Broker’s appeal denied in R780k loss

Financial brokers who ill-advised an elderly couple to invest in a property scheme deemed unlawful by the SA Reserve Bank were denied leave to appeal a high court judgment to the Constitutional Court.

This after they were ordered by the ombudsman to pay back the couple, who lost R780,000 on the scheme.

George and Lucille Babens invested in property schemes from Sharemax Investments in 2009 on the advice of Deon Kruger from Koch & Kruger Brokers. Sharemax was going to use the money in its R4.6bn property scheme, part of which was the building of the now-abandoned “ghost mall”, the Villa Retail, outside Pretoria.

The Bank ruled that Sharemax’s operations were unlawful. Sharemax was ordered to repay all existing investors, including the Babens, but monthly payments stopped when the schemes collapsed entirely.

The Babens lodged a complaint with the Ombud for Financial Services Providers (FAIS Ombud) against Koch & Kruger Brokers in 2012, saying the brokers told them the Sharemax investment was risk-free and it met all regulatory requirements. In 2018, the ombudsman said Koch & Kruger Brokers must pay R780,000 in compensation, with interest, to the Babens.  

Aggrieved, Koch & Kruger Brokers tried to appeal, but were refused by the financial services tribunal’s chairperson, retired Constitutional Court justice Yvonne Mokgoro. The brokers said Mokgoro’s refusal was not based on proper reasoning.

Koch & Kruger Brokers approached the Pretoria high court to set aside the original ombud’s decision or Mokgoro’s refusal.

It is here, said the Constitutional Court Tuesday, where confusion arose.

In a unanimous judgment, Constitutional Court justice Owen Rogers said the Pretoria high court was asked to decide whether it was the Bank’s decision against Sharemax or Koch & Kruger Brokers’ advice that caused the Baben’s loss. The high court ruled it was the fault of the brokers, who should have investigated thoroughly. The Babens relied exclusively on the advice of Koch & Kruger Brokers.

In the Constitutional Court, Rogers noted that though the high court gave findings about who caused the Babens’ loss, “the parties seem to have overlooked that the case was a review directed at decisions of the Ombud and the chairperson, not an action for damages by the Babens against [Koch & Kruger Brokers]”. Rogers noted, even “in this Court ... the parties remain confused ...”

“The high court should never have been asked (and should never have agreed) to decide the separated issue,” Rogers wrote. “I trust that the parties will now proceed without delay to argue the review in the high court.”

Koch & Kruger Brokerswere ordered to pay the legal costs of the Babens.

moosat@businesslive.co.za