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SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

THE FINANCIAL SERVICES TRIBUNAL

 

CASE No: A41/2023

 

In the matter between:
LESIBA BETHUEL PHAHO	Applicant
and
FINANCIAL SECTOR CONDUCT AUTHORITY	Respondent

 

Tribunal Members: Judge FD Kgomo (Chair), MG Mashaba SC and SM Maritz. Appearance for Appellant:              In person.

Appearance for Respondent:          Z Mshunqane.

 

Summary:       Application for reconsideration in terms of section 230 of the FSR Act of a natural person- non-compliance with fit and proper requirements.

 

DECISION

 

[1]                 This is an application for reconsideration in terms of section 230 of the Financial Sector Regulation Act 9 of 2017 against the decision of the Respondent to debar the applicant for a period of 5 years with effect from 14 November 2022.

 

[2]                 The Applicant was employed by Old Mutual SA as its personal financial adviser from 1 January 2005 until 20 April 2021. The applicant’s core functions involved selling of Old Mutual Financial Products to prospective clients and introducing various financial products to them.

 

[3]                 On 12 July 2021 Old Mutual Group Forensic Services compiled a report after an investigation was conducted where it was found that the applicant had misappropriated three of his clients’ funds. On the first occasion it was found that Ms L had invested R100,000 during June 2014 with Old Mutual and was assisted by the applicant. After she invested R100,000 the applicant requested her to invest another R50,000 which she did. In total Ms L gave the applicant an amount of R150,000 to invest on her behalf. Sometime later she went to the applicant to check on her policies only to find that on the Old Mutual system only R100,000 was invested. She asked the applicant about the R50,000 discrepancy. He undertook to pay back the unaccounted R50,000 in instalments. He paid R5 000 in May 2020 and another R5 000 in September 2022 towards repayment of the misappropriated R50,000. The applicant still owes her R40,000.[1]

 

[4]                 On the second occasion Ms N invested an amount of R400,000 with Old Mutual being assisted by the applicant. She invested R300,000 with Old Mutual via a transfer from her bank account. She then gave the applicant another R100,000 in cash for him to invest with Old Mutual. The applicant promised her that he would refund her on 6 April 2021, but never did.[2]

 

[5]                 On the third occasion Ms M retired during February 2017. The applicant advised her to invest all her pension money with Old Mutual. She refused. He then advised her to make an investment of at least R300 000 for a period of 5 years which at maturity would yield a value of R418,000. He then advised her to transfer the money into his personal account and not Old Mutual’s. When the client asked him why he said he wanted to deal with the investment swiftly and for him to do that she had to pay the money into his account. She transferred an amount of R340,000 into the applicant’s account so that the funds could be invested with Old Mutual. This amount was never invested with Old Mutual.[3]

 

[6]                 With a forensic report at hand the Financial Sector Conduct Authority sent a letter dated 15 August 2022 to the applicant notifying him of a possible debarment in terms of section 153 of the Financial Sector Regulation Act 9 of 2017 (“the FSR Act”). The notice of intention to debar was sent to the applicant via his last known email address.[4] The applicant failed to respond to the notice and was subsequently debarred. This in a nutshell are the facts that led to the applicant’s debarment.

 

PROCEDURAL FAIRNESS

 

[7]                 On 2 November 2023 the applicant visited the FSCA offices to enquire about his fit and proper status. According to him that was the first time he realised that he had been debarred a year earlier, with effect from 14th November 2022. The applicant accordingly argues that notice of debarment never reached him but was rather sent to a wrong email address. As a result of this he argued that he was not afforded an opportunity to respond to the allegations against him.

 

[8]                 At the time of the intended decision, the respondent did not have the applicant’s email address or physical address on its records. The respondent, on 28 July 2022, sought an Individual Trace Information Report[5] on the respondent from TransUnion which indicated the applicants email address as: L[…]@GMAIL.COM. The respondent used this email address to transmit both the Notice of intention to debar as well as the decision for debarment.

