How BOV leaders undermine democracy

The Bank of Valletta wanted the Malta Financial Services Authority not to make public its decisions and sanctions against BOV regarding its investigations in the way BOV managed its La Valette Multi Manager Property Fund, where thousands of small investors lost millions of euros of hard-earned savings after they were lured to invest in schemes that were designed for 'experienced investors'.

Last October, BOV's lawyer applied to the Financial Services Tribunal to stop MFSA from informing the public with the steps it was taking against BOV and "also to conduct the proceedings of this appeal behind closed doors and to treat all documentation and evidence brought in these procedures as confidential".

In a strongly worded response, the MFSA lawyers hit back at BOV reminding it that MFSA "is not some secret society, but a public authority with responsibilities, a duty of accountability towards the public and, importantly, with a legal obligation to keep the public informed about the sector it regulates".

BOV tried to justify its request to keep the procedures against it from the public domain to protect its reputation, and in the interest of its 18,000 shareholders.

Among those who have been hurt badly by the loss of millions of euros of these funds are small shareholders and loyal BOV clients.

MFSA called on the Tribunal to dismiss BOV's request describing it as "unprecedented, disproportionate and, indeed, illegal level of secrecy..."

MFSA argued: "There is nothing in the content of these proceedings which would merit such a radical and unprecedented level of concealment from public view. There is nothing especially sensitive in an appeal dealing with the validity of a directive issued by the Authority, especially when such directive is just a small detail in a complex, high-profile financial fiasco. This debacle has already been amply reported in the press, and continues to elicit huge public concern and interest. Indeed the appellant (BOV) has been fined €347,816 in connection with this same matter. This was an unprecedented fine in Maltese regulatory history and was not appealed."

MFSA also said that holding the proceeding behind closed doors and preventing the public from knowing what is going on "risks fuelling further media speculation on lack of transparency and accountability. At worst, it may lead to a public perception that matters which may affect their interest are being decided in back rooms behind their backs and to suspicions of a conspiracy of sorts between regulators and licence-holders to keep the public uninformed, and therefore also misinformed".

The MFSA is right to slam BOV for wanting to keep secret the appeal proceedings in relation to an MFSA Directive of 28 June 2011. But this should not in any way detract from the lack of observance by the MFSA of the proper performance of their duties as emanating from the law that set up the MFSA itself.  

The MFSA Directive of the 28 June did not come from the heart of the MFSA. It is a last minute, unconvincing measure meant only to act defensively in its own interest in the wake of a judicial protest by about 500 investors in the La Valette Multi Manager Property Fund of the 26 June - barely two days earlier - who had held the MFSA legally responsible - despite its conditional statutory immunity - for acting in bad faith and failing to make proper use of Directives under the Investment Services Act. 

This unconvincing attitude on the MFSA's part is clear in the substantive reply to BOV's appeal against the Directive. MFSA says: "It is important to keep in mind the context and background against which the authority had to operate in issuing this directive to the appellant. The circumstances surrounding the La Valette Multi Manager Property Fund represent an unprecedented, unpleasant situation in the history of Maltese financial services.  The hundreds of complaints received have clogged the Authority's consumer complaints system and are still being received to date, stretching its resources as never before. 

"Meanwhile the public and the press were giving much space to the matter. Various parliamentary questions were made in connection with the investigations into this fund. 

"It is still an ongoing, extraordinary financial trauma for our small country, which considerably alarmed public opinion. It was therefore an extraordinary event that warranted extraordinary measures. The Authority would have of course preferred not to intervene in this matter at all... 

"The Authority had to have regard to the public interest and to the legitimate rights and expectations of injured consumers who were even contemplating starting legal action against the Authority itself supposedly for failing to protect them by not taking stronger action against the appellant."

MFSA has been reduced to a pathetic state. It is pleading with the appellant for understanding and compassion for having done the least it could have done: the issue of a limited directive far short of what would have been the proper action for the Authority to take. MFSA should have issued a Directive to the Bank to withdraw its take-it-or-leave it Conditional Offer (with waiver of legal rights) until the MFSA will have completed its three lines of investigation. MFSA could also have resorted to other instruments in its statute, such as applying to the Court to order compensation in circumstances where BOV had been found in breach of Investment Regulations causing massive losses to thousands of investors. Whose orders is the MFSA taking to protect seemingly untouchable persons who have no sense of shame? Does it have to do, directly or indirectly, with the old 'school tie' syndrome?

It must not be forgotten that the 28 June Directive has come to light in a hush-hush manner four months after it was issued. This method lacks transparency and openness. What was the Authority waiting for to communicate this event to the general public and inform same of their rights and of the action taken by the Authority, and indeed to invite the injured investors to be assertive and protect their interests by submitting complaints to the Bank and to the Authority that they were not eligible investors in the Fund? Why did not the Authority order, the Bank to conduct a root and branch investigation of all the investors in the Fund to establish which of them did not meet the legal criteria of Experienced Investor that had a minimum of US$50,000 in portfolio investments (bank deposits and insurance policies excluded)? Why did the Authority extend the period of statutory appeal of one month on three successive occasions to a total four months?

MFSA has a lot to answer for. It is letting down many Maltese citizens who have lost more than €80 million as a result of scams from which MFSA is obliged to protect them and to seek compensation for them once it allows them to happen. On 3 November, MFSA announced, through a press release, the "imminent" publication of their investigations into insider dealing regarding the La Valette Multi Manager Property Fund. Today, more than a month has passed since that press release and there is perfect silence in this regard. 

The Oxford English Dictionary defines "imminent" as "about to happen". A financial consultant told me: "Was the MFSA speaking in geological terms when using the term "imminent"? Is the MFSA perhaps waiting for the passage of time for legal criminal prescription to pass or otherwise solve MFSA's predicament? These questions are legitimate; they are not rash and imprudent. It is the Authority that is in the dock here, and must answer to the taxpayer. It is this public body entrusted with the protection of investors in respect of which the taxpayer pays tens of millions of euros that must give account of its action, and of having failed to take action.

Apart from the weak action MFSA Chairman Joe Bannister and Director General Andre' Camilleri have taken to give the impression of protecting the small investors who were duped into putting their hard earned savings in the La Valette Multi Manager Property Fund, they are also failing to deal decisively with a number of other cases which affect hundreds of helpless investors that have lost over €80 million as a result of scams (CECA, EURUS Safe Investments, Denmark; ARM Assets of Luxembourg and Ireland) and other investment products that should never have been allowed to be distributed in Malta, especially to vulnerable and unsophisticated retail investors (TEP Funds; PATF Funds).

Evarist Bartolo is shadow minister for education.