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THE FINANCIAL SERVICES TRIBUNAL

 

CASE NO: A45/2022

 

 

In the matter between:

 

CRAIG MASSYN      Applicant

 

and

 

THE FINANCIAL SECTOR CONDUCT AUTHORITY      Respondent

 

Panel: Adv T Ncongwane SC (Chairperson), Ms Zama Nkubungu-Shangisa (Attorney) and Adv. N Nxumalo.

 

Appearances

 

For the Applicants:                In person

For First Respondent:           Barend Bredenkamp (For the Authority)

Date of Decision                   22 August 2023

 

 

Summary: Application for reconsideration in terms of section 230 of the Financial Sector Regulation Act, 9 of 2017 (“FSR Act”). | Administrative sanction imposed by the Authority in terms of section 167 (1)(a) and (b) of the FSR Act; and a debarment order in terms of section 153(1) (a) of the FSR Act. | The Authority carefully considered all the relevant factors placed before it and imposed a penalty in accordance with the applicable provisions of the statute. the Authority’s exercise of its discretion cannot be faulted.

 

 

DECISION

 

 

INTRODUCTION

 

1.          The Applicant, Mr Craig Massyn, is the former director of Praesidium Advisory (Pty) Ltd (“Praesidium Advisory”), Praesidium Wealth (Pty) Ltd (“Praesidium Wealth”) and Praesidium Sentinel (Pty) Ltd (“Praesidium Sentinel”) (hereinafter referred to jointly as “Praesidium Group of entities”).

 

2.          The Applicant applies for the reconsideration of the decision of the Financial Conduct Authority (“the Respondent” or “the Authority”) made on 30 August 2022. The application is in terms of section 230 of the Financial Sector Regulation Act, Act 9 of 2017 (“the FSR Act”).

 

3.          The Respondent, the Financial Sector Conduct Authority (the FSCA), found that certain financial sector laws were contravened by Praesidium Group of entities and its key persons including the Applicant (“the contravention findings”), in that they:-

 

(a)            contravened section 2 of the Financial Institutions (Protection of Funds) Act, No. 28 of 2001 (“FI Act”) by failing to observe the utmost good faith and exercise the care and diligence required,

(b)           aided, abetted, induced, incited, or procured various contraventions by the Praesidium Group of entities[1],

(c)            contravened section 7(1)(a) of the Financial Advisory and Intermediary Services Act, 37 of 2002 (“FAIS Act”), when from April 2026 to November 2028 Praesidium Group of entities furnished advice in forex instruments (product category 1.15) without being authorised in that product category and without the approval as an FSP.

 

4.          The Applicant challenges the Respondent’s decision which entailed the imposition of an administrative penalty of R 20 million on the Applicant in terms of section 167 (1)(a) and (b) of the FSR Act[2]. The Respondent also issued a debarment order in terms of section 153(1) (a) which debars the Applicant for a period of 20 (twenty) years[3].

 

5.          The Applicant does not challenge the contravention findings, his application for reconsideration is confined to the quantum of the administrative penalty imposed and the length of the period of debarment.

 

THE SCHEME

 

6.          It is necessary for purposes of this decision to briefly set out and explain the nature of the Praesidium Group of entities’ scheme as set out in the record before this Tribunal. In that regard, the following salient features of the Praesidium Gorup of entities’ scheme are instructive: -

 

6.1.        Praesidium Advisory advised its clients to invest in foreign currency denominated investment instruments[4]. Client monies were invested in foreign currency denominated investment instruments (“forex instruments”), in foreign exchange trading based on price fluctuations. Since 1 April 2018, an FSP that seeks to render financial services in forex instruments must be approved under product category 1.15 forex investments.

6.2.        Praesidium clients interacted through the Praesidium Global Online Platform (“PDM Platform”), an online system that recorded the value of each client’s investment with Praesidium. In terms of the PDM Platform a total of approximately R972.3 million was invested by clients. Notably, this amount differs from the trading accounts statements which form part of the record. We return to this latter issue later in the decision.

6.3.        The evidence gathered by the Respondent and which forms part of the record demonstrates that Praesidium Advisory advised its clients to invest forex instruments. At the time, its authorisation as an FSP did not include rendering financial services in respect of a foreign currency denominated investment instrument[5].

