‘The BOV property fund saga is now government’s responsibility’

Paul Bonello strode onto the stage of the Catholic Institute’s theatre to the applause of some 500 investors who came to hear about the fate of their investments and hard-earned savings in the La Valette Sicav property fund.

It’s been a week since Bank of Valletta, the custodian and owner of the fund, announced a compensatory 75c share offer to some 1,000 investors in the fund. Bonello, the stockbroker who kick-started the series of judicial protests against the bank, has called the offer “morally dishonest”. And at the Catholic Institute, the investors in the fund are listening to Bonello re-enact his accusatory narrative of the way BOV sold an allegedly safe investment to clients who didn’t know the difference between a bond and a share – an animated monologue tracing the way the bank’s investment managers poured money into unsafe real estate funds that eventually drained the property fund of some €50 million.

 “The fund was sold as a retail product that was low-risk, whose price was not volatile... they gave you the impression it was going to be always great because you got a 12% interest at first. That’s what Madoff told his investors as well.”

It must have been painful for his audience to listen, yet again, to how the bank allowed the fund’s wealth to be invested in other property funds which had too much debt to withstand a downturn in property prices.

Apart from the applause at several intervals, the sense of exasperation in the room was palpable, especially when Bonello accused BOV of having issued false custodian reports that blessed the fund’s performance, while reaping up to €8.5 million in fees for their services. The only sigh of relief was the fact that Bonello was not giving up on getting BOV to offer investors a fair compensation, with legal interest. Or on his tough stand on a financial regulator he says "lacks personality", and now even taking on the bank’s main shareholder: “it should be made clear, that the property fund saga is now the responsibility of the government.”

“I am asking the Prime Minister to do the same as the Opposition has done so far,” he said of Labour’s parliamentary interventions on the matter. “I have full trust in the Prime Minister when he says he wants nobody to be left behind... I’m telling the prime minister that a gross injustice has been committed with hundreds of citizens and now he knows about it.”

“The MFSA and the politicians must be aware of this mortal sin,” Bonello said, aptly using the religious term in a climate that has just emerged from a civil-religious debate on divorce.

The MFSA is releasing its first of three reports into the property fund saga on 6 June. But Bonello says BOV’s 75c offer was a pre-emptive offer because they knew MFSA would be finalising its investigations soon. He is not letting up, even though the offer is 200% over the value of the neutered shares. He estimates a fair price to be anything between €1.15 and €1.35.

“Do not be hasty. We have done great progress. We’ll fight the good fight for our rights, even taking it as far as Brussels and Strasbourg. If this offer does not improve substantially, we will meet up again and it will be in your hands to decide how to proceed,” he told investors.

“They [BOV] want you to relinquish any legal claims you might have against them, VFM, VFS, and Insight Management... they are scared stiff ladies and gentlemen, do not transfer your shares over to them,” Bonello told the applauding investors.

He quoted the MFSA Act, which compels the regulator to hand over its investigative reports to each investor so that they can be fully informed before considering the BOV offer. He also said the regulator should demand BOV to withdraw the offer. MFSA chairman Joe Bannister said the authority will only publish its conclusions to the report and a decision.

“We will be the first people to take the MFSA to court and enforce those rights we have to see the reports of the investigations into the property fund,” Bonello warned the authority.

Retracing the property fund saga

Bonello said BOV never indicated any negative event in the course of the property fund up until April 2010 to their investors, despite criminal investigations into the Jersey-based Belgravia Funds having been ongoing since the previous year. It was in Belgravia’s real estate funds that the property fund suffered its main losses, partly because most of the property invested in had been backed by higher than normal levels of debts.

Bonello said BOV later split the fund into two pockets, a main pool and a side-pocket, the latter to hive off the under-performing portion of the fund – apparently in a bid to reassure investors their money would be safe. This led to the value of the share to be split from 54c to 27c for each of the shares in the main pool and the side-pocket.

“However the share in the side-pocket could not be withdrawn, and its value has been going down month by month.  To me they are worthless. The side-pocket was just created to sweeten the bitter pill they wanted you to take..."

Additionally, Bonello accused the financial regulator, the Malta Financial Services Authority, of having ignored the visible fact that Bank of Valletta was the custodian of a fund that it owned via its investment arm Valletta Fund Management and Valletta Fund Services – and whose chairmen was BOV chairman Roderick Chalmers – while also owning the La Valette Sicav.

“It was illegal to have this incestuous relationship... and I’ve been polite with them so far, but the fact is that they knew about it all along,” Bonello said, listing each and every director sharing the same boardrooms of BOV, VFM and VFS. “Even the lawyer of the La Valette Sicav – Camilleri Preziosi – is the legal advisor of BOV, VFM, and VFS. And it was only when I made an issue of this conflict of interest that Camilleri Preziosi decided not to take ownership of the Sicav case,” Bonello said.

The biggest question-mark of course in the property fund saga is whether a massive €16 million withdrawal from the fund – which included the entire investment held by John C. Ripard, a Sicav director – resulted from a silent warning sent out to bank employees and favoured clients when the Sicav got wind of the problems in the property fund. The MFSA is investigating ‘actual evidence’ of this insider trading, Bonello said.

“‘How did Finco dare doubt the integrity of Bank of Valletta?’” Bonello mimicked, in a sanctimonious voice, the tone of the bank’s directors towards his judicial protests. “Well, Mr Chalmers should have compared the withdrawals from the property fund with those of the HSBC property fund – we found that the withdrawals from the BOV fund  in 10 months were eight times the level of withdrawals in the HSBC fund that took place over 2 years,” Bonello said. “Thieves!” a voice from the crowd hollered.

If there was a moment that captured the injustice of the entire saga, it was when Bonello read out a letter that an unnamed investor had sent to the MFSA in December 2010. The investor said his investments were handled by his bank manager, whose car he serviced for free at his garage. At the time the fund started encountering problems, the manager stopped taking his car to his garage. Some time later, the investor checked in on the bank manager to ask him about the fund. “The manager told him candidly, ‘oh... I sold my own investment in that fund, and my family’s as well...”

The investor then stood up, sat at the very back of the hall. “It’s me... that man’s me,” he intoned gruffly, to the resounding applause in the auditorium.