Publications
Partners
Port Elizabeth - When Old Mutual [JSE:OML] debarred one of its award-winning consultants at the end of last year - and a few months later started legal proceedings to get back some R1.7m it paid to entice him to join Old Mutual’s ranks – it opened a can of worms. Now it seems there are more worms than anyone thought could fit into a single can.
Since Old Mutual debarred James Stern as one of its financial advisers in November last year because he “does not comply with personal character qualities of honesty and integrity” and started their legal action, a group of former clients instituted legal action against Stern and against Old Mutual as an additional defendant for a total of more than R100m.
Fin24 also learnt that Sanlam [JSE:SLM] started its own separate legal action against Stern this week. Sanlam is apparently keen for Stern to return some R5.3m relating to the time he placed business with them. Sanlam is still to reply to questions to clarify the basis of the claim and if any clients suffered damages.
The group of Old Mutual clients from Port Elizabeth argued in court documents that Stern did not invest in the products that they preferred and agreed to in their meetings with him, but in products that were less suitable. One of the clients’ requirements was that they wanted to withdraw funds from time to time which the products they ended up with did not allow.
The clients argue in the court documents that the only reason Stern diverted investments to these products were because he received higher commissions. It meant that they had to pay Old Mutual severe penalties every time they needed to withdraw funds. In the case of an investment by a trust these penalties amounted to more than R6m over the term of the investment and the trustees of the trust reckon that these fees should not have been payable at all.
The investors argued in court that Stern hid the true facts by diverting documents to a different address and by falsifying their signatures on documents. One of the reasons Old Mutual gave when it debarred Stern as a financial adviser is that it “found discrepancies in his paperwork in so far as he duplicated customer signatures and altered postal addresses to mislead customers and misrepresent facts to Old Mutual".
The group of investors hold Old Mutual responsible for their losses because they said that Old Mutual continued to accept and act on documents after it came to light that Stern falsified signatures. (And probably because Old Mutual has more money and might be willing to pay up quickly and quietly to avoid a scandal.)
The claim is for the original capital invested, a return of the penalties for withdrawals and interest at the legally applied rate of 15.5% per annum. The applicants also want legal costs and keep their options open for “further relief”.
Pleading poverty
Meanwhile, back at the Port Elizabeth High Court, Stern pleaded poverty. He admitted he owes Old Mutual money within weeks after the life office instigated its claim for the R1.7m it paid Stern to work for them exclusively and another R67 734 arising from a debit balance on his commission account with Old Mutual and R192 130 under a deed of suretyship signed in 2006 when Old Mutual entered into a broking agreement with Stern’s previous brokerage firm.
Stern replied with an e-mail to Old Mutual’s demands stating that while he wishes to pay anything he has to pay, he is not in a position to repay these amounts. “Currently my debts are significantly greater than any assets and as a result of not working for the last number of months (I) have had no income.”
Stern’s estate was provisionally sequestrated by order of the High Court in Port Elizabeth in February 2014 and a final sequestration was granted in March. The report by the trustees of the estate entered into court earlier this week shows total liabilities of nearly R5.9m compared to assets of only R2.75m, leaving a deficit of R3.15m.
Several properties and a garage of nice cars registered in his name were bonded to the hilt. A Mini Cooper was sold on auction for R185 000 with BMW Finance apparently willing to take what it could get of the R385 000 due on the car. Bids on a Mercedes Benz C350 and Pajero 4x4 did also not reach the outstanding balances due to Standard Bank Vehicle Finance of R430 000 and R445 000 respectively. Standard Bank decided to try again at another auction.
Spousal twist
The new action brought by Sanlam signals that there is still more to the case than what was revealed to date. Sanlam will obviously not waste money by pursuing a very expensive legal battle in the High Court against the insolvent estate of James Robert Stern, married out of community of property.
There is the other twist in the tale: Stern’s wife worked at Sanlam as a broker consultant – the person who liaise between the financial consultant and Sanlam.
Some of a broker consultant’s duties include to check that financial consultants adhere to administrative requirements. These checks apparently failed at Old Mutual and the claim by Sanlam indicates that it failed there too.
