A First National Bank (FNB) customer who enjoyed a “cosy relationship” with his bank manager – until he lost close to R200 000 – had his case against FNB dismissed because he was “the author of his own misfortune”, Noluntu Bam, the Ombud for Financial Services Providers, says.
Financial institutions can be held vicariously liable for the misdeeds of their employees. But when an employee of a financial institution engages in improper conduct and the customer is aware of it and hopes to benefit from it, the institution can’t be held liable for the client’s loss.
Bam makes this point in her determination on a complaint against FNB brought by a customer, Craig Keshwar, a businessman from KwaZulu-Natal.
Keshwar complained to Bam that he had been lured into a fraudulent investment scheme by Reginald de Ghee, who, at the time of the complaint, was the manager of an FNB branch in Pinetown, in KwaZulu-Natal. Keshwar claimed he lost R193 000.
In his complaint, Keshwar said FNB had an obligation to prevent the commission of the fraud and that such impropriety constituted a breach of the code of conduct for financial services providers under the Financial Advisory and Intermediary Services Act.
Bam says that to make a determination she needed to establish whether De Ghee was acting in the course and scope of his mandate when he received money from Keshwar, and whether Keshwar was reasonable in his belief that he was transacting with FNB and not De Ghee in his personal capacity.
She says Keshwar, by his own admission, enjoyed “a close and cosy relationship” with De Ghee, “spun over many years”. He made payments into De Ghee’s personal bank account – even linking his personal account to De Ghee’s personal account. These and other “uncomfortable facts” reflected adversely on the complainant, she says.
Bam says “the uncomfortable facts” include that the complainant:
* Was exposed to the bank accounts of other FNB clients and was unperturbed by De Ghee’s unlawful and unethical conduct. Bam says: “Instead, he took advantage and pried into other bank clients’ confidential information and saw a business opportunity that enabled him to make an ‘investment’.” She says Keshwar, as a businessman, ought to have known that such improper conduct could never have been sanctioned by the bank.
* Failed to question or alert the bank to De Ghee’s improper conduct – namely, the linking of the two men’s personal accounts and the fact that De Ghee had given him a personal cheque from his private account as a “guarantee”.
* Did not receive any proof of payments and did not enquire from the bank. He willingly and knowingly entered into what appears to have been a private arrangement with De Ghee.
Bam says the bank had “no way of knowing that the complainant was personally making substantial payments to De Ghee.”
She says: “The complaint paints a picture of deceit, lies and greed.”
According to Bam’s determination, sometime in 2006, immediately before Keshwar retired, De Ghee introduced himself to Keshwar as his bank manager. Bam says a strong friendship, beyond the orthodox client-bank manager relationship was forged. Keshwar says that from that point onwards, De Ghee went out of his way to give him special treatment when visiting the bank.
When Keshwar sought advice on how best to invest his retirement savings, De Ghee introduced him to a product which he described as a “million-a-month account” – an investment scheme he said was approved by FNB.
Keshwar alleges that on visits to the bank, De Ghee showed him other FNB clients’ bank accounts which reflected substantial amounts of money, supposedly received in interest earned from the same investment proposed to him by De Ghee.
As a result of the De Ghee’s persistence, Keshwar was persuaded in January 2008 to invest R100 000.
As a measure of “security” to an apprehensive Keshwar, De Ghee issued a cash cheque of R25 000 from his personal cheque account in favour of Keshwar. Keshwar says he was told that should the investment fail to deliver returns of over 50 percent over a period of four to six months, he could cash this cheque. Keshwar says this indicated to him that De Ghee was opening up an opportunity that was for the privileged only.
De Ghee had a member of his staff link the two men’s personal accounts “to speed up the process of making the investment and payment of interest”.
Keshwar transferred R50 000 to De Ghee. In early February 2008, he transferred another R10 000 “to cover costs”.
At the end of that February 2008, Keshwar received “interest” of R18 700, which induced him to part with another R50 000, which he paid into De Ghee’s account.
In April 2008, Keshwar made a payment of R23 000. Later that month, he received payments of R42 000 and R23 000 from De Ghee, described as “interest earned”.
In June 2008, De Ghee advised Keshwar to “invest” R30 000 in cash – to avoid bank charges – in a new scheme. Keshwar agreed and gave De Ghee R25 000, which he drew from a teller in the bank. Keshwar alleges that after this De Ghee pursued him for the remaining R5 000 – to make up the full R30 000 – which he paid.
In August 2008, Keshwar says De Ghee shifted his attention to Keshwar’s business account and urged him to invest some of that money, too. In September 2008 Keshwar relented and paid R83 000 into De Ghee’s personal account.
At the end of September 2008, De Ghee asked Keshwar to invest another R20 000, and Keshwar handed it over in cash to De Ghee.
Keshwar says that by this time he had not received any proof of payment from De Ghee. He held withdrawal slips as proof of sums invested. He claims he asked for an investment certificate and that De Ghee assured him documents would be delivered at a later stage.
“In spite of this, and bizarrely,” Bam says, “the complainant’s trust in De Ghee persisted. Needless to say, the promised certificates never materialised.”
FNB’s RESPONSE
The office of the financial advice ombud, Noluntu Bam, invited First National Bank (FNB) to deal with its alleged liability as De Ghee’s employer, but “such attempts came to nought”.
Bam was then compelled to issue a statutory ruling calling on the bank to furnish a formal response. The response was that De Ghee had neither actual nor ostensible authority to render advice to clients on financial and investment opportunities. The bank contended that:
* De Ghee was acting outside the course and scope of his employment;
* De Ghee was not authorised to render financial advice, as his duties as a branch manger involved the overall management of the branch;
* De Ghee acted for his own benefit and not in the bank’s interest;
* Keshwar failed to prove that De Ghee acted as an agent of FNB when the scheme was presented, “if there was such a scheme”;
* There was no insignia, trademark, symbol or document produced by Keshwar that suggests that FNB was the benefactor of the money invested, and all account numbers were either in the name of De Ghee or his family members.
* Keshwar failed to question the authenticity of the investments and accepted so-called interest of approximately R94 000, which was paid to him within three months of making his investment;
* Keshwar must have known that he was investing in a scam or pyramid scheme; and
* The issues raised in the complaint could only be tested under cross examination in a court of law.
Determinations made by Bam have the same effect as a civil judgment. Any determination can be taken on appeal to an appeal tribunal, but only with the leave of the ombud.
FNB paid five claims related to De Ghee, the bank told Personal Finance this week.
De Ghee’s employment contract with FNB was terminated on December 30, 2008 after an internal investigation into his conduct, Lytania Johnson, the head of risk and compliance at FNB Retail, says. He was arrested, and in March 2012 was sentenced to six years’ imprisonment.
“We carefully audit all officials who offer investment advice to customers,” Johnson says.