6.4.        Praesidium Wealth also advised its clients to invest in forex instruments even though the entity was not approved as an FSP and was not appointed as a juristic representative of Praesidium Advisory (or any other FSP) between 1 April 2016 and 17 November 2018. Even after it was approved as a juristic representative of Praesidium Advisory, it could not lawfully render financial services in forex instruments because Praesidium Advisory did not have an appropriate license. This resulted in the Respondent finding that Praesidium Advisory and Praesidium Wealth contravened section 7(1) of the FAIS Act. [6]

6.5.        According to the Respondent’s report, clients were advised by the Praesidium Advisory’s representatives to deposit their monies in the nominated Praesidium Wealth and/or Praesidium Sentinel First National Bank (“FNB”) accounts. Praesidium Wealth and Praesidium Sentinel in turn transferred client monies to an FNB account held in the name of Octox (Pty) Ltd (“Octox”).

6.6.        Octox is not an authorised FSP and therefore could not lawfully receive, hold, or invest clients’ monies[7]. Thus, the Respondent found that Praesidium Wealth and Praesidium Sentinel contravened section 7(3) of the FAIS Act by conducting financial services business with an entity that was not authorised. (See paragraphs 17.1 and 17.2 of the Respondent’s report)

6.7.        The Respondent further found that only 19.4% of the monies deposited in the Octox bank account were transferred to trading platforms for the purposes of trading in forex instruments. The balance of the monies was utilised for payments to clients who were withdrawing their capital and/or monthly returns, to pay the directors and consultants and fund operational expenses of the various Praesidium Group of entities.

6.8.        The Applicant, Mr Massyn, an erstwhile director of the Praesidium Group of entities and the head trader, was trading at a loss more than 50% of the time, and as result the Respondent found that there was no viable business activity in operation. The Respondent states in its report that the Applicant was operating a scheme “similar in nature to a Ponzi scheme”. This also resulted in the Respondent’s finding that the Applicant contravened section 2 of the FI Act[8].

6.9.        As the head trader, it is common cause that the Applicant was responsible for trading in the various trading platforms. Only he had access to the trading platforms.

 

7.          The Authority received numerous complaints from clients of Praesidium Advisory. The complainants alleged that Praesidium Advisory might be soliciting investments from members of the public and operating an unapproved foreign collective investment scheme. The complainants also alleged that Praesidium Advisory might be operating a Ponzi scheme because it was offering returns as high as 40% per annum. These complaints triggered an investigation by the Respondent.

 

GROUNDS FOR RECONSIDERATION

 

8.          The Applicant delivered his application for reconsideration together with the basis for the challenge. The grounds for reconsideration are stated in the Applicant’s application letter to this Tribunal dated 01 October 2022 where the Applicant, as part of his grounds for reconsideration states as follows[9]:

 

“I accept that Praesidium and its directors contravened various financial sector laws in a material way. I thank the FSCA for their diligent investigation into this matter and their findings. I would like to make this application for reconsideration of decision pertaining to the quantum of both the excessively high administrative penalty and the lengthy 20-year debarment:

 

1.3.1        Debarment of 20 years based on my age is a lifetime ban from financial services which is the only industry I know, I am currently 39 years of age and will be 59 once the debarment is complete.

1.3.2        The administrative penalty of R 20 million rand is a huge and excessive amount. I do not have the financial means to pay a fine of R 20m, I was sequestrated on 15 September 2021. All our assets have been attached and taken by the liquidators. In this instance would I correspond with my trustees of my sequestrated estate to make payment terms towards this debt?

1.3 3 The other directors who are jointly and severally liable have received far lighter penalties in relation to their direct involvement and transgressions. The rolls and responsibilities of the other 2 directors were to ensure that the FSP license of Praesidium was adhered to at all times. I was at all times a non-executive director of each Praesidium company in the group of companies, I was not involved in the day to day running and decision making. I also did not solicitate members of the public. My role was solely the trader in a different office in a different province. Based on our roles and duties as directors should the penalties not be proportionate?

