The implications of the failures of property syndications

Several protectors of the public interest, the FSB SAPS and now the FAIS Ombud, have signalled that their determinations may in fact be hollow in the face of vigorous legal opposition, sophisticated legal structures and the absence of fundamental reform.

Where there’s smoke

There appears firstly to be a much deeper problem. The current spate of property syndications and other schemes reveals a comprehensive inability on the part of the regulator, the FSB, to enforce compliance with regulation.

Prevention, as alluded to by the FAIS Ombud, may only function if rigorous adherence to the various laws governing the activities of companies is strictly enforced.

Why is it then left up to a forensic auditors “discover” alleged acts of non-compliance, when press reports dating as far back as 2003 abound indicating that all is not well?

Is the FSB able to exercise the political will and does it possess the necessary resources to engage in prevention rather than cure?

Who guards the guards?

Secondly, the report also looks briefly at the actions of the professional practitioners advising Sharemax. Their auditors and law firm have always had a primary independent responsibility to comply with the letter and spirit of legislation as this is the first line of defence for any investor.

One must ask if the registrar of companies ever received a qualified report from Sharemax auditors in respect of any of the property companies.

The incentive of greed

Brokers acting as agents for Sharemax are incentives by lucrative commission structures. However, FAIS legislation demands that the intermediary take responsibility for the investment recommendations they give to clients.

The Prakke report sets out the legislative framework with which an intermediary would have to be familiar in order to market this product.

How many brokers are accredited to market products like Sharemax and even more pertinent, how many could have performed the necessary due diligence to fulfil the FAIS requirements?

The implication is that brokers who did not comply will have no defence when investors lodge complaints against them.

Who were these brokers’ compliance officers and what did they do?