Another property syndicate hammers investors

About 1 000 people, many of them unsophisticated elderly investors, are set to lose much of their money following the collapse of a R300m property syndication empire.

City Capital is the latest property syndication scheme to face liquidation proceedings, with an application to place it under a provisional liquidation order granted in the Cape High Court last week. Interested parties have until 13 October to show cause as to why a final order should not be granted.

Other failed property syndication schemes to have hit the headlines in recent weeks include the King Group and Bluezone, which collectively pulled in not far off R1bn in investments - much of this from retired people.

Legal action is swirling around all three syndications, though it is unlikely investors will receive much of their money back. 

Juliette Langford of Edward Nathan Sonnenbergs (ENS) is acting for the liquidators in the City Capital case and told Realestateweb this week that dozens of property companies will most likely be liquidated with a view to extracting cash.

ENS is acting on behalf of Capital Investments, essentially the controlling entity of the City Capital set-up.

She said about R300m was ploughed into the City Capital operation, with investors thinking they were channelling their funds into property. These investors thought they were buying an annuity income stream based on the rentals achieved from underlying properties.

However, they actually bought shares and the income was being generated from the sale of their shares to City Investments. When City Investments ran into trouble, there was no-one to buy the shares.

She said these investors generally did not realise their capital was being eroded because their shares were being sold. The higher the income an investor chose, the more of their shares were sold off.

Making matters even worse is that many of the underlying properties may not fetch a good price, partly because of market conditions. Many of the properties are smaller shopping centres, which are performing poorly in the recession and are currently not in high demand from buyers.

And, as the investors are technically shareholders, they will be last in line to be paid, as is the case when a limited liability company goes into liquidation.

"Shareholders are only paid if there is something left after all the creditors are paid," said Langford. These creditors include auctioneers, property valuers and other service providers.

Langford said there are bonds on many of the properties and it is still uncertain to what extent there will be a "free residue" left to flow up to City Capital.

She said most of the properties are commercial real estate, though there might be some residential stock.

Although many schemes have duped investors who have sought higher-than-average returns, Langford said she believes many who put money into the City Capital syndication were financially naive and led into this by brokers.

"Really unsophisticated people are vulnerable. I don't think they would know what realistic returns are. The monthly income sounded wonderful. They didn't understand they were giving up shares," she said.

Accusations of crimes have been levelled at some property syndication operators, with the Financial Services Board reportedly accusing the King Group operators of misappropriating client investments and lying to investors.

In the Bluezone matter, astonishing greed seems to have played a role, with two directors allegedly selling a property they bought for about R1m through one entity to Bluezone for about R118m. It is alleged that Bluezone chief executive officer Hennie Lamprecht made a quick R95m out of this deal and director Johan van Zyl more than R5m.

Several years ago, during the property boom, veteran financial journalist Deon Basson famously warned investors of the perils of property syndications. He died last year amid a stressful legal battle with syndication company Sharemax.

Earlier this year, in a strange twist to the Basson-Sharemax saga, Sharemax bought Basson's copyright for a book on Sharemax and instructed the media through lawyers to remove all references and excerpts in connection with this book.

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Comments

 

responses to this article

Greed! Is'nt it all greed from the investor and that of the scheme initiators. iIf the returns sound to good, then they are most probably to good to be true!!! If shareholders have been hoodwinked, then it is high time to put someone behind bars. Sounds . .more a bit like a "milk culture scam", just using another product! . .less by Zorba on September 08 2009, 18:24 Find this comment inappropriate? Report it

Watch Sharemax and PIC You were warned! by Watch Sharemax and PIC on September 08 2009, 18:33 Find this comment inappropriate? Report it

Bring Back Mike Oh bring back Mike Flax and the boys, they knew how to run a property syndication that made money for everyone, not like these current jokers!! by Robbie the Grape on September 08 2009, 18:33 Find this comment inappropriate? Report it

Are there any good property syndicates out there? I came into the investing market a bit late, so have missed most of the exhuberance surrounding the property syndication investments. However I keep reading about these things failing and the man hardest hit always seems to be some poor pensioner who . .more really cant afford to loose the capital? Are investors really this ignorant or are the sales teams really good? Is it the typical South African property mentality? Also Sharemax has now purchased the copyrights on Bassons book, something he dedicated his last years on earth towards, that is absolutely CRAZY!!! . .less by CTIFA on September 08 2009, 18:42 Find this comment inappropriate? Report it

Jail There must be a way to get these bastards to pay with jail time? Surely there is a lawyer out there that wants to make a name for him/herself! The government should also come to the party and protect ordenary people from this. by Bok on September 08 2009, 19:23 Find this comment inappropriate? Report it

