Investment firm in Falcon Funds imbroglio fined €612,000 and suspended

The company tasked by the ill-fated Falcon Funds pension fund to handle its investments, has been fined a total of €612,000 by the Malta Financial Services Authority over breaches of 23 different standard licence conditions and had its licence suspended.

Temple Asset Management, run by John Farrell, was the investment manager for the large pension fund run by Falcon Funds, a Maltese SICAV whose directors included Nationalist MP Tonio Fenech – the former finance minister.

Falcon Funds offered three sub-funds on the Swedish pension system, before it was accused of defrauding 22,000 pension investors by the Swedish pensions authority. It has now been delisted from the pension system and placed under the control of auditors KPMG.

But it is also being investigated by the Swedish Economic Crimes Authority over allegations that the fund was unable to pay back a total of €247 million (2.4 billion Swedish kroner) in savings to its investors.

Falcon Funds’ directors have also sued Temple for damages, claiming they invested over €10 million of savers’ cash in what turned out to be an ‘advance’ to the mysterious trader Emil Ingmanson, acting in bad faith and of hiding a serious conflict of interest.

In its investigation