The Financial Services Board (FSB) has once again issued a warning to Dynamic Wealth’s clients and financial advisors that the regulator has “applied for the curatorship of the financial services and collective investment schemes business of the DW (Dynamic Wealth) group”.
This application was made in Feburary this year and the case is still pending.
The warning comes as a result of Dynamic Wealth’s decision to hold an annual general meeting on June 24 for their Specialist Income Limited (SIL) shareholders, one of the funds that would be affected should the FSB’s application to the high court be successful.
Gerry Anderson of the FSB has advised shareholders to consider their position carefully and to seek legal assistance in relation to matters on the agenda of the AGM. “Unfortunately investors in the DW group who now find themselves in SIL are in the precarious situation of facing substantial losses and of delays in recovering their investment or what may only over time prove to be recoverable thereof,” warns Anderson.
Dynamic Wealth has hit back with its own press statement in which it accuses the FSB of being misleading with its facts.
Dynamic Wealth says that the application lodged by the FSB “is aimed at a third of the business of Dynamic Wealth and specifically excluded Dynamic Wealth’s unit trusts and its pension fund administration business”.
As unit trusts are collective investment schemes, it would seem Dynamic Wealth is correct in its assertion that the FSB statement was misleading.
Dynamic Wealth also states that it remains confident the application will be dismissed with full costs for the reasons they presented to court. “The case made by the FSB inspectors against Dynamic Wealth was built on a foundation of incorrect calculations, unsupported allegations and misrepresentation of facts”.
Like any legal case, both parties believe they have the law on their side and shareholders will have to wait for the court’s final decision, which is still pending four months later.
While the FSB may have made some misguided decisions in the past (Fedbond a case in point), it is unlikely it would have gone to the trouble of bringing this application if there were not some irregularities within the fund, and one would prefer the authorities to err on the side of caution when it comes to safeguarding investors’ assets.
But legal intrigue aside, this application raises the issue of the success of curatorship as a legal remedy. No company that has been put under curatorship by the FSB has survived. It is an extraordinarily expensive measure, which in the end tends to line the pockets of curators rather than rehabilitating businesses.
It would perhaps make more sense for the FSB to make their case to the shareholders of Specialist Income at the AGM, who could then decide whether to cut their losses and liquidate the fund or opt for curatorship.
Based on the track record of curatorship — the costs, the outcomes and the length of time it takes — there would be no guessing which option shareholders would take.
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