Investigate dynamic Wealth Dymanic Wealth also lost more than R270m from bit more than 2500 elderly investors. Now they claim innocence and said they have done nothing wrong. Meantime they misled all their investors, promised them a low risk investment but meanwhile extending . .more risky credit for property bridging finance. Dynamic Wealth is a disgrace to the investment community and there is a special place in hell for the directors who have stolen money from the elderly to satisfy their own greed. . .less by pensioner on September 08 2009, 20:06 Find this comment inappropriate? Report it

syndication The old fogies are naive not ignorant, there is a difference - the only mistake they make is that they trust - they are generally in financial queer-street so grab at straws - and these mongrels screw them - need jail time and throw away the keys - and . .more may they pay handsomely in the next life - hopefully there is one for rogues and may it be as hot as hell itself with a deknackering machine to add injury to injury . .less by cynic ii on September 08 2009, 20:11 Find this comment inappropriate? Report it

Investigate Dynamic Wealth Dymanic Wealth also lost more than R270m from bit more than 2500 elderly investors. Now they claim innocence and said they have done nothing wrong. Meantime they misled all their investors, promised them a low risk investment but meanwhile extending . .more risky credit for property bridging finance. Dynamic Wealth is a disgrace to the investment community and there is a special place in hell for the directors who have stolen money from the elderly to satisfy their own greed. . .less by poor pension lost on September 08 2009, 20:11 Find this comment inappropriate? Report it

SURPRISE SURPRISE!!! ANOTHER dirty rotten scheme hatched in the property bubble, now bursting! So you were all going to get filthy rich, and all you had to do was gibe the NICE man your money? bwahahahahaha by Munch on September 08 2009, 20:11 Find this comment inappropriate? Report it

Proptunity is another one that went belly up. Property syndicates is nothing more than pyramid schemes. Please be aware of Proptunity. Don't even go there. by Piet on September 08 2009, 20:33 Find this comment inappropriate? Report it

Simple basics and basic simplicity Bok, you say "The government should also come to the party and protect ordinary people from this." Come on - they are the worst culprits involved in "tender processes" and every other embezelment scheme they can think of ! Get a sound financial . .more advisor (there are quite a few still out there) structure your financial plan, keeping it simple and stick to the basics. Always get a few extra opinions before committing to the plan and spread the risk - it's that simple ! . .less by PAS on September 08 2009, 23:27 Find this comment inappropriate? Report it

Brokers again? Come on, FIA let the intermediaries improve their vetting of investment opportunities offered to clients. A set of guidelines or rules (FSB licencing is not good enough) may help. Problem is, after accepting unsound advice from an unsound adviser it is . .more too late. I now do my own investing by spending a few hours per day on it starting with international market news at 4h45 to be ready for trading when the JSE opens - listed companies only, but I accept not all investors can do that. The broker/adviser/planner needs to look beyond commissions and naive investors need to consider that brokers do have access to special investment deals. . .less by kipi on September 09 2009, 06:14 Find this comment inappropriate? Report it

SHAREMAX AND DEON BASSON Google Sharemax and get to the link on wikileaks.com and read all you want to read about what Deon Basson had to say about Sharemax. No lawyers letter can stop the flow of information ---it'a all out there for all to see.. by Financial Virgin on September 09 2009, 06:32 Find this comment inappropriate? Report it

@pensioner agree. I have seen the letter that went out to clients explaining why they choose the specific investment ahead of ABSA and Investec. According to Dynamic Wealth they used a system to do a risk analysis and found the ABSA and other bigger banks to be . .more more riskier than the money market they invested in. Now is this not strange. How can an unknown company be stronger than the banks when it comes to a money market product.........I think it is a case of them paying more commission to the directors and not the risk ascpect. . .less by gd on September 09 2009, 07:32 Find this comment inappropriate? Report it

@Bok The Govt come to the party !!!!!!!!!!!! Half these idiots employ racist (read White) consultants , at taxpayer expense , as tying their shoelaces is about the extent of their competency -------they are mostly mentally impaired fools (read Cadres) by George on September 09 2009, 08:07 Find this comment inappropriate? Report it

Greed A fool and his money are soon parted. by AA on September 09 2009, 08:11 Find this comment inappropriate? Report it

Thanks Financial Virgin! Great info. by Verde on September 09 2009, 08:44 Find this comment inappropriate? Report it

A portfolio of investments with say no more than 12% per asset spread amongst different classes and fund managers will surely to go a long way to prevent extreme mishaps. A portfolio consisting of one risky investment only is a sure way to disaster. Can't pensioners learn? by TheUglyTheBadAndTheGood on September 09 2009, 09:27 Find this comment inappropriate? Report it

