La Valette property fund investors take Sicav chairman to task

Revised at 8:37am on 18 February, 2012.

The investors in the La Valette Funds Sicav vented their again yet again at the Sicav's directors and Bank of Valletta in what was a repeat, albeit subdued, of last year's animated AGM.

The AGM's resolutions to reappoint the directors and auditors and approve the financial statements were a foregone conclusion: the outright majority of shareholders present, over 350, voted against. But they all knew business would carry on as usual when Bank of Valletta throws its institutional weight into the vote with a formal poll.

The AGM was of course overshadowed by the outcome of two investigations by the Malta Financial Services Authority into the way the La Valette's multi-manager property fund - one of 12 funds the Sicav operates - had been managed: first, the breach of investment restrictions, for which the MFSA fined BOV and VFM close to €350,000 in 2011; and then the reprimand of former Sicav director John C. Ripard, who resigned this January 2012, for disposing of his shares in the fund when he had access to price-sensitive information.

But even after Bank of Valletta paid out close to €40 million to buy back the shares in June, the AGM was still bristling with the anger of investors who were determined to take the Sicav and the bank to task.

Stockbroker Paul Bonello of Finco Treasury Management, the main instigator of the investors' judicial protests against Bank of Valletta, turned an accusatory finger at Salvino Busuttil, the chairman of the La Valette Funds Sicav, for failing to take legal steps against Valletta Fund Management: the managers of the property fund, as well as directors of the Sicav and in turn a subsidiary of Bank of Valletta.

"You had a clear obligation at law to protect the investors' interests, and you know the Malta Financial Services Authority empowers you to monitor your delegates, VFM and the Bank of Valletta," Bonello told Busuttil, who insisted the Sicav had to sue VFM for its responsibility in the way close to €50 million in value was lost from the property fund due to its investments in other property funds.

Former Nationalist minister Michael Falzon, one of the property fund's investors, was also visibly outraged at learning that the two new directors were to be co-opted to the Sicav, but could not yet be named pending the MFSA's regulatory approval. Falzon insisted that new directors could not be co-opted without the formal approval of investors, before the next AGM in 2013. Salvino Busuttil insisted that finding new directors to replace the late Joseph Demajo and John Ripard had not been an easy task. "When we identified these people, we knew that there must be MFSA approval before bringing them for your approval - if we had found them before, we would have got them here for your approval."

Paul Bonello interjected to demand that an extraordinary general meeting is held to seek the investors' approval of the new, as yet unnamed, directors: "The breach of trust that has occurred all throughout these years means these investors do not have faith in your decisions," he told Salvino Busuttil.

This palpable sense of mistrust was the kind of climate prevailing across the floor of investors, many of them of pensionable age and in most part everyday retail clients whose major financial decisions are generally entrusted to bankers and intermediaries. But when they invested their monies in the property fund, all of them had signed the legal form to declare they were 'experienced investors'.

Nothing seemed further from the truth. The emotive investors railed against the bank's directors, shouting from the floor to tell them "to stay put and listen to us" like they were misbehaving children; this divide was further illustrated when some of the more haughtier members of the Sicav's panel like legal advisor Louis Degabriele, lost their cool out of exasperation at trying to reason out matters. This was neither a courtroom nor a boardroom of like-minded duellers; the double-edged sword of aggressive selling was reaping what it sowed.

The repeated cat calls from investors who insisted they recount insistence to take the floor and recount their personal experience at how they had lost their savings in the fund, was met with some impatience from the Sicav directors: the more angrier and vocal amongst the audience were liberal in their accusations of the BOV and Sicav directors, calling them "liars" and "thieves"; on their part, the directors ordered some of the rowdier members of the audience to "sit down".

A more eloquent member of the audience expressed her disgust at the way Bank of Valletta, the fund's custodian, had conducted itself throughout the saga.

"All along in their communications, the board of directors have been extremely economical with the truth. We all know the outcome of the two of the three reports by the MFSA was: it turns out we were rightly justified in our complaints. As for the second report, insider information as I see it, is a criminal offence," she said, referring to the MFSA's reprimand of Ripard over access to price-sensitive information.

The same investor expressed her regret at having been made to accept the bank's 75c share offer as compensation. "The bank owes us full compensation, including interest and also damages," the investor said. "I call upon our directors to take action to protect the interests of not only the bank, but of all the shareholders."

Sicav chairman Salvino Busuttil was the focus of Paul Bonello's accusations.

Throughout the AGM, Bonello took Busuttil for failing to take legal action in such instances where, for example, BOV - the custodian of the La Valette property fund - had not disclosed the contents of the MFSA investigation into the breach of investment restrictions (the MFSA later officially released this investigation to all concerned parties, shareholders and the Sicav itself).

"Had you been the head of the household, and appointed some architect and asked him for his blueprints, what would you have done if he refused to show them to you?" Bonello rhetorically asked.

Bonello insisted that the "placid" Busuttil had been led by the nose by Bank of Valletta, for not taking legal action against either VFM, the fund's investment advisers Insight, or John C. Ripard.

He also pinpointed the fact that Busuttil was unable to take independent legal advice in any case, seeing as the La Valette Fund's lawyers, Camilleri Preziosi Advocates, were the same lawyers of the bank.

"Who could you have taken proper legal advice from, when the same lawyers here are those of the very entities you be taking legal action against? What kind of corporate governance is this?"

On his part, Busuttil pointed out that both he and the Sicav had appointed Ganado & Associates as lawyers in a civil action brought by four investors against them, for damages from the loss of their property fund investment, instead of spending considerable fees that would have been paid out of the fund itself to the legal firm suggested by British advisers Insight.

Busuttil also paid tribute to the late Joseph Demajo, a former Sicav director. "I will not into the detail enormous and continuous work we did as independent directors, to safeguard the rights of all investors."

Busuttil insisted the Sicav took legal steps in demanding the Bank of Valletta to explain the way the property fund had been managed. "Where necessary, we felt legal steps would be taken... we did all we could. There has been full and complete transparency. I categorically state we took all action possible."