Investors file new claims against BOV: bank broke rules on 9 separate funds

A new judicial protest against Bank of Valletta claims it ignored investment restrictions when it invested money in nine property funds.

16 September 2010, 12:00am
by Matthew Vella

3 min read

45 investors in the Bank of Valletta’s property fund are claiming the bank breached their own investment rules in nine underlying funds of the La Valletta Sicav multi-manager property fund.

The bank is now being held responsible by over 300 investors for the way the fund, once valued in excess of €84 million, was depleted to €24 million. The fund was managed by the bank’s investment arm Valletta Fund Management, which invested the cash in global real estate funds.

The new claimants are now personally holding BOV chief executive Tonio Depasquale, and the directors of the Sicav fund – Prof. Salvino Busuttil, Joseph Demajo and John C. Ripard – responsible for the fund’s depletion.

“… the Sicav’s directors are responsible for the representations made in the offering document. Claimants are holding the Sicav’s directors, including VFM, personally responsible, joint and severally, with the other respondents for damages suffered by them as a result of the breach of investment restrictions…”

Specifically, they accuse the directors of breaching conditions in VFM’s offering document, that restricted it from investing in funds which had debts and liabilities higher than their net assets: in financial jargon, funds that had a maximum gearing of 100%.

Now they claim VFM poured cash in nine underlying funds that had gearing levels higher than 100%. These are three Belgravia Group funds [suspended back in 2008] London & Capital German fund, Glanmore fund, Eastern European Property fund, Macau and Speymill Macau funds, and the Thames River Property funds.

The claimants also want BOV to put their minds at rest over the ‘abnormal’ withdrawal of 14 million shares, worth some €16 million, from the fund in 2008.

The Malta Financial Services Authority is aware that certain investors, including bank employees and directors, might have had access to ‘price-sensitive’ information when the Belgravia Group published its 2006 accounts on 30 January 2008. Then on 17 March, BOV moved to remove its investment in one the Belgravia funds, but by then the funds had been suspended.

The claimants say they are “not alleging any improper behaviour” but are demanding information that assures them “no investors benefited unfairly from information available to the Sicav and VFM with regard to the suspension of redemption in the Belgravia funds before this information was mad public, by redeeming their investment to the detriment of the remaining investors.”

The claimants are also asking the bank to tell them when one of the Sicav’s directors removed his investment in the property fund between 2007 and 2008, to ensure there was “no breach of fiduciary duties.”

The property fund’s massive losses are in part being blamed on the vicissitudes of the Jersey-based Belgravia group, which was placed under criminal investigation in 2008.

The investors are claiming BOV – as custodian of the fund – failed to keep them informed of what was happening to Belgravia group when it published its 2006 accounts in January 2008.

The fund investors are saying BOV “issued a considerable number of written communications to investors which failed to give a true picture of the situation and which gave a generally positive impression.”

They quote a letter of 7 August 20008, when the fund had already suspended redemptions, that it “continues to have exposure to good quality assets… and should generate returns in line with or better than the underlying market.”

Only last week, a Belgravia shareholder was slapped with a travel ban in Bahrain after a £2 million plea from an investment firm, made against him.

Matthew Vella, a freelance journalist at MaltaToday, was formerly executive editor at Malt...

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owen sammut •

BOV officials are getting quite a reputation of being grossly incompetent and have acted negligently in dealing with the investments in these funds. They did not act as a 'bonus pater familias' with other people's money. They are also reacting badly to the fall-out from such an event and the bad publicity they are generating. In simple terms they are acting as a bunch of buffoons. Furthermore it is now evident that BOV has no 'Corporate Governance' or 'Risk Management' structures and the Government as a substantial shareholder at BOV must act swiftly and change the Board of Directors and introduce the structures that all listed companies, especially banks must have. In order to minimise the damage, BOV must make good good the losses plus interest of the shareholders of the fund. BOV has also misrepresented facts to the shareholders of the fund and there are also allegations of 'insider trading'. The list of gross misdoings is endless. Another pertinent question is what is the MFSA doing in all of this? Where is the Rugulator- wining and dining with the Regulated. I think that it is quite high time to hold a 'Parliamentary Enquiry' on the role of these 'money wasting' Regulators and set-up a proper Code of Conduct and Ethics as to how they should act. It is glaringly obvious that various Regulators are not fulfilling their roles.