Sharemax the Bluezone Investment was sound. It boils down to Sharemax liquidating competition. By going to court and putting doubt in investors minds, the investment starts to wane. Then they have the doen the very same to anyone entering the market. I will . .more bet that they are the liquidators in this case to. the investors lose money because of sharemax investments. "inside knowledge" . .less by Alyson on September 09 2009, 12:02 Find this comment inappropriate? Report it

@pensioner Dynamic Wealth stinks to high heaven. It is exactly as you say, their professional advisers considered CMM a better investment than ABSA et al. Now, when the K** has hit the fan, they claim they have no responsibility, no accountability, they don't even . .more acknowledge that they made a bad investment decision! Their porfolio managers should immediately refund the investor's fees and commissions that they earned, at the very least, and they should never be allowed to practise in the investment market again. They should be fired. Dynamic Wealth, if they had any honour, should publicly apologise. But don't hold your breath. As for the FSB, they are more useless than the Tshwane municipality..... they pass the buck, ignore their obligations, case closed. They should rather be called the F******* Smug Bastards. . .less by A JAY on September 09 2009, 13:41 Find this comment inappropriate? Report it

The FSB knows all about Dynamic Wealth The FSB knows very well what is happening at Dynamic Wealth, many investors complained and I understand they even investigated some of it...but somehow they turn a blind eye and ignore the whole thing. And Dynamic Wealth directors (in particular Philip . .more Hattingh) just blows it all off as nothing has been done wrong. Meantime they committed teh same fraud as CMM inhouse. Their clients have been hit twice by the same fraudulant scheme. It is really time for some journalist to investigate this properly..where is the press when you need them?? cause sure as hell FSB is useless . .less by pensioner on September 09 2009, 16:05 Find this comment inappropriate? Report it

Sharemax Time Sharemax you can buy time with the lawyers, but your time will come. Deon Basson info will rule soon..................... by Bladerunner on September 09 2009, 16:23 Find this comment inappropriate? Report it

Hidden wealth schemes Funny how these schemes surface when people claim to be victims. Now, what do you say about these guileless scoundrels that sap old folks blood, worse than vampires! And for once, none of us can blame Blacks, it is our own White greed. Hidden schemes for . .more defined racial wealth, I bet, none of these schemes are even exposed to Black people and we seek a rainbow nation. Perhaps, these should stay a racial enclave to destroy the prevailing mentality that White is competent. I sympathise with the old people that have been hoodwinked by these spineless scheming bastards !l . .less by Whataboytjie on September 10 2009, 10:06 Find this comment inappropriate? Report it

FSB to blame The FSB are in almost every occassion made aware of these schemes yet they seem to turn a blind eye and only go for their enemies such as Freddie Andalaft, John Field etc, What about Invest stealing R600m from Norwich policyholders funds when they took . .more over Fedsure. The FSB gave them their blessing!!!!! What about all the assets of Fidential, indirectly belonging to the widows and orphans of the Living Hands Trust. The liquidators sold to their chommies for 10c to the Rand and the widows and orphans will now get squat! Had they run the businesses worth hundreds of millions, they would have at least got some value. The FSB should be replced with a competent organisation!!!!!!! . .less by FSB FAN on September 10 2009, 13:45 Find this comment inappropriate? Report it

FSB are a destructive monster - a parasite consuming its host I agree FSB FAN, look at what the FSB have caused PIH investors because they had issues with Freddie Andalaft who has been an outspoken voice for intermediaries. If the FSB had an issue with Andalaft they should have adressed him, not PIH and NFP where . .more investors have now lost millions to curators that destroyed the businesses belonging to investors - also many pensioners. Incidentally, NFP was discharged from Curatorship as a financially sound and viable organisation, but the FSB appear to be adamant to destroy, destroy, dstroy. . .less by Pensioner Supporter on September 10 2009, 13:49 Find this comment inappropriate? Report it

FSB don't care about pensioners I also have been ripped off by Dynamic Wealth and all my attempts to recover my losses with the FSB Obudsman have fallen on deaf ears and seem to be protecting the company. I also invested wth PIH for 7 years without any problems until the FSB interfered. . .more they destroyed our investments becasue they want to make an example of Andalaft. IWhy do they destroy our investments to make a skapegoat out of someone that has been invaluable to his clients and the industry? . .less by Pensioner on September 10 2009, 16:21 Find this comment inappropriate? Report it

Dynamic owns bridging company Dynamic Wealth owns the bridging company through which they lost millions of investors' money. And they have NO valid claim to recover those funds, as neither they nor the bridging company was registered as credit providers. Nice one Philip! by Dynamic Bridge over troubled waters on December 22 2009, 00:44 Find this comment inappropriate? Report it

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