Edwafin: FSB 'knew in 2006'

Johannesburg - The Financial Services Board knew about the sale of debentures in unlisted investment group Edwafin in March 2006, but declined to investigate it and the unregistered brokers who were selling debentures in the firm.

Edwafin debenture holders, who expect to receive quarterly payments on their investments, have not received interest payments since October 2008.

On March 16 2006, a financial services practitioner whose identity is known to Fin24.com alerted the FSB to Edwafin. This was followed up by an email on March 27 2006, and again in November 2006.

The FSB responded to the complaint on February 8 2008, saying that Edwafin did not furnish financial services or investment advice and that the FSB would not be able to investigate the group.

At the same time the FSB confirmed that Marinda Strydom - one of the brokers selling the Edwafin debentures - was a licensed financial services provider, but that she was not licensed to sell debenture or securities instruments.

The correspondence from the FSB, signed by Diphanang Molope, reads: "Edwafin Investment holdings does not give (sic) furnish advice or render an intermediary service and hence does not require a financial advisory and intermediary services (Fais) licence to trade.

"Our understanding is that Edwafin's sales force (employed by Edwafin) is only mandated to sell Edwafin Investment Holdings strictly in terms of the prospectus approved by the registrar of companies. It is only companies who sell their own shares and who have a prospectus and who comply with all the requirements of [the] companies act that do not fall within the ambit of Fais."

The Fais Act governs the selling and provision of advice about investments.

The financial services practitioner told Fin24.com: "The FSB missed the point - I was trying to alert them to something that looked like a pyramid scheme." He concluded that the FSB was "not interested", judging by its response.

While Edwafin may not fall under the ambit of the FSB, Edwabond Capital Options - the financial services arm of Edwafin through which the Edwafin debentures were sold - is listed as a financial service provider under the licence number 31990.

According to the FSB website, Strydom trades under the name of "AHJJ Strydom Fin Services" and is licensed to sell and advise on long- and short-term insurance, health and pension benefits. She is not licensed to advise on debenture or securities products.

As highlighted in a recent Fin24.com article, only four of the 21 "preferred advisers" listed on the Edwabond website were licensed to sell or provide advice relating to debenture instruments.

The Edwabond website has been taken down and was marked as "website suspended" on Monday afternoon.

The financial services practitioner told Fin24.com: "I was immediately suspicious that a company would need to raise funds by offering 15% interest on the debentures, when they could have gone to the bank for around 10%."

He asked that marketing material be removed from the retirement village where he was living, after pamphlets were distributed to residents.

The FSB says it will be meeting with Edwabond on Wednesday after complaints from debenture holders.

- Fin24.com