There is also still a worm in the can who wants to know what happened to all the money. And another asks if criminal charges will follow with regards to those forged signatures and funny addresses.
Since Old Mutual debarred James Stern as one of its financial advisers in November last year because he “does not comply with personal character qualities of honesty and integrity” and started their legal action, a group of former clients instituted legal action against Stern and against Old Mutual as an additional defendant for a total of more than R100m.
Fin24 also learnt that Sanlam [JSE:SLM] started its own separate legal action against Stern this week. Sanlam is apparently keen for Stern to return some R5.3m relating to the time he placed business with them. Sanlam is still to reply to questions to clarify the basis of the claim and if any clients suffered damages.
The group of Old Mutual clients from Port Elizabeth argued in court documents that Stern did not invest in the products that they preferred and agreed to in their meetings with him, but in products that were less suitable. One of the clients’ requirements was that they wanted to withdraw funds from time to time which the products they ended up with did not allow.
The clients argue in the court documents that the only reason Stern diverted investments to these products were because he received higher commissions. It meant that they had to pay Old Mutual severe penalties every time they needed to withdraw funds. In the case of an investment by a trust these penalties amounted to more than R6m over the term of the investment and the trustees of the trust reckon that these fees should not have been payable at all.
The investors argued in court that Stern hid the true facts by diverting documents to a different address and by falsifying their signatures on documents. One of the reasons Old Mutual gave when it debarred Stern as a financial adviser is that it “found discrepancies in his paperwork in so far as he duplicated customer signatures and altered postal addresses to mislead customers and misrepresent facts to Old Mutual".
The group of investors hold Old Mutual responsible for their losses because they said that Old Mutual continued to accept and act on documents after it came to light that Stern falsified signatures. (And probably because Old Mutual has more money and might be willing to pay up quickly and quietly to avoid a scandal.)
The claim is for the original capital invested, a return of the penalties for withdrawals and interest at the legally applied rate of 15.5% per annum. The applicants also want legal costs and keep their options open for “further relief”.
Pleading poverty
Meanwhile, back at the Port Elizabeth High Court, Stern pleaded poverty. He admitted he owes Old Mutual money within weeks after the life office instigated its claim for the R1.7m it paid Stern to work for them exclusively and another R67 734 arising from a debit balance on his commission account with Old Mutual and R192 130 under a deed of suretyship signed in 2006 when Old Mutual entered into a broking agreement with Stern’s previous brokerage firm.
Stern replied with an e-mail to Old Mutual’s demands stating that while he wishes to pay anything he has to pay, he is not in a position to repay these amounts. “Currently my debts are significantly greater than any assets and as a result of not working for the last number of months (I) have had no income.”
Stern’s estate was provisionally sequestrated by order of the High Court in Port Elizabeth in February 2014 and a final sequestration was granted in March. The report by the trustees of the estate entered into court earlier this week shows total liabilities of nearly R5.9m compared to assets of only R2.75m, leaving a deficit of R3.15m.
Several properties and a garage of nice cars registered in his name were bonded to the hilt. A Mini Cooper was sold on auction for R185 000 with BMW Finance apparently willing to take what it could get of the R385 000 due on the car. Bids on a Mercedes Benz C350 and Pajero 4x4 did also not reach the outstanding balances due to Standard Bank Vehicle Finance of R430 000 and R445 000 respectively. Standard Bank decided to try again at another auction.
Spousal twist
The new action brought by Sanlam signals that there is still more to the case than what was revealed to date. Sanlam will obviously not waste money by pursuing a very expensive legal battle in the High Court against the insolvent estate of James Robert Stern, married out of community of property.
There is the other twist in the tale: Stern’s wife worked at Sanlam as a broker consultant – the person who liaise between the financial consultant and Sanlam.
Some of a broker consultant’s duties include to check that financial consultants adhere to administrative requirements. These checks apparently failed at Old Mutual and the claim by Sanlam indicates that it failed there too.
There is also still a worm in the can who wants to know what happened to all the money. And another asks if criminal charges will follow with regards to those forged signatures and funny addresses.