1.3.4 The administrative penalty considered by the decision maker is mainly based on financial or commercial benefit derived by each director or juristic person related to the director. In the Praesidium post enforcement report part 17 contains a table of the net inflow and outflow of monies from primary entities to/from the directors. I cannot comment on the amounts of the other directors (AN Cunningham- Moorat R 17 636.223 and BR Beukes R 13 739.481), but I dispute the amount allocated to me of R 46 621.604. This amount is not correct and therefore the administrative penalty of R 20 million derived on this amount is incorrect, if the penalty is based on financial benefit received”. Sic

 

9.          During the hearing before this Tribunal, the Applicant contended that he disputes the amount of R46 621 604. 00 that the Respondent said was his “financial / commercial benefit” in the Praesidium Group of entities. He further stated that the monetary penalty of R20 million imposed by the Respondent is based on an incorrect calculation of his benefit in the Praesidium Group of entities scheme.

 

10.     During the hearing, the Applicant proceeded to hand over to this Tribunal trading account statements which included a summary of the trading account statements which he said proved that he did not benefit to the tune of R46 621 404. 00 as alleged by the Respondent.

 

11.     The Respondent confirmed that it was indeed furnished with the trading account statements during the course of its investigation and that its (Respondent’s) experts considered these statements when arriving at conclusion that the Applicant had benefitted in the amount of R 46 621.604. 00 The Respondent, however, pointed out that a summary of the trading account statements which is about eight (8) lines on the last page of the trading account statements is a new insertion, and that this summary was not part of the original documents provided to them during their investigation. The Respondent further stated that this summary does not form part of the record before this Tribunal. The Respondent submitted that since its representative had sight of the contents of the summary of the trading statements, despite its initial objection, it nonetheless consented to the summary of the trading statements being handed up to the Tribunal.

 

12.     During the hearing, the Respondent consented to the handing over of the summary of the trading account statements and said its experts did indeed consider the trading account statement and took these into account in their findings. This Tribunal provisionally allowed the documents during the hearing and invited the parties to address the panel on the admissibility and relevance of the trading account statements and the disputed summary.

 

RELEVANT FACTS

 

13.     During the hearing, the Applicant was rather cryptic in his explanation of the relevance of the summary of the trading statements which he submitted before the Tribunal. The relevance of the trading account statements is that the Respondent’s finding said there was only 19.4% trades from client funds that were traded and of that 19.4% that was traded. Only 19.4% of R1.36 billion invested by clients was transferred to trading platforms, and this sustained approximately 50% losses, before fees. Put simply, of the R1.36 billion paid into Octox’s accounts, only R264.49 million was transferred to trading platforms[10]. This speaks to the aspect of loss and the subsequent penalty of R 20 million imposed on the Applicant by the Respondent.

 

14.     The Applicant disagrees that only 19.4% was traded. On his version, the Applicant contended that the Respondent’s report did not consider the withdrawals made from Primus Africa (Pty) Ltd (“Primus Africa"). These amounts were identified as clients’ deposits instead[11]. On this score, it was the Respondent’s submission that nothing turned on this, and that instead, the real issue was that: “due to the losses in trading, there was not enough funds on the platform to withdraw to pay back clients”.

 

15.     The Applicant did not allege, nor did he challenge the other findings of the Respondent. He contended that the penalty imposed on him is excessive, and that he cannot afford its payment. Further, the Applicant contended that the debarment of 20 (twenty) years amounts to a “lifetime debarment”.

 

16.     The Applicant also contended that the other directors received far lighter penalties. He submitted that his debarment period and penalty should be more in line with that imposed on other directors.

 

17.     The Respondent’s notice of administrative sanctions dated 30 August 2022¹² sets out the: (a) the grounds for imposition of the administrative penalty, (b) the reasons for the imposition of the administrative sanctions, and (c) factors taken into account in determining the appropriate penalty.

 

18.     The Respondent also invited the Applicant to submit his comments. It is not necessary for purposes of this decision to restate the particulars of the penalty since this is succinctly set out in the Respondent’s findings which are not in dispute. It is worth emphasising that the findings made by the Respondent are not in dispute, save to mention that we could not find anything untoward in the application and interpretation of the applicable provisions by the Respondent when imposing the sanction.[12]

 

19.     It is common cause that, at all times, the Applicant was the head trader responsible for trading in various platforms on behalf of the investors.

 

ANALYSIS

 

20.     The gist of the Applicant’s application for reconsideration turns on the penalty amount imposed and the duration of his debarment.

