Vatican’s million-euro default case: financiers hit back at ‘intrigue’ claims

A financial services firm embroiled in a lawsuit filed by the Vatican bank in Malta has hit back at accusations of profiting at the expense of the Holy See, over a multi-million property transaction.

With millions in euros in Vatican bank cash at stake in a Maltese court case, lawyers for the Holy See are attempting to prevent Futura Investment Management from disposing of its share in a Hungarian property company.

The Istituto per le Opere di Religion (IOR) claims a committee it set up in 2013 to invest €30 million of its cash, was misled by Futura directors Alberto Matta and Girolamo Stabile, when it invested the money in a company to buy Budapest’s Exchange Building.

The IOR says the decision was to have Futura buy out a non-performing loan of €32 million from the owner of the Exchange Palace, and then convert that loan into a 90% share in the Hungarian company redeveloping the property.

However both the IOR and Futura have radically different views of what went down in the deal.

The IOR insists that Futura made an undeclared profit of €11.6 million by duping it on the price of the deal, and also by planning to sell the 90% stake in the Exchange Palace’s holding company, to Cougar Real Estate of Luxembourg, which is, in turn, owned by a Dubai firm. IOR’s last court action in Malta was a bid to stop Futura from selling the shares to Cougar.

The IOR claims Cougar Real Estate was set up by a Dubai firm, Holdabco, to acquire the non-performing loan for €20.4 million, with the resulting €11.6 million going to Holdabco and another minority shareholder, a Panamanian firm called Alpininvestissements. “It is clear that the IOR has been abusively caught up in a menacing web of intrigue and suspicious transactions,” the IOR’s lawyers said, accusing Futura and its directors of inflating the price for the Hungarian loan.

But Futura is insisting on a very different version of events.

Futura says it offered the IOR committee the opportunity to buy the non-performing loan for €20.4 million directly, to eventually convert into the majority share owning the Budapest Exchange Building; or alternatively wait for the liquidation of the loan’s borrower, who had filed for bankrupcty.

IOR did not want to invest in the non-performing loan while bankruptcy proceedings were ongoing, deeming it a reputationally problematic instrument. Instead it preferred to acquire the shares only once the loan was “de-risked”.

Futura says that third-party investors were found to acquire the non-performing loan and assume the related risks, to eventually convert the loan into shares once the liquidation is complete – or, in the words of its lawyers, to “clean” the property from its financial, legal and administrative burdens.

“Naturally, the price of the unencumbered asset was much higher than the price of the non-performing loan with its inherent risks,” the lawyers for Futura said, saying valuation experts Jones Lang Lasalle valued the Exchange Building at higher than €32 million.

Although they say IOR committed to invest this sum, only € 17 million were ultimately invested. “IOR has in fact defaulted on its undisputable contractual obligations and has been trying in every possible way to find legal ground in order to avoid the inevitable and severe consequences of this,” Futura’s lawyers said.

“What is indeed ‘suspicious’ is the fact that our clients are being attacked for an investment decision which was openly discussed with and, ultimately, decided upon by IOR’s investment committee and external advisors.”

Futura also brings into question the timing of the investment itself, taking place just weeks before the unexpected resignation of Pope Benedict XVI.

The election of Pope Francis led to major changes with IOR, among them the replacement of three chairmen, two directors-general, most of the internal senior functions, and even many members of the Cardinals Commission.

New management had launched a scathing critique of IOR’s previous management, particularly former director-general Paolo Cipriani and his deputy Massimo Tulli, against whom the IOR has brought legal proceedings before the Vatican Tribunal and in Italy. 

“The Institute’s real goal is not to protect its investment,” Futura’s lawyers said. “On the contrary… IOR is consciously putting the Hungarian investment at risk, to strengthen its allegations of mismanagement against Cipriani and Tulli.”

The latest court action by IOR is related to attempts by Futura to sell Cougar to another company, Indotek Group Hungary. “Futura clearly intends to sell and dispose of its share in the development project by assigning its 90% share in the project via a sale of its shares in Cougar itself,” IOR’s lawyers in Malta said. “Neither Cougar nor Futura have provided IOR with any disclosure of the transaction leading to the sale of the investment.”

Futura has also sued the IOR, claiming the Vatican entered into contractual commitments to invest €41 million but only invested €17 million, and was therefore in default on the remaining €24 million.