MFSA looking into BOV officials who withdrew shares from bust property fund

BOV is being held responsible by 170 investors for the way its La Vallette Sicav plc’s multi-manager property fund, once valued in excess of €84 million, was decimated to some €24 million, namely due to the worsening state of its investments in the Belgravia group.

Around 41% of the property fund was invested in three Belgravia funds, which suspended dealing when it was placed under criminal investigation by Jersey police and the Jersey Financial Services Authority.

Additionally, the MFSA is aware of an abnormal level of redemptions – 14.7 million shares, valued at some €13.4 million or 16% of the fund – that were withdrawn, possibly by investors aware of the worsening state of the property fund after the Belgravia bust: maybe even directors and staff of Bank of Valletta and investment arms VFM and VFS, and perhaps even family relatives.

It is not being suggested that proof exists of this ‘smoking gun’ in the dealings of the property fund.

What the MFSA is looking into is when these withdrawals took place, and whether BOV was aware of ‘price-sensitive’ information that was not communicated to all the property fund’s clients before it suspended it.

The withdrawals certainly took place before the 7 August 2008, when BOV suspended all redemptions, leaving investors unable to withdraw their cash – now down to €0.26c from a one-time high of €1.13 per share.

And Bank of Valletta also revealed in a recent judicial counter-protest, that it had attempted to withdraw its large investment from one Belgravia fund on 17 March, 2008.

MaltaToday understands that BOV was made aware of Belgravia’s worsening state when the group published its 2006 audited accounts, on 30 January 2008.

This was when the bank must havereceived confirmation of the excessive gearing of the Belgravia European Property Fund, whose loans and debts were already twice as much as it held in assets (208%).

At this point, BOV would have realised that it was investing money in a fund with an actual 208% gearing, when its own investment restrictions limited investments to funds with a maximum 100% gearing.

So six weeks later on 17 March, BOV moved to remove its investment in one the Belgravia funds. But it was advised by Belgravia that the requests could not be entertained, as the funds had been suspended.

However between March until August 2008, even though the bank was aware of Belgravia’s performance, the Sicav still accepted investments in the fund.

Dealings in BOV’s property fund were only put on ice in August 2008, when by that time the Belgravia group was being investigated by the Jersey police and the Jersey financial regulator, on suspicions of fraud.

According to two judicial protests by some 240 investors in the fund, BOV – the fund’s custodian – never informed them of the criminal investigations.

Instead, on presenting the Sicav’s 2008 accounts in January 2009, BOV issued four successive ‘clean’ reports, certifying compliance with borrowing restrictions that were not respected in the case of the Belgravia European Property fund, while the audited accounts of two Belgravia funds – the IFN China Property and European Logistics funds – had never even been published.

The Belgravia connection: Timeline of the BOV property fund

Click on each date for a description of the event of the day.

2005

13 September La Vallette Funds SICAV plc sets up the Multi-Manager Property Fund, a fund that invests in real estate property outside the UK and Europe, and licensed as a “Professional Investor Fund which is available to investors qualifying as Experienced Investors.”

The manager of the fund is Valletta Fund Management and its custodian is parent company Bank of Valletta. Its other owner, Insight Management – HBOS’s investment arm – is advisor on the fund.

2006

18 November UK’s Evening Chronicle reports failure of £150 million Newcastle United FC takeover by the Belgravia Group, whose past disappointments include losing a £1m investment in Glow Telecom after it went into administration; while its other interest, Unofon, nearly brought about the demise of the Norwegian Speed Skating federation when it only paid £50,000 of an agreed £200,000 sponsorship deal.

February 2006-October 2007: “decision to invest in Belgravia was taken… and the only relevant information backing this decision was the information that existed and was on hand at that time.” Bank of Valletta counter-protest (August 2010).

2007

January 166,422 shares are redeemed for the year-end as at 30 September 2006 from the multi-manager property fund.

29 November BOV, as custodian, issues certificate certifying the La Valletta Funds SICAV plc has been managed in compliance with the investment rules and MFSA licence conditions. At this point, Belgravia Group has not even filed its 2006 accounts with the Jersey financial regulator.

2008

January 3 million shares are redeemed for the year-end at 30 September 2007 from the property fund.

30 January Belgravia Group file 2006 audited accounts with Jersey Financial Services Authority, revealing that loans of the Belgravia European Property Fund were double what it had in assets (208% gearing ratio). The SICAV’s rules limited investments in firms with a 100% gearing ratio: i.e loans and debts not higher than their assets.

22 February UK bank Northern Rock taken into state ownership.

17 March Bank of Valletta, Valetta Fund Management and Valletta Fund Services ‘attempt’ to withdraw investments from Belgravia European Property Fund, without success.

1 April Belgravia suspends dealings in Belgravia European Income Property Fund.

7 August BOV, VFM and VFS suspend redemptions in La Valletta Sicav Multi-Manager Property Fund with a net asset value of €1.071 per share.

2 September The Jersey Financial Services Commission announces a criminal investigation of senior managers at Belgravia and that the fund group has gone into liquidation. The JFSC say “true and correct value of investments of suspended funds cannot reasonably be ascertained by Belgravia fund managers.”

6 September Fannie Mae and Freddie Mac are renationalised by the US government.

15 September Lehman Brothers file for Chapter 11 bankruptcy.

27 October Valletta Fund Management issues circular to shareholders saying that temporary suspension in trading in Belgravia funds happened “following recent death of Duncan Hickman, founder and chairman of Belgravia.”

2009

5 January Valletta Fund Management issues circular to shareholders saying “there are no further significant developments to report in the underlying investments other than those communicated on 27 October, 2008.”

8 January Sicav accounts show 14 million shares are redeemed for the year-end at 30 September 2008 from the property fund, including the entire shareholding of one of the Sicav’s directors. No reference is made to the JFSC investigation, but VFM refers to Belgravia as being “temporarily managed” by Deloitte & Touche, who are actually court appointed liquidators.

19 February Valletta Fund Management issues circular to shareholders reporting “positive developments” but do not mention Jersey criminal investigation.

September Belgravia Group’s Russell King, a senior representative of the Qadbank offshore company that owns Notts County football club, has £1.9 million in assets frozen by the Jersey courts over unpaid debt.

1 October The UK Guardian reports that Russell King’s gardener lost £200,000 in a Belgravia fund after being promised a 20-25% interest.

2010

8 January Belgravia Group files 2007 and 2008 audited accounts with Jersey Financial Services Authority, revealing that loans of the Belgravia European Property Fund were now 12 times its assets, (1268% gearing ratio).

12 January Bank of Valletta issues, for the third time, a clean certificate confirming that the property fund was compliant with its investment restrictions during the year ended September 2009.

16 February La Valletta Funds Sicav plc report that Belgravia European Logistics Fund cannot publish a price per share as at 31 December 2009.

June Property fund shareholders told estimate of the fund is net asset value of €0.51c per share, of which only 26.9c per share could be redeemed.

4 August Finco Treasury Management files judicial protest holding BOV responsible for €50 million loss in property fund assets.

17 August New judicial protest from 170 investors reiterate claims against BOV and allege that ‘abnormal withdrawal’ of 14 million shares in 2008 could have meant select group of clients knew of Belgravia bust while BOV was still collecting investments in the fund.

19 August Bank of Valletta and its subsidiaries Valletta Fund Management and Valletta Fund Services file counter-protest in court today claiming they are not to blame for the deterioration in the value of the property fund, which it says was largely due to the global financial meltdown and that it was transparent with its shareholders.