 

21.     On the debarment, as a creature of the statute, the Tribunal does not have powers to do what the Applicant has asked it to do, which is to reduce the period to 10 years. The Applicant’s recourse lies elsewhere. He may, if so advised lodge such an application with the Authority under section 153(6) of the FSR Act. The Tribunal’s powers under section 234(1) of the FSR Act are circumscribed as far as a debarment decision by the Respondent is concerned.

 

22.     The Applicant contends that the penalty of R20 million is “mainly based on the financial and commercial benefit derived in respect of the R46.62 million benefit…” and because the R46.62 million amount is incorrect, so the argument goes, the “R20 million [penalty] derived on this amount is incorrect”.

 

23.     On a proper reading of the Respondent’s decision and the record before this Tribunal, it is apparent that the penalty of R 20 million is not “mainly based” on the R46 million benefit. The Respondent made it clear in its decision letter that it considered the approximate R46 million benefit together with other factors. In that regard, among the other listed factors are the following:

 

(I)             The nature, duration, seriousness, and extent of the contraventions. The contraventions identified (e.g., s 2 of the FI Act) were not merely misdemeanours, but the result of a scheme being administered by the Applicant;

 

(II)          The substantial losses (millions of rands) to thousands of clients because of the Applicant’s conduct. Some clients had invested their entire life savings and others were already at the retirement age at the time of being advised to invest. These clients have very limited chances, if any, of recovering from such loss;

 

(III)      The deliberate [misrepresentation] conduct on the Applicant’s part – i.e., he reported positive trading results, even though he was making 50% losses, before fees. Furthermore, he was paying some clients the returns due to them and their capital from other clients’ monies, when he knew that he had insufficient monies on the trading platform to apply any set- off.

 

(IV)     The importance of deterrence, especially considering conduct that resulted in substantial losses to members of the public.

 

(V)         The calculation making of the R46.62 million benefit, is the net effect of the flow of funds between bank accounts of the primary entities and accounts linked to Mr Massyn and/or associated entities;

 

24.     The Applicant also contended for uniformity in sanctions. He argued that because shorter debarment periods and lesser administrative penalties had been imposed upon his fellow directors and key persons of the Praesidium Group of entities he should also have been debarred for the same period and an equal amount of administrative penalty should have been imposed. Looking at the nature of the scheme itself and the Contract for Difference (“CFD’s”) as a financial product, the performance of a CFD is dependent on the trader and the parties to the contract. In this particular case, the counterparties to the CFD’s were the brokers. This put the Applicant at the centre of the scheme as the main head trader. During the hearing, the Applicant was invited to comment on this issue, and he indeed confirmed that as the head trader, the decision on what to buy and sell fell squarely on his shoulders. Trading was solely the Applicant’s responsibility. This in my view, is what puts him in a distinguishable position and on a different footing from the other key individuals. The Respondent was consequently correct in differentiating between the Applicant and other key individuals and directors.

 

25.     In terms of section 234 of the FSR Act, this Tribunal can only set aside the penalty and remit same to the Respondent for further consideration or substitute the penalty amount. On the conspectus of all the evidence before this Tribunal, no case has been made out to justify any form of interference with the discretion exercised by the Respondent in imposing the amount of the penalty. A remission of the administrative penalty can be dealt with in terms of section 173 of the FSR Act which vests the power do so with the Authority, upon an application being made. In my view, the Respondent carefully considered all the relevant factors placed before it and imposed a penalty in accordance with the applicable provisions of the statute. On all the available evidence placed before this Tribunal, the Respondent’s exercise of its discretion cannot be faulted.

 

26.     In the light of the aforegoing, having considered the records and material before us, including the submissions made by the parties, we are of the view that the decision of the Respondent is sound in law and cannot be faulted. We therefore find that the Application lacks merit. That being the case, the application for reconsideration is dismissed.

 

CONCLUSION

 

27.     It is, in view of our conclusion, unnecessary to deal with all the other issues raised. The application for reconsideration stands to be dismissed.

 

ORDER

 

28.     In the result the following order is made:

 

A    The application for reconsideration is dismissed.

 

 

Signed on behalf of the Tribunal on this 22^nd Day of August 2023.

 

 

Ms Zama Nkubungu-Shangisa

With the panel also consisting of:

Adv T Ncongwane SC (Chairperson); and Adv. N Nxumalo.

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