Investors’ deposits used to pay withdrawals: chief executive fined R10m and debarred

The FSCA has fined the chief executive of Smart Billion Investments R10 million and debarred him for 10 years while another director was fined R500 000 and debarred for five years for contravening a number of financial sector laws.

The sanctions follow an investigation by the FSCA after it received a complaint alleging that Smart Billion traded client funds without authorisation and failed to reimburse clients’ losses caused by Smart Billion.

The FSCA found that Smart Billion traded in contracts for difference on behalf of clients through online trading platform GT247.

Smart Billion opened a trading account at GT247, pooled client funds, and traded them in the name of Smart Billion. However, only a portion of the funds that clients deposited into Smart Billion’s bank account were transferred to GT247 for trading purposes. The balance was used to pay clients’ withdrawals, the FSCA said.

The FSCA found that Smart Billion contravened the following financial sector laws:

• Section 2 of the General Code of Conduct for Authorised FSPs and Representatives, which requires a provider to render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.
• Section 10(1)(e)(i) of the General Code, which requires a provider to take reasonable steps to ensure that financial products or funds are dealt with strictly in accordance with the mandate given to the provider.
• Section 2(a) of the Financial Institutions (Protection of Funds) Act, which requires the directors or employees of a financial institution to observe the utmost good faith and exercise proper care and diligence when investing or administering the funds held by the financial institution.
• Section 19(2) read with section 19(1) of the FAIS Act, which set out the auditing and accounting requirements for FSPs.
• Section 13(2) of the FAIS Act, which requires FSPs to ensure that its representatives and key individuals are competent and comply with the Fit and Proper Requirements and any other code of conduct.

The FSCA said Smart Billion had also contravened certain conditions attached to the suspension of its licence. The Authority provisionally suspended Smart Billion’s authorisation in August 2020.

Aggravating factors

It said Smart Billion’s chief executive, director and representative, Melusi Christian Ntumba, contravened section 2(a) of the Financial Institutions (Protection of Funds) Act, sections 2 and 10(1)(e)(i) of the General Code and certain conditions attached to Smart Billion’s suspension.

He also contravened section 8A of the FAIS Act in that he no longer meets the Fit and Proper Requirements. Ntumba also caused, attempted, or conspired with, aided, abetted, induced, incited, or procured Smart Billion to contravene financial sector laws, the FSCA said.

An aggravating factor was that only a small amount of clients’ funds was transferred to GT247; most of the money was used to repay clients and for personal or business expenses.

The FSCA found that director and key individual Renault Otto Kay contravened section 42 of Board Notice 194 in that he was unable to maintain the operational ability to fulfil the responsibilities imposed on Smart Billion. He also contravened section 8A of the FAIS Act.

It said an aggravating factor was that Kay agreed to act as the FSP’s KI only to secure a FAIS licence for Smart Billion, whereafter his only role was to oversee platform trading.

The FSCA said Kay did not perform his responsibilities as a KI to ensure that Smart Billion had the operational ability as envisaged in section 37 of Board Notice 194.

The Serious Commercial Crime Unit is investigating a criminal case against Smart Billion, the FSCA said.