 

[9]                 Section 154 of the Financial Sector Regulator 9 of 2017 provides that:

 

154. Consultation requirements.—(1) Before making a debarment order in respect of a natural person, the responsible authority must—

 

(a)                     give a draft of the debarment order to the person and to the other financial sector regulator, along with reasons for and other relevant information about the proposed debarment; and

 

(b)                     invite the person to make submissions on the matter and give the person a reasonable period to do so.

 

(2)       The period contemplated in terms of subsection (1) (b) must be at least one month.

 

(3)       In deciding whether or not to make a debarment order in respect of a natural person, the responsible authority must take into account at least—

 

(a)                     any submission made by, or on behalf of, the person; and

 

(b)                     any advice from the other financial sector regulator.

 

[10]             Furthermore section 155 of the Act dealing with persons who cannot be located provides that:

 

155.  Where person cannot be located.—If a responsible authority after taking all reasonable steps, including through electronic means, cannot locate a person to be given a document or information under section 154 or a debarment order, delivering the document or information to the person’s last known e-mail or physical business or residential address will be sufficient.

 

[11]             It is evident on the facts of this case that the respondent complied with the consultation requirements as contemplated in section 155 for purposes of a debarment order. The respondent served the notice of debarment and the debarment order on the applicant’s last known email address as required by the Act.

 

[12]             The applicant further argued that he was not given the opportunity to make submissions in response to the allegations against him which led to his ultimate debarment. He however conceded that the first time he came to know that he had been debarred was on 2 November 2023. He had from 2 November 2023 until the date of the hearing of this matter, being 17 July 2024, to make his submissions in response to or in rebuttal of the evidence adduced by the respondent. This afforded him ample opportunity, more than eight months, to do so.

 

[13]             Even though he did not make submissions before his debarment he, in fact, did so in his reconsideration application. It is trite law that procedural irregularities may, depending on circumstances, be cured by a procedurally fair appeal.[6] The Tribunal, during the hearing of this matter, considered the applicant’s submissions which he argued were not considered during his debarment proceedings. We indulged him with liberal latitude in this regard. We did so in that the reconsideration application before us is a fresh rehearing of the matter, and the applicant was unrepresented. In the process we considered all the evidence that had been tendered including his submissions.

 

[14]             That being the case we are of the view that there were no procedural irregularities leading to the debarment of the applicant. Even if there were any, then those purported irregularities would have been cured by the procedurally fair reconsideration application. In the premises we reject the applicant’s submissions that there were procedural irregularities and that he was not afforded an adequate opportunity to be heard.

 

SUBSTATIVE FAIRNESS

 

[15]             The applicant has compiled a four-page document listing his grounds of application. These are more of a narration than grounds for reconsideration. They were inelegantly drafted and sometimes incomprehensible. The Tribunal did its best to make them intelligible. He claims that:

 

(a)                        Funeral benefits were a highly considered plan collectively agreed upon by the taxi owners for emergency cash assistance in regard to funeral logistics.

 

(b)                        He did his best to table and explain the product to the taxi owners to their satisfaction. The one and only product recommended by all (taxi drivers) was the final expense of R100,000 per member x 17 members was deemed the solution for the owners of taxis. The intermediaries and advisory services were executed by himself and his personal assistants.

 

(c)                        The underwriting department is responsible for the medical requirements e.g. blood tests, diabetes, high blood. Therefore, short medical reports or standard medical reports are required. This exercise was completed.

 

(d)                        Old Mutual failed the taxi owners’ spouses, families, communities and the nation at large for the incompetence exhibited.

 

(e)                        Old Mutual took 8 months to pay out the final expense benefit, which was less than the amount due to them.

 

(f)                          FSCA was informed by him that his life was threatened by the taxi owners and their families, communities around the area and other financial advisors from the same employer (Old Mutual SA) and therefore the competitors.

 

(g)                        Everyone believed that he, Lesiba Bethuel Phaho, an executive financial advisor and then manager of the Taxi Association had utilised /spent the money for his personal reasons.

 

(h)                        A TV 2 programme known as Speak Out came to his office with their branded cars, minibuses, cameras and with a poor widow in black clothes and taxi owners.

