November 7, 2009
By Neesa Moodley-isaacs
A pensioner who invested part of his retirement savings in foreign exchange (forex) investments on the advice of his financial adviser will be reimbursed for his losses following a ruling by the financial advice ombud this week.
Charles Pillai, the Ombud for Financial Services Providers, ordered Wayne Gray and the Gauteng-based company he represented, Quantum Leap Forex, to pay R100 174 plus interest of 15.5 percent to Ian Scott.
Pillai ruled that Gray's advice bordered on reckless conduct, given that the Financial Services Board (FSB) had repeatedly warned him that both the trading company and the clearing firm he dealt with were not licensed. This critical information was not relayed to Scott at any point.
In August 2004, Scott invested R270 000 in a forex investment on Gray's advice. The money was deposited directly with Reymount Investment, based in Jersey in the Channel Islands, and the investment was traded by Kerford, a Gauteng-based company.
In its licence application to the FSB in 2004, Quantum Leap Forex named Kiran Thiruvengadam as its key representative, although Thiruvengadam was actually employed by Kerford.
According to the application, Thiruvengadam would be responsible for all trading on behalf of Quantum Leap Forex. Quantum Leap Forex only introduced clients to Kerford and did not handle any investment funds: clients invested directly with Reymount and the funds were traded by Thiruvengadam.
In April 2004, Quantum Leap Forex became aware of an email being circulated by the Jersey Financial Services Commission, warning the public against investing with Reymount, because it had never been registered under the Financial Services Law in Jersey. When Gray queried the email with Kerford, he was told that the warning applied only to residents of Jersey. Quantum Leap Forex did not make any attempt to contact the Financial Services Commission to verify the contents of the email.
Scott invested another amount - R130 000 - with Reymount in January 2005.
The FSB warned Quantum Leap Forex in May 2005 that Kerford's licence to render financial services had been declined and that Reymount would not be recognised as a clearing firm for forex trading. But Scott was not informed of either of these warnings and made a further investment of R200 000 with Reymount in July 2005.
Although Scott's investments were in forex trading, Quantum Leap Forex, in conjunction with Kerford, decided to switch them into gold in September 2005. They held the gold investments until April 2006, by which time all their investors' accounts were down by 90 percent.
Although Gray cited several reasons for holding on to the gold investments, Pillai found that Gray was "simply looking for ways to justify what happened to their clients' funds, when [Quantum Leap Forex] actually do not have a clue as to the fate of those funds".
In May 2006, Gray became aware of an article in the Chicago Tribune, detailing how federal agents had confiscated the assets and frozen the bank accounts of Puthankote Aboobaker, who was allegedly behind both Reymount and Kerford. When Gray showed this article to Thiruvengadam, he fled the country.
Pillai's ruling took into account that Scott had received R134 514 in monthly payments over the term of his investments with Reymount and that he received R95 311.25 when he closed the investments in June 2006.
He could not make a ruling on Scott's initial investment of R270 000, because it was made before his office was established in September 2004.
Gray also did not tell Scott at the time the investments were made that Quantum Leap Forex was trading under an exemption, and that its licence application was still pending with the FSB, Pillai found.
  
 
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