LandOverseas, SNS breaches investigation at MFSA still ongoing three years on

A host of previously unreported investment breaches by the director of All Invest are still under investigation by the Malta Financial Services Authority (MFSA), three years on from a strongly-worded warning.

Documents seen by MaltaToday show that the financial regulator sent All Invest director Wallace Falzon the results of its investigation in March 2014 that pointed out 14 individual breaches of investment rules, inviting a reaction from Falzon within 30 days. MaltaToday is not informed of the representations made by Falzon.

Despite the apparent seriousness of the breaches, not least due to the number of investors who had suffered losses, the matter remains under investigation to this day by the MFSA.

“Please note that the investigations on this case are still ongoing and are covered by confidentiality,” the MFSA told MaltaToday when in April it pointed out the contents of this letter.

All Invest’s licence was already suspended in 2013. But on 3 March, 2014, the then MFSA director-general, Andre Camilleri, informed Wallace Falzon of an investigation into All Invest’s business and his conduct as sole director, specifically on the way the property fund LandOverseas and bonds from Dutch bank SNS had been sold to clients who were not experienced investors.

The investigation was carried out to establish whether Falzon and All Invest had complied with licence rules, after the MFSA received complaints from investors.

The breaches in total carried a €34,908 penalty, with the MFSA declaring that Falzon was “no longer fit and proper to act in any capacity, as an approved person” to be personally licensed by the authority.

The breaches were separate from those already indicated in 2013, which led to Falzon being barred from receiving any new business.

Specifically, the MFSA found that All Invest had sold shares in the LandOverseas Property Fund – a Maltese fund for the development of the ‘Borgo Lucia’ villa complex in Sicily’s Noto area – to 33 investors who did not meet qualified investors status. All Invest failed to provide signed copies showing that the clients had signed declarations that they were qualified to invest in this fund.

Similarly, the MFSA found no evidence of signed ‘experienced investor’ declarations for clients of the LandOverseas Distributor Fund. In respect of at least 16 investors who invested in the fund in November 2012, the MFSA said that “All Invest cannot be regarded as having acted honestly, fairly and professionally” with clients over the fees, commissions and non-monetary benefits between LandOverseas and All Invest.

In fact, there was no disclosure to clients that Wallace Falzon had a conflict of interest between his role as investment advisor of All Invest and a member of the investment committee of the LandOverseas Distributor Fund.

Again in the sale of SNS Bank bonds, All Invest was said to have acted inappropriately when it sold the bonds at a price pre-agreed between All Invest and Sparkasse Bank, rather than at their current price. “All Invest did not disclose to its clients the existence, nature and amount of the commissions received from Sparkasse Bank.”

In its concluding remarks, the MFSA said the numerous breaches were “very serious” and that Falzon was responsible to ensure they did not occur. “It appears that your conduct was below the standard which would be reasonable in all the circumstances and that your decisions and actions resulted in the above breaches.”

“Your apparent personal failure to disclose information about a clear conflict of interest appears to constitute a breach of fiduciary duties,” the MFSA said.