Second property fund investigation to be made public ‘imminently’ says MFSA

The financial regulator’s investigation on access to sensitive commercial information by employees and directors of the La Valette multimanager property fund is in the very final stages of completion, the MFSA has announced.

The MFSA said it will be making its findings public imminently on this part of the final two investigations into the fund, which also includes an investigation on mis-selling of the fund to inexperienced investors. The MFSA said the latter investigation was also at an advanced stage, and that it would be communicating its final position on this matter to Bank of Valletta by the end of the year.

The MFSA said it had welcomed a decision by the Data Protection Commissioner which has forced Bank of Valletta, the fund’s custodian, to allow investors to access their client fact finds.

Bank of Valletta has been ordered to release documents that could prove it sold a complex property fund to inexperienced investors against financial regulations, according to some who invested in the failed fund. Investors who sought the information were told by the bank back in September that there was no point in releasing the information given that they had accepted its final settlement offer of 75c per share at the end of June.

BOV and its subsidiary Valletta Fund Management were fined €347,000 for breaching the investment restrictions of the property fund, believed to have cost the fund some €50 million in value. The bank eventually offered shareholders a compensation offer of 75c per share – three times the value of the devalued shares.

VFM was found to have wrongly applied its own investment restriction which prohibited the fund from investing in other real estate funds whose debts were leveraged at more than 100% of net assets: meaning, having too much debt to survive a downturn in value. Specifically, it was a €17 million investment in the Belgravia European Property Fund - that was geared at over 100% - that is suspected of having lost in excess of 90% and is today estimated at €1.3m, while other investments originally valued at some €47 million fell to €18.5 million.

The MFSA also said that when BOV announced in May 2011 that its 75c share compensation offer had to be accepted by 30 June and was conditional on investors forfeiting all legal rights against the bank, a number of investors filed complaints with the MFSA on this condition because their the property fund investigation was still being investigated by the MFSA.

“The Authority experienced delays in reviewing these complaints partly due to an uncooperative attitude adopted by Bank of Valletta. In view of this state of affairs, on the 28 June 2011 the MFSA had issued a directive to Bank of Valletta plc in terms of article 15 of the Investment Services Act.

“This directive obliges Bank of Valletta to ensure that any acceptance of the offer to investors is without prejudice to any right which such investors who have either filed a complaint or were otherwise ineligible to acquire units in the Fund because they did not satisfy the legal criteria of ‘experienced investors’ may have to compensation or to being reinstated in the financial position obtaining prior to their investment in the fund.”

Bank of Valletta appealed to the financial services tribunal contesting this directive. BOV is also requesting the tribunal to keep the proceedings secret and to hold its sittings in respect of this appeal behind closed doors. “The MFSA is strongly opposing these requests as it believes that justice is best served if proceedings are held in open court, and this in the interest of transparency and accountability to the public.”