BOV investor, 73, ‘advised to redeem government bonds’ and invest in property fund - new judicial protest

32 investors file new judicial protest against Bank of Valletta alleging bank broke its own investment rules that led to property fund fiasco.

3 November 2010, 12:00am
by Matthew Vella

3 min read

A new judicial protest on Bank of Valletta’s failed La Vallette Sicav multi-manager property fund alleges that inexperienced clients were encouraged to invest in the fund and sign a legal disclaimer that they were ‘experienced investors’.

32 new investors have added their names to 227 people who filed protests against the bank, after Finco Treasury Management flagged various breaches of the Sicav’s investment restrictions.

The new protest was signed by a claimant aged 73, who says he was advised by BOV to redeem his investments in Malta government bonds for the purpose of investing the proceeds in the property fund.

“Indeed as is evident from the Client Fact Find dated 13 February 2007 compiled by BOV, the said investor was advised to shift his holdings into the Fund,” the protest says, on the basis that he would earn 4% in income every six months and possible capital growth.

Another investor is a 95-year-old who said he is blind and suffers from a hearing impairment and that he is “unable to distinguish between a bond a share”, and goes on to state that BOV encouraged him “to invest in the Fund knowing full well that [he] was a retail customer” and that the fund was intended for experienced investors.

The protest says that the Malta Financial Services Authority had noted in its consumer complaints report for 2009 how the regulator “failed to understand” how property funds targeted for experienced investors – investors who can truly understand the risks of the product – were sold via retail bank branches, “hardly the place for sophisticated investors to visit but certainly a captive environment for retail customers.”

Last week, Bank of Valletta chairman Roderick Chalmers said the term ‘experienced investor’ was defined by the Malta Financial Services Authority and that in over 95% of cases, investors had signed a declaration confirming they were such investors.

Chalmers has played down the extent of the regulator’s examination into the bank’s La Vallette multi-manager property fund by calling it “an inquiry… and not an investigation”.

Sources privy to the investigation by the Malta Financial Services Authority contradicted his claims. “As an examination of the fund, this is an investigation by the MFSA,” a highly-placed source said. “We’re examining particular cases, trying to establish whether there was any insider knowledge, and whether all these people who were sold the product were in reality ‘experienced investors’.

Announcing the bank’s €98 million pre-tax profits for 2010, Chalmers set much store in decrying “a mischievous and malicious insinuation” that the withdrawal of 14 million shares from the property fund in 2008 had been either “massive” or “extraordinary”, or that this was due to BOV staff and favoured clients who had access to privileged information before trading in the fund was suspended.

But the level of redemptions, €16 million in total, were much higher than any of the other nine funds held by the La Vallette Sicav during 2008.

Matthew Vella, a freelance journalist at MaltaToday, was formerly executive editor at Malt...

Anthony Haidon •

I believe that the MFSA lacks executive powers and to add insult to injury, is not being transparent. The investor here needs protection as it is obvious that financial matters cannot be left in the hands of incompetent people, caring or not caring.It is time to go to the European press about this whole messy matter. We were wealthy before we employed the services a the wealth manager who, wonder of wonders has presented us with a loss of over 90 percent of our portfolio. I think that SHUT UP AND PAY UP is a more appropriate slogan than the one chosen by Mr.Chalmers a few weeks ago.I

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I too have been told almost the same story. I was told that the Property Fund is for those investors who wished to acquire property but had no adequate means to purchase property as such. But, by buying shares in this Fund, one would be thus possessing a tiny fraction of property and receive a regular substantial dividend over 4% as well as enjoy capital growth. Almost nothing can go wrong with property, the Intermediary added. We all know the escalation of facts thereafter, i.e.the massive and abnormal withdrawals from the Fund just before its closure to the general public which is most infamous, the choice of the fraudulent Belgravia Funds by the Licensed Fund Managers of BOV/VFM, the breaching of the investments restrictions, and to add insult to injury, we were never ever informed of any of these facts during any of the shareholders' meetings. But Mr. Chalmers says that this is just a malicious insinuation by the investors of the BOV Property Fund. Mr. Chalmers also insists that BOV/VFM have been open and transparent about the problems concerned. Alas Mr. Chalmers, during our meetings we were only shown numerous graphs depicting unemployment across Europe, the rise of the price of oil , the pricing of property going down so as to justify the collapse and closure of the Fund. It was so boring that one of the Directors could not help himself yawning all the time but then we were cordially invited for tea and pastizzi as if nothing was the matter ! In plain language, BOV/VFM hid the grim truth from us and when it all leaked out, it was too late for any of us to recoup our money, except of course, for the Chosen who quickly withdrew their money and we were left to count our losses.

owen sammut •

Yes BOV have much to answer for in this case. They not only misled inexperienced investors ( as a case in point my wife who is just a housewife) but also did not adhere to the provisions of the fund's 'setting-up instrument' and invested in high gearing (riskier) funds to the detriment of investors. This is a big 'scam' since staff at BOV have managed to hoodwink a number of ordinary people who lost most, if not all, of their life-time savings by investing in this Fund. Furthermore, how come a fund supposedly for experienced investors is retailed through BOV branches through the normal selling-staff of BOV? This fund was being retailed by BOV as a very safe fund akin to Government bonds but with the possibility of a higher return. It is being alleged that BOV misled investors, maladministered the fund, and hid important 'price sensitive' information, which only the selected priviliged few were privy to and thus redeemed their investment. BOV officials have much to answer for and through the prolonging of this saga are causing irreparable harm to BOV. BOV have now embarked in a 'damage limitation' exercise which is bound to fail in this case since they have a lot to answer for. Many people are now even questioning how 'Corporate Governance' and 'Risk Management'are handled on a day to day basis by BOV who have slipped very badly in this case.

Anthony Haidon •

I wonder why the caring bank was not caring enough to inform all investors in the fund of the imminent disaster. Maybe such action would have depleted the withdrawal effected by the chosen few. We shall, of course, find out. And yes by the way, the MFSA is conducting an investigation not just an inquiry.

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While Roderick Chalmers had the audaucity to trumpet 98 milliom pre-tax euros in profits and announced extra dividends, one would hope that the same Roderick Chalmers would have the integrity to set aside the necessary funds needed as collateral for the bamboozled advice the BOV had given to its trusting investors. In any other country, through the process of law, financial officers has been fined, incarcerated and the financial institutions were forced to return their ill gotten gains and management fees. Mr. Chalmers consider yourself a very lucky bank executive living in Malta where greed and deceit rule and justice is only there to confront the under priviledged.

Mark Fenech •

I can confirm that what is stated above is confirm. Though I feel that I have certain experience in investments, It was the first time my wife and I were investing in Property. This was done on the basis of a written advice ( I still have the advice) of a BOV official who suggested that since I had retired from profession life (2006), the best option for us to sustain the standard of living we had when I was working, was to invest in the BOV Property Fund, which was a very low risk investment and would secure an annual return for us, which would help us to retain the standard of living we had, as the pension was not enough. I would not have subscribed myself to these judicial protests against BOV, had the fund suffered just from market forces. This was not the case for the depreciation of our investment arose due to the fact that BOV did not adhere to the provisions of the Property Fund when investing our money, with the result that at the money we are facing a 75% depreciation of our investment, besides not earning the interest we were promised. BOV has made huge profit this year, which means that they have cared for their money very well, but they just were not prudent with our funds. How unfair.