A judge says Durban financial advisor Patrick Robert also deceived investors, by not blowing the whistle.
|||Umhlanga financial adviser Patrick Robert has been criticised by a Pietermaritzburg High Court judge for not blowing the whistle on self-confessed fraudster attorney Colin Cowan, who stole millions from people who invested in what turned out to be a pyramid scheme.
Had Robert spoken up, Cowan’s “bridging finance scheme” would have been “nipped in the bud” and the losses would have been minimal, Judge Isaac Madondo said this week.
He ruled that Robert and his Nerak Trust may be held liable for investors’ losses, and they would be as joined as defendants in law suits brought against law firm Garlicke and Bousfield, where Cowan worked as an executive consultant.
Earlier this year, following a similar court application, Judge Trevor Gorven made a similar ruling against local accounting firm PKF (Durban) Incorporated, which operated five bank accounts used by Cowan, saying it ought to have realised that the accounts were not being conducted properly and should have alerted the law firm to this.
Now Judge Madondo said that Robert – an authorised financial services adviser – had not complied with his statutory obligations in his dealings with Cowan, who committed suicide in 2010, admitting to his fraud in a note to partners at the law firm, which is being sued by several investors for about R55 million.
The firm was defending these claims, saying Cowan had acted alone and it had not known what he was up to.
However, it said that, if it was held responsible by the courts, then so too were PKF, Robert and Nerak, because they must have known that what Cowan was up to no good and failed to report him to the firm. Judge Madondo agreed.
He said the firm alleged that Robert had acted as an agent for Cowan, procuring investors and obtaining written undertakings from Cowan, which he distributed to investors.
It was alleged that Robert had facilitated the receipt and payment of funds, which was paid into the bank account of his family trust.
This money, the firm said, was paid out to people other than those indicated in the letters of undertaking.
The judge said that, in terms of the Financial Advisory and Intermediary Services Act, Robert should have ensured that Cowan was a financial services provider and, if he had, the scheme would have been “nipped in the bud”.
Dishonest
He said, having regard to the fact that funds were paid out of accounts controlled by Robert to people not listed in the undertakings, Robert was fully aware that Cowan was being dishonest, but had not dissociated himself from him.
There was sufficient evidence to inform Robert “that the scheme was not only conducted irregularly, but unlawfully, and that such activities constituted fraud and/or theft”.
“In the circumstances, Robert knew very well that the undertakings were not intended to protect investors, but only to deceive them into believing they had some kind of assurance in the event of anything going wrong.”
Any reasonable person with the knowledge at Robert’s disposal would not have kept silent and continued participating in the scheme.
“Had Robert notified the law firm, the possibility was great that it would have taken steps to prevent the loss (of investors’ money)”. - The Mercury