Plutocracy rules!

Earlier this month saw the publication of the long-awaited misselling investigation in connection with the La Valette Property Fund - a fund that was intended for professional and experienced investors and that was instead distributed to the most financially illiterate, inexperienced and vulnerable members of the public.

No doubt the conclusions of this report have long been drawn by the Malta Financial Services Authority. Indeed the MFSA had stated they had reached their conclusions in a media release issued in August 2011. But the MFSA had put off its publication month after month, believing that the matter will be forgotten with the passing of time and the issue will have a natural death. 

The MFSA underestimated the inexorable energy and professional qualities of the investment services firm - Finco Treasury Management - that has so admirably spearheaded the search for truth to uncover this debacle since more than two years ago. 

I have also been ridiculously accused of meddling in this case - so far away from my Education portfolio, which incidentally also includes civil rights.

I am a Member of Parliament and it is my duty to speak up for my constituents. A number of my constituents, mostly pensioners, retired workers and small businessmen approached me and showed me how they had been let down by MFSA who was set up to protect their rights and by Bank of Valletta that lured them into investing in schemes not designed for them. There was no way I was going to remain silent as I would have become partner in crime with BOV.

The straw that broke the camel's back and the immediate cause for the report to be drawn from the drawer and be published was probably the Labour Party's press release issued earlier this month that demanded the immediate publication of the MFSA conclusions.

Whatever brought the MFSA conclusions' publication, the administrative sanctions published on the MFSA website and the media release issued simultaneously, had to confirm what was already alleged, namely that the bank had practically breached every requirement in the rule book.

For example, Bank of Valletta was found to have failed to act in the best interest of investors;

• that it failed to give adequate information and explanations about the risks inherent in the fund and of the experienced investor declaration;
• that the fund was sold to unsophisticated retail investors or investors having a cautious low risk profile;
• that even when the fund may have been suitable for some investors, too much of it was sold to the same investors causing material over-exposure;
• that the Bank failed to exercise any diligence to verify the validity of the experienced investor declaration; that the client profile was not updated as it ought to have been;
• that bank records were not sufficiently maintained or that often these would be miraculously lost;
• that the bank failed to provide proper training to its sales staff.

The bank abused the execute-only rule when it fraudulently procured the signatures of clients unknowingly to such statement from unsuspecting clients having blind faith in the bank.

Finally, the MFSA found the mettle to order further compensation, contradicting its earlier stance that it lacked the legal powers to order compensation and it could only issue recommendations, an earlier pretext for lack of effective protection of the general public that always failed to convince.

The MFSA also ordered such compensation notwithstanding that the investors had signed off the waiver of their legal rights in accepting the bank's conditional offer of last year.

In the end, this MFSA report would have been most laudable if only it had been published at least 12 months earlier and well before the issue of the Bank's Conditional Offer of 0.75 euro cents per share which the MFSA had so meekly allowed the bank to proceed with and bulldoze the public into its acceptance well before the MFSA had published any of its conclusions.

This month's report follows the conclusions of June of last year when the MFSA had also concluded that the La Valette Funds Sicav plc and the Fund's manager, Valletta Fund Management Ltd, had breached the Prospectus Investment Restrictions and that the Fund's custodian, Bank of Valletta, had issued false custodian reports for five years in succession.

In all, Bank of Valletta Group and its close associates have been subjected to six administrative sanctions in a matter of 13 months.

The Board of Directors wanted to have us believe that the bank had been most correct all along and had not failed in its duties and all that was being said was only the spread of seditious propaganda meant to cause financial instability. 

The web of incestuous conflicts of interests between the La Valette Fund Sicav, Valletta Fund Management as Manager of the Fund and Bank of Valletta as Custodian of the bank and at the same time salesman of the Fund were so evident to all, except apparently to the MFSA who turned not only a Nelson's eye but two. This powerful network used its tentacles in the media to muzzle it. Top bank officials that were meant to control and supervise the operations of Valletta Fund Management of which they were also chairman and directors respectively. Not even Houdini in his heyday would have managed such stunts!

If Aristotle were a contemporary political philosopher, he would indeed have found the best paradigm for the form of power structure coined by him - plutocracy (a more precise term than oligarchy) - in the top echelon of BOV and its intrigues with the Maltese government under GonziPN. This network is stronger than Prime Minister Lawrence Gonzi and his cabinet.

The author is shadow minister for education