/ 16 September 2010

Dynamic Wealth loses battle against FSB

This week the Financial Services Board (FSB) ordered Dynamic Wealth Management and Dynamic Wealth Stockbrokers to stop doing business with immediate effect. The FSB has ordered that all invested funds must be returned to investors and any outstanding businesses, after consultation with the relevant clients, be transferred to another financial-services provider.

This ruling comes after attempts by the FSB to have certain businesses within Dynamic Wealth put under curatorship (see related articles). Considering the immense cost of curatorship, the decision to rather close the businesses is probably in the best interests of the clients.

The concerns that the FSB has had with Dynamic Wealth related to how it structured its investment.

In order to circumvent the Collective Investment Schemes Control Act (CISCA) requirements, Dynamic Wealth ran “investment clubs”, which allowed it to pool clients’ investments.

The company claimed that this was not open to the public and was a closed group and therefore did not need to be registered as a unit trust as per the Act. However, the FSB found that the investments were, in fact, open to the public. According to the FSB report “the companies had in many instances made themselves guilty of contravention of the law, defiance or circumvention of regulation and the directives issued by the registrar [of the FSB]. The companies have failed in their fiduciary duties towards their clients, neglected the interests of clients, have treated clients unfairly, and in several known instances have caused their clients to suffer severe loss.”

The FSB also stated that the registrar’s experience with the companies has left him as regulator without any confidence in the board of directors and executive management of the companies, and that in many instances the two companies are either unwilling or unable to repay their investors funds that had been entrusted to them.

Due to a R230-million exposure to Corporate Money Managers, a money market fund that collapsed last year, Dynamic Wealth money market investor club members and Income Specialist shareholders (who are mostly pensioners) have received little or no income for at least 12 months. They have also not had access to their capital.

“The above conclusions were drawn after an in-depth inspection of the business affairs of the company, in which the JSE also participated, and a proper administrative process during which representations by the companies had been considered.”

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