The BOV La Valette property fund: a saga worth recalling

The news, the other week, that the Arbiter for Financial Services had awarded some €3.4 million in damages to a number of people who had invested in Bank of Valletta’s La Valette Multi Manager Property Fund hardly caused any ripple in the media. This was, in fact a great victory for consumers’ rights and put to shame the way Bank of Valletta (BoV) had trampled over the rights of their own clients.

It was, indeed, a long saga that is worth recalling. The general public first heard of the story in July 2010 when a series of judicial protests were filed by Finco Treasury Management Ltd in the name of a number of small investors against BoV and its subsidiaries.

The allegations were serious in themselves: mismanagement of a collective fund by placing the major part of the funds in investments that were very highly geared and risky; misselling of what was a professional investor fund to every Tom, Dick and Harry; and allegations of insider information leaking out to preferred clients causing a massive withdrawal of funds prior to the bursting of the bubble in August 2010. BoV was also accused of blatant false reporting to investors in its role of custodian.

An activist shareholder movement sprung up, surprisingly led by a licensed investment service holder (Finco) against another one of his ilk, Bank of Valletta. Slowly it transpired that the fund – amounting to as much as €80 million – was sold to more than 2,400 shareholders and that investors had suffered losses of as much as 70%.

The reaction of BoV was a public relations disaster. Rather than engaging with its accusers, the then Chairman, Roderick Chalmers, and the Bank issued an arrogant press release entitled “BOV tells Finco to either put up or shut up”.

And Finco did put up a fight, first at a regulatory level and ultimately judicially in front of the Arbiter for Financial Services.

In subsequrent general meetings of shareholders their wrath was for all to see, more so when they discovered that one of the directors of the La Valette Funds SICAV was amongst the first to abandon ship, selling his shares at an inflated and artificial value at a time when the public knew nothing of the estimated loss of some €40 million in the underlying funds in which the La Valette was invested.

Meanwhile the regulator, the Malta Financial Services Authority (MFSA), was being continually prodded by Finco to investigate the case.

It took some considerable time before the MFSA had to inevitably confirm that the allegations of breach of prospectus by Valletta Fund Management were correct and that annual reports issued by BoV contained misleading and outright incorrect information about the case. When BoV were informed of the impending administrative sanctions and penalties, the Bank hatched a “voluntary settlement” plan whereby investors were offered a remuneration of €0.75 per share in full settlement. Finco immediately went public to label the offer as an unfair ruse.

In the meantime, the MFSA continued to investigate the other allegations. In January 2012, it was announced that the La Valette SICAV director who had withdrawn his investment in time was reprimanded and asked to resign voluntarily. The MFSA concluded that other allegations of insider dealing did not result as when its inspectors questioned those who had withdrawn their funds, they all said that they withdrew their investment because they had some pressing expenditure. A demanding and incisive forensic investigation, indeed!

In July 2012, the MFSA published yet another report, this time in connection with the misselling of the fund by Bank of Valletta at its branches. As many as sixteen different breaches of the regulatory regime in place were mentioned in the report and the Bank was given another record fine. This fine, of course, was only a blip on the bank’s finances and did nothing to mitigate the losses of the investors.

BoV and its subsidiaries were advised to appeal against the MFSA sanctions to the Malta Financial Services Tribunal. The Bank then had the gall and the lack of common sense to demand that hearings be held in camera. The Tribunal had the wisdom to refuse to give in to this sort of demand and quietly the Bank withdrew its appeal.

MFSA later subcontracted Mazars – an international, independent organisation, specialising in audit, accountancy, tax, legal and advisory services – to investigate whether La Valette investors had indeed been really experienced investors that were eligible to invest in this professional investor fund. However, MFSA gave Mazars very arbitrary criteria to check whether the investors were experienced or not, and inevitably the result – published a few weeks before the 2013 general election – produced unlikely results and unbelievable quirks.

Those few investors who had not given in to the Bank’s May 2011 offer soldiered on and initiated legal action. It transpired that La Valette Funds SICAV and its directors, rather than initiating legal action in the interest of its investors, had entered into a secret agreement with BoV whereby the SICAV renounced taking legal action against the Fund’s functionaries in exchange for an indemnity from the Bank for any damages to which the SICAV could be held liable. Ultimately, the Bank made an out-of-court settlement obliging the plaintiff investors to secrecy.

Finco’s unwavering and inexorable determination continued. They lobbied the political parties to take a serious look at other cases of investment misselling, besides the La Valette Multi Manager Property Fund. These had reached incredible proportions with one consumer misselling scandal after another making the headlines in the years 2011 to 2014.

In 2016, a law setting up a Financial Services Arbiter on the lines proposed by the World Bank and the European Union was enacted. This law created an adjudicating body meant to be efficient, timely and inexpensive for consumers and which largely addresses the justice deficit of inexperienced and unknowledgeable investors in the face of unscrupulous investment service providers. And on 22nd February this arbiter found for the investors in their claim for the payment of any capital losses suffered by them on the La Valette Property fund for which they had not been compensated, together with interest and costs.

The arbiter reminded BoV not only of its legal responsibility but also of its social responsibilities to so many hundreds of its investors who had trusted the Bank and relied on its advice and management skills, and this most often when they were of pensionable age investing their life savings to supplement their pension.

The Bank issued a Company Announcement saying the Arbiter had handed down his decision and that the Arbiter had rejected all of the Bank’s submissions. The Bank said it would be discussing the matter and deciding on the appropriate action to take “in the best interests of the Bank”.

Old habits die hard! While always proclaiming to have the best interests of their clients at heart, banks keep acting in an almost diametrically opposite direction.

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