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No wonder this bank's financial statements were so profitable. They found the perfect formula. Simply sell your Bad Investments to your clients and let them take the losses. How clever. We will all be watching for the MFSA.

Joseph MELI •

Apparently the MFSA are only now investigating this complaint by investors and only did so retrospectively after judicial protests were filed by concerned investors.Why does the regulator adopt and cultivate such a laissez-faire demeanor and how are they protecting us in such vital areas and demonstrating a more pro-active,as opposed to reactive,response?Why does a cloud of secrecy descend over these apparent investigations being conducted by the MFSAand for this entity to then promulgate an update into such investiagtions and not depend on private citizens to provide such? Further concerns revolve around the fact that the principal Complaints Officer of the MFSA,Mr.Geoffrey Bezzina.perennially speaks at BOV seminars and no other financial institutions and as such a conflict of interest must occur.Insomuch as who funds his presence at such a private banks seminars and moreover, how can he appear totally independent and completely iimpartial when his employer is confronted by any complaints lodged against the BOV whom the MFSA is charged with regulating,monitoring and scrutinising.Public servants actions must be transparent,accountable and appropriate.

Toninu •

Our losses are drastic. These losses are not being attributed to negative market conditions. Our investment has been mismanaged by the so called Licensed Financial Experts. While we have been termed as "Experienced Investors" in order to enter into this Fund, we have been classified as "Retail Investors" by the same Bank, BOV. Our Intermediaries are slamming the door on us by claiming that it was an "Execution Only" transaction. The Custodian of the Fund, BOV, has issued false Custodian Reports for four consecutive years. This Fund was featured to be "on a long term basis" but it collapsed and was officially suspended just after three years. Moreover we have been misled by the Board of Directors of VFM by feeding us irrelevant information whilst hiding the true facts. It has also been revealed that some 17 million euros were redeemed from the Fund just before its closure to the general public. Only the "Chosen" were able to withdraw their invesment while we were left to rot. And now they have donned us with the crowning glory, now we have been offered just 0.26c against our original payment of 1.00 euro per share and we have been told to "either put up or shut up". Their arrogance knows no bounds. Aren't these all the ingredients to spell "FAILURE" ? It is thus very apparent that the way in which this Fund has been conducted are very questionable, and it is the duty of the MFSA to investigate and to protect our investment. We await.

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I hope that this personal responsibility is carried on to those in Authorities such as MEPA and others who take decisions because it is not fair that they take certain decisions which impact the citizens negatively and then either they do not pay or we as taxpayers have to make good for their mistakes. Their property and that of their relatives should make good for their "mistakes" to prevent them from transferring their property to their relatives.

Lawrence Cutajar •

So the BOV is using the excuse that we, the shareholders are at fault for losing the deposited money because we signed on as experienced shareholders and had trusted this bank with our money. Thank you very much, Board of Directors, who are still being paid for managing our vanished investment. I appeal to the Malta Financial Services to make the Bank of Valletta pay back every cent to all investors plus missing interest, thereby saving the Bank.s reputation. Is it still sanctioning the sixteen million withdrawal in 2007/8 and the 7.5million euros in fees?

Mark Fenech •

The more I hear and see documents on this fund, which was to be administered by BOV and Insight, the more the situation developes of how BOV did not adhere to the prospectus of this fund and therefore they only have themselves to blaim. It would be much better for BOV to come forward and accept liability of these defaults, rather than such matter be shown in the bank's balance sheet, which would cause much more damage to the bank's reliability. It is very unfair that investors suffered huge losses in this fund, due to BOV directors not adhering to their own provisions in the prospectus, by investing their shareholders' money, in funds which did not meet the conditions their investors had agreed when placing their money with BOV. It is time that MFSA would openly declare their findings so that BOV would confirm that there is no way they can absolve themselves from the disastrous situation they have created for their investors by their lack of adherance to the rules of the fund. We, investors want to know, who were those who withdraw their investments in the 6 months before August 2008, when trading in this fund was suspended, Where these directors and employees of BOV and their families and friends that obtained highly sensitive information of what was going on in respect of this BOV Property Fund.

Clayton Saliba •

BOV was short for BOVRIL in the days when Bank of Valletta was first created. It seems its reputation has not yet reached BOVRIL's in all these years.