 

(i)                           His so-called office/with the illegal occupants were surrounded by Speak Out employees with cameras and Taxi owners calling out loudly saying they want Lesiba Bethuel Phaho the Executive Financial Adviser to pay out the widow’s money.

 

(j)                           The office was locked, and he and his colleagues had to hide under tables, in toilets, etc.

 

[16]             From the aforegoing it is evident that the applicant in his grounds for reconsideration failed to address the allegations he had been found guilty of but decided to raise irrelevant issues which have nothing to do with this matter, but instead, as reflected above, blamed Old Mutual for his self-inflicted woes. The pertinent issue is that three former clients of the applicant deposed to sworn statements alleging that he misappropriated their funds which he promised he would invest with Old Mutual in the manner described in paragraphs 3, 4 and 5 above. They also attached bank statements indicating cash withdrawals with which they demonstrated that the stated amounts were paid to the applicant.

 

[17]             During the hearing of the matter the applicant raised new grounds which were not raised in his application for reconsideration. He alleged that the three complainants were not his clients but his relatives. He says they agreed to borrow him the money which he was not required to invest on their behalf but would refund at a later stage.

 

[18]             This new information was never pleaded as grounds for reconsideration and was clearly an afterthought once the applicant realised that he could not cogently respond to the overwhelming evidence adduced by his former clients. The three clients were unambiguous in their affidavits that they entrusted their money to the applicant solely for investment purposes with Old Mutual.

 

[19]             It is furthermore evident that these three witnesses were clients of the applicant and not relatives. Their dealings with him were strictly for business (investing) purposes. All that these vulnerable clients wanted from him was to invest their savings with Old Mutual. In fact, one of his clients, Ms N, stated in her affidavit that she trusted the applicant because he was a priest and she had no reason to distrust him.[7] She makes no mention to them being relatives. Another client, Ms M, in her affidavit averred that: “I trusted him because he was my advisor and why would he lie to me. He had a bible on his table and always spoke about his faith. I had no reason not to trust him.”[8]

 

[20]             The applicant’s argument that the three complainants were his relatives from whom he borrowed money was less than frank. On the contrary it is a concession of serious misconduct on his part that he deflected the money for personal use. In terms of Old Mutual’s Compliance Communique 6 of 2010 the following examples are listed as activities that are regarded as irregular:

 

“Client/Adviser loans. Advisers are not allowed to provide personal loans to clients or to accept personal loans from clients.[9]

 

Custody of clients’ funds. Staff may not take into their possession/custody or deal with any client funds, money or other assets. Staff therefore cannot act as personal banker or custodian of client funds and/or open a bank account and transact for and/or on behalf of a client.”[10]

 

[21]             It is common cause that the applicant received training on the Rules and General Code of Conduct pertaining to his responsibilities with Old Mutual. He was informed in so many words. ( OM10 at page 87):

 

“As an experienced advisor [01/01/2005 to 20/04/2021] Mr Phaho knew the rules, he knew the seriousness of his action and yet he continued to break the rules on numerous different ways. Old Mutual is obliged by the FAIS Act… to take action against Mr Phaho, therefore Chair we asked that he be debarred”.

 

[22]             In the circumstances, for the applicant to approach the charges against him with such lackadaisical nonchalance defies all logic.

 

[23]             The applicant conceded during the hearing that he does not dispute the propriety of the respondent’s guilty finding. Further, he does not contend that the period of debarment (five years) is disproportionally long should the guilty order be left undisturbed. We are satisfied that the evidence adduced proves that the applicant no longer complies with the requirements of section 8A of the FAIS Act, read with the fit and proper requirements, particularly the character qualities of honesty and integrity.

 

In the premise the following order is made:

 

(a)                  Application for reconsideration is dismissed.

 

SIGNED at PRETORIA on 26 day of JULY 2024 on behalf of the Panel.

 

MG Mashaba SC

With the Panel consisting also of:

Judge FD Kgomo (Chair) and Adv SM Maritz

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