In what could be the first of many more determinations, Charles Pillai, the Ombud for Financial Services Providers in South Africa, has ruled against a broker who sold investments in Leaderguard, a Forex managed account service provider, to a pensioner. The ruling which held the referring broker liable for the misdeeds of the broker they referred this particular client to could very well be the kind of chilling omen that’s needed to force the bad guys out of the Forex industry worldwide. If no one refers business to an unscrupulous account manager, he’ll go out of business faster than he hooked up his phone lines. What’s more, if this ruling serves as a precedent, it may very well convince referring brokers to think twice before they recommend the services of any Forex account manager.
Pillai serves as both an advocate (apologist) and mediator for the financial services industry in South Africa. I interjected the descriptive term “apologist” because, unlike mediators elsewhere in the world who don’t represent either party in a given dispute, Pillai obviously soft pedals the role this particular referring broker had in Leaderguard’s demise and referring to him as “naive.”
In an recent interview conducted by Charlene Clayton, appearing in Personal Finance. a South African financial services portal, Pillai explained the extent of the fraud. “Altogether, 1,850 investors lost 95 percent of their investments when Mauritius-based Leaderguard Spot Forex collapsed last year, resulting in South Africa's largest foreign-currency trading scandal. Investor losses totaled R350 million,” he said.
South African’s Financial Services Board has asked Ernst & Young's forensics division to investigate all financial advisers who sold Leaderguard products in terms of the Financial Advisory and Intermediary Services (FAIS) Act. This, he went on to say, could very well result in a number of financial advisers losing their licenses.
Pillai, soft pedaling the problem, says the picture that emerges is that of fraud on a massive scale perpetrated by brokers who naively believed all was well. He went on to say that “the fraudulent acts of the Leaderguard company and the higher-than-normal commission paid to intermediaries should have aroused the suspicions of brokers.”
Ya think?
Not being a lawyer, let alone an international one, I don’t know how this ruling will impact referring brokers elsewhere in the world, but if you were steered to a company offering managed accounts and can document the fact that the investment opportunity was exaggerated or that your account manager is or was incompetent, you might want to talk to a lawyer. Who knows, you might be able to recoup your losses from the referring broker even when, as it was the case with Leaderguard, the company has long since gone bankrupt.
To read the article in its entirety, visit Personal Finance.
To learn more about Forex fraud, specifically as it applies to managed accounts, you're invited to read this earlier posting.
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