BOV’s aged and exasperated investors face prospect of cutting their losses

Investors in the La Valette multi-manager property fund balked at the costly prospect of taking Bank of Valletta into litigation to recover the losses they incurred from their devalued shares in the fund, which has lost some €50 million in value.

An audience of over 500 investors turned out to hear Finco managing partner Paul Bonello and legal advisor Ian Refalo explain the ramifications of accepting BOV’s compensation offer of 75c per share which will expire on 30 June. The offer – which pays 65% of the original share value – binds signatories to waive all legal claims against the bank on the strength of two investigations the financial regulator has yet to complete on the property fund.

Bonello said he would be welcoming investors all throughout the weekend and the Imnarja feast to hear whether they will choose the BOV offer. “I will hear what clients will tell me over the week, before taking any decision as to whether we will go for legal action,” Bonello said.

Bonello also told investors he was charging a commission on the value of their shares should he succeed in getting the bank to pay over 75c per share in compensation. Bonello has previously said the shares should be paid back in full with legal interest, estimated to be between €1.17 and €1.34.

Legal advisor Prof. Ian Refalo told investors that accepting the BOV offer cut investors’ losses, but he also told clients their legal case was solid. “I cannot give anybody any such guarantee that a legal action would be successful. The advantage is that you would be in a position to recover all your losses. But it would be a costly suit, undoubtedly.”

The investors’ meeting was held the day the Malta Financial Services Authority sent out its investigative report into the breach of investment restrictions of the fund to complainants.

Finco managing partner Paul Bonello lambasted the eleventh-hour decision by the regulator, just 24 hours after chairman Joe Bannister declared in an interview that the regulator would never publish the investigation reports. Finco had previously warned the MFSA it would hold it liable for any damages suffered by investors if it didn’t abide by its legal mandate to furnish the report to the complainants.

Bonello said the investors would only receive the report on Wednesday – just a day before Bank of Valletta’s 75c share offer closes on 30 June. “We haven’t been given parity of arms... we cannot take a decision without having the full information that Bank of Valletta have had months ago since receiving the MFSA report.”

Bonello called the offer “disgraceful” and said litigation can take decades, citing the cases brought by the BICAL and National Bank shareholders in the 1970s and 1980s.

“We’re not forcing you to refuse it – we understand the human condition of those who might find it acceptable to take it,” he said, referring to the mainly aged investors who are the bulk of the property fund’s clients. “Hope is the last to die... we think the right thing will still be done at the last minute.”

Investors in the audience said they felt unprotected and blackmailed by the regulator and the bank. Many younger investors stood up to ask questions on the prospects of a collective suit against the bank.

Accusations

The MFSA has fined BOV and its subsidiary Valletta Fund Management €347,000 for breaching the investment restrictions of the property fund, believed to have cost the fund some €50 million in value. The bank is now offering a compensation offer of 75c per share – three times the current value of the shares.

The regulator is pursuing two further investigations into the property fund: the mis-selling of the product to clients who should have been “experienced investors”, and the alleged access to price-sensitive information by a Sicav director – John C. Ripard – and other bank employees.

Bonello said he spent €20,000 to get the necessary documentation to prove to the MFSA that the bank had breached the fund’s investment restrictions. However he said the MFSA had barely called in any clients to substantiate the claims of mis-selling or allegations of access to price-sensitive information.

“I never accused John Ripard of anything criminal. I criticised him for not having the decency to justify why he disposed of his property fund shares in 2009... I said he was not fit to be the Sicav’s director if he doesn’t justify his actions,” Bonello said.

Ripard was the only Sicav director who held a shareholding in the fund, but he divested his investment before the 2009 end-year. Bonello said the investors who managed to sell off their shares had managed to secure a price of some €1.17 per share when they were already valued at €23c. He also charged the bank with having taken in new investors who bought the property fund shares for €1.17 when they were paying four times the value of the share.

Bonello also accused the MFSA of being aware that Bank of Valletta, as custodian of the fund, was not independent of the La Valette Sicav since the Sicav was a subsidiary of the bank itself, just like Valletta Fund Services and Valletta Fund Management are.

Bonello said that while the property fund saga had undermined the trust of the banking sector due to hard-sell tactics of complex financial instruments, he said the silver lining was that consumers will be taken more seriously before being sold such products. “The humiliation of this event will remain etched in Malta’s history, and it will be borne by the bank for selling the fund to clients who were not experienced investors.”