The Financial Services Tribunal (FST) has upheld the FSCA’s decision to debar a former Old Mutual financial adviser who allegedly stole a total of R480 000 from his clients.
Lesiba Bethuel Phaho was employed by Old Mutual SA as a personal financial adviser from 1 January 2005 to 20 April 2021.
According to the FST’s decision, Old Mutual Group Forensic Services compiled a report in July 2021 after an investigation found that Phaho had misappropriated funds from three of his clients.
One of the clients, identified as “Ms L”, invested R100 000 with Old Mutual in June 2014. Phaho asked her to invest another R50 000, which she did. Sometime later, she found that only R100 000 had been invested. When she asked Phaho about the R50 000 discrepancy, he allegedly undertook to pay back the unaccounted R50 000 in instalments. He paid R5 000 in May 2020 and another R5 000 in September 2022, leaving R40 000 still owing.
Another client, “Ms N”, invested R300 000 with Old Mutual via a transfer from her bank account. She gave Phaho another R100 000 in cash for him to invest with Old Mutual. Phaho promised to refund her on 6 April 2021, but allegedly never did.
The third client, “Ms M”, retired in February 2017. Phaho advised her to invest all her pension money with Old Mutual. She refused. He then advised her to invest least R300 000 for five years, which at maturity would yield a value of R418 000. He advised her to transfer the money into his personal account, not Old Mutual’s. When the client asked him why, he said he wanted to deal with the investment “swiftly”. She transferred R340 000 into Phaho’s account. This money was allegedly never invested with Old Mutual.
Based on the forensic report, the FSCA notified Phaho in August 2022 of a possible debarment in terms of section 153 of the Financial Sector Regulation Act (FSRA). Phaho failed to respond to the notice and was debarred for five years with effect from 14 November 2022.
‘Wrong email address’
Phaho challenged his debarment on procedural and substantive grounds.
In his reconsideration application, Phaho said he only discovered that he had been debarred a year later, when he visited the FSCA’s offices on 2 November 2023 to enquire about his fit and proper status.
Phaho submitted the notice of debarment was sent to a wrong email address. As a result, he argued he was not afforded an opportunity to respond to the allegations against him.
The FSCA did not have Phaho’s email address or physical address on its records. In July 2022, the FSCA used an email address it obtained from TransUnion.
The Tribunal said section 155 of the FSRA, which deals with persons who cannot be located, states:
“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 email or physical business or residential address will be sufficient.”
The Tribunal said the FSCA served the notice of intention to debar and the debarment order on Phaho’s last-known email address as required by the Act.
Regarding Phaho’s argument that he was not given the opportunity to make submissions in response to the allegations against him, the Tribunal said he conceded that he came to know of his debarment on 2 November 2023. Therefore, he had from 2 November 2023 to the date of the Tribunal hearing (17 July 2024) to make his submissions in response to or in rebuttal of the evidence adduced by the FSCA. “This afforded him ample opportunity, more than eight months, to do so.”
The FST found there were no procedural irregularities leading to Phaho’s debarment. Even if there had been any, those purported irregularities would have been cured by the procedurally fair reconsideration application.
‘Irrelevant issues’
Turning to the merits, the Tribunal said Phaho compiled a four-page document listing his grounds for reconsideration. “These are more of a narration than grounds for reconsideration. They were inelegantly drafted and sometimes incomprehensible.”
The FST said Phaho failed to address the allegations of which he had been found guilty but raised “irrelevant issues” that had “nothing to do” with the matter. Instead, he blamed Old Mutual for “his self-inflicted woes”.
“The pertinent issue is that three former clients deposed to sworn statements alleging that he misappropriated their funds, which he promised he would invest with Old Mutual. They also attached bank statements indicating cash withdrawals with which they demonstrated that the stated amounts were paid to the applicant,” the Tribunal said.
‘Loans, not investments’
The FST said Phaho raised new grounds during the hearing that were not raised in his application for reconsideration. He alleged the three complainants were not his clients but his relatives. He said they agreed to lend him the money, which he was not required to invest on their behalf but would refund at a later stage.
The Tribunal said this new information was “clearly an afterthought” once Phaho realised 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.”
It was furthermore evident that the three witnesses were clients, not relatives. Their dealings with Phaho were strictly for business (investing) purposes.
It said Ms N stated in her affidavit that she trusted Phaho because he was a priest, and she had no reason to distrust him. She made no mention of their being relatives.
Ms M, in her affidavit, averred: “I trusted him because he was my adviser 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.”
The Tribunal described Phaho’s argument that the three complainants were his relatives from whom he borrowed money as “less than frank”. Instead, “it is a concession of serious misconduct on his part that he deflected the money for personal use”.
The FST said Old Mutual’s Compliance Communique 6 of 2010 listed the following examples 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.
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.”
The FST said Phaho conceded during the hearing that he did not dispute the propriety of the FSCA’s guilty finding.
The Tribunal was satisfied that the evidence adduced proved that Phaho no longer complied 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.
Clients have been compensated
Moonstone asked Old Mutual whether it has compensated the three clients or has embarked on legal action to recover the money from Phaho.
Old Mutual had not responded to our queries by the time of publication. However, News24 reported that Old Mutual said it opened a criminal case against Phaho in March 2022, and the matter was ongoing.
News24 also quoted Old Mutual as saying it has compensated the three clients and was investigating two additional complaints against Phaho. These clients would be compensated if its forensic investigation uncovered further fraud during Phaho’s tenure prior to his dismissal for breach of contract, insubordination, and gross insolence.
