to come to us with any information that can assist with the investigation.”


The news comes after the FSB issued a statement last week defending its position on why it hadn’t stepped in sooner to prevent investors from investing in the RVAF which has since been exposed as a Ponzi scheme. Media and industry participants have criticised the FSB’s lack of action and concerns were raised about how it “allowed what amounts to a gigantic Ponzi scheme to continue under its nose”.


Media reports have indicated that concerns were raised with the FSB more than eight years ago regarding Pretorius’ involvement in hedge funds. “In this regard the FSB wishes to clarify that at the time that these concerns were raised the regulator could not establish any evidence of Pretorius’ activities in hedge funds or any irregularities with regard to the issues that were raised at the time,” said the regulator.


The FSB went on to explain that the private equity or venture capital projects embarked upon and supported by Herman Pretorius did not constitute activity which was subject to FSB regulation. It argued that the schemes operated ‘outside of and actively in secret from the regulator’.


According to reports around 3,000 investors could collectively have lost close to R2 billion from investing in Pretorius’ scheme but the regulator insists that it should not be held accountable. “The FSB is of the view that if there was any non-compliance by Pretorius, it was well designed not to be subject to regulatory scrutiny,” said the regulator. It also said that the risks of investing in Pretorius’ fund lay squarely with the investors. “To the extent that investors were lured into any of his projects, such investors carried the risk and obligation to enquire into the merits before parting with their money, especially where above-average returns were being offered. The loss of so much money to so many investors is a sad state of affairs but one for which the regulator is not accountable.”


The regulator admitted that in May 2011 it was brought to its attention that Pretorius was selling shares in unlisted companies and ‘promoting these ventures’ by making representations to the community. But after investigating further the FSB said it ‘was satisfied that the private equity or venture capital projects embarked upon by Pretorius did not constitute activity that was subject to FSB regulation’.


The FSB was investigating Pretorius this year but Pretorius shot himself in July after gunning down his business partner Julian Williams. The RVAF Trust was placed under provisional sequestration on 2 August by the Western Cape High Court. The FSB said it supports this action and encourages investors to take the necessary legal action to attempt to recover their monies. According to reports, the RVAF Trust is also being investigated by The Directorate for Priority Crime Investigation (Hawks).
 

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