Johannesburg - Wealth-management company Dynamic Wealth and the Financial Services Board (FSB) are locked in an nasty battle in the North Gauteng High Court.
Late last year the FSB submitted an application to place parts of Dynamic Wealth's operations under provisional curatorship.
Dynamic Wealth is vehemently opposing the application, which was on the court roll last week, and is refuting all charges. Dynamic Wealth claims that the FSB is conducting a witch-hunt.
On the other hand the FSB argues that it is acting to protect the interests of investors and that Dynamic Wealth has contravened various laws regulating financial products.
A decision on the case is expected within the next two weeks.
The FSB wants to appoint curators for the parts of Dynamic Wealth, Dynamic Wealth Management (DWM) and Dynamic Wealth Stockbrokers (DWS) that fall within the purview of the Financial Advisory and Intermediary Services Act and the Collective Investment Schemes Control Act.
The provisional curatorship will affect a third of Dynamic Wealth's total assets under management, or R1bn of the R3bn worth of assets that it manages.
The activities that are exempt are the collective investment schemes which, in terms of a third-party agreement, are managed by Metropolitan.
The FSB's application arises from an investigation into the operations of Dynamic Wealth following several enquiries and complaints about the group's activities.
The enquires received by the FSB related to the nature of the financial products being offered by DWM, the legality of the investment platforms it was using and its relationship to people and entities that were (or are) involved in questionable activities, as well as its ability to pay out investors' funds.
The FSB further argues that the responses received from Dynamic Wealth have not satisfactorily explained its products and methods, which has created uncertainty about where this leaves investors.
The FSB's biggest source of concern is a collective investments structure that DWM and DWS established that did not comply with the provisions of the Collective Investment Schemes Control Act.
According to the FSB's heads of argument, Dynamic Wealth was aware of this.
Dynamic Wealth retorted by saying the portfolios had at all times been put together in line with the FSB's guidelines and after legal advice had been obtained.
The assets in these portfolios, according to the FSB, had declined by R300m between February 2008 and April last year.
Of the original amount of R667.9m, R232.5m had been invested in Corporate Money Managers, which is under curatorship.
The problems within the portfolios - including the specialist income portfolios - apparently arose from bridging finance activities in which Dynamic Wealth was involved.
From November 2005 to October 2008 R430.36m was obtained from investors and R690.2m paid out as bridging finance.
A further amount of R99.2m had, according to the FSB, been used to finance property developments.
The raising of investments for the bridging finance was outsourced to Entegra Trust and later on to The Bridging Factory. Entegra Trust's activities were shut down by the Reserve Bank in 2004 and its founder, Attie du Plooy, subsequently sequestrated. Du Plooy had also managed Jean Multi Management, which was dissolved.
These bridging portfolios were converted into a public company in October 2008, which the FSB regards as a code of conduct violation in terms of the Financial Advisory and Intermediary Services Act, and also contrary to an instruction from the regulator.
Dynamic Wealth said this was done because it had to take possession of the property for which bridging finance had been advanced and that it had to establish a company to be able to register properties.
In the process it contravened JSE regulations, declares the FSB.
Whatever happens, the current situation is that the portfolios are insolvent - the FSB says Dynamic Wealth has acknowledged this - and capital is being repaid to investors at a rate of 1% a month.
Dynamic Wealth holds that the current management is capable of sorting out the problems and it is unnecessary to replace the current management with curators.
But the FSB said there is a danger that many investors can lose money and that further investigation into Dynamic's activities is necessary.
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