SHAREMAX IN DEEPWATER
The Reserve Bank is set to decide whether it will force South Africa’s largest property syndication scheme to repay billions of rands to thousands of investors. Financial experts feared that investors – many of them pensioners – were in danger of losing their money if the Reserve Bank cracked down.
The Reserve Bank recently found that over a period of six years, Sharemax Investments received more than R5 billion from 40 000 investors in an illegal manner.It said Sharemax operated as a bank without being registered as one.
Sharemax, the largest syndication scheme in South Africa by a long margin, has been operating for more than a decade and canvasses investments for property developments.
Sharemax offers fixed monthly interest far higher than bank rates. It admits in its prospectus that it dabbles in “high-risk investments”.
This week Sharemax assured investors that their money was safe and disputed the Reserve Bank’s findings. But forensic auditor and chartered accountant André Prakke said the findings were “far-reaching” and investors could lose their money. “Investors may be ordered to pay back all interest and dividends received from their investments. They have invested in an illegal scheme,” Prakke said Sharemax is one of the only property syndication companies in South Africa that is still standing after the recent global recession.
In recent years, at least six other property syndicates have either been declared bankrupt or been placed under judicial management. Thousands of investors – many of whom had ploughed their life savings into the schemes – are now stripped of an income and are likely to recover little (if any) of their original investments.
Sharemax’s investors include pensioners, businesspeople and sporting celebrities who, in most cases, have invested R100 000 or more into shopping centres or property developments.
One of Sharemax’s most prominent investors is Springbok flyhalf and Blue Bulls hero Morné Steyn. Sharemax recently announced on its website that Steyn was not only an investor but had offered his services to Sharemax Investments to attract investors.
The Reserve Bank said the case against Sharemax was still “pending” and various aspects still needed to be “worked out”. Sharemax has been given until Wednesday to make representations to the Reserve Bank about how it plans to run its business in future. Deputy registrar of the Reserve Bank advocate Michael Blackbeard told City Press this week: “When an investigation has found that a person has been operating the business of a bank without being registered accordingly, the Reserve Bank has the powers to stop the business, to repay the deposits or a pro rata portion thereof to investors and to hand the case over to the police for criminal prosecution.”
Prakke said this would have catastrophic consequences for Sharemax’s investors. Prakke, a long-standing critic of Sharemax’s financial model, warned as far back as 2007 that Sharemax was acting in contravention of banking laws and that investors’ money was unsafe.
Property syndicates have been in the spotlight in recent years because of promises of unusually high interest rates to investors, and suggestions that they contravene banking regulations and laws.
Critics like Prakke argued that they could be construed as pyramid schemes because existing investors receive interest from new investors’ deposits. One of the syndicates that was recently liquidated is Bluezone.The 6 000 people who invested R800 million in the scheme are expected to only recoup between 12% and 20% of their original investments.
Prakke said the financial models employed by Bluezone and Sharemax had striking similarities. He believed that Sharemax could now also find itself in trouble and that the Reserve Bank’s finding could lead to court applications to have the company liquidated. “I would be very worried if I was an investor in one of Sharemax’s companies,” Prakke said.
“If Sharemax is forced to pay back investors’ money, there is no way they will all get their money back.” But the managing director of Sharemax, Willie Botha, assured investors this week that their money was “100% safe”. He claimed that the Reserve Bank’s findings were “technical” and did not involve an “intentional transgression” of banking laws.
He had asked the Reserve Bank to reconsider its findings.If the Reserve Bank stood by its findings, Sharemax planned to approach the courts for a declaratory order on the matter.
Prakke said: “If a court agrees with the Reserve Bank, the bank will have to act against Sharemax because the investments were obtained in an illegal manner. Then the investors will come second and lose money.”
Lardo Stander, an independent financial analyst, said if Sharemax was forced to repay investors it would have to sell about 30 of its shopping centres across the country. “Sharemax buys or develops a shopping centre for R100 million, but syndicates it for R130 million,” said Stander.“If they are now forced to sell, they will, as a result of the fall in the property market, get a lot less than the original sales price. Then investors will lose.”
Botha told City Press this week that following the Reserve Bank’s findings, Sharemax had altered its financial model to bring it in line with the Banks Act. Botha said that Sharemax had always attempted to do business in line with banking and financial laws, and that investors had received their returns punctually for the past 11 years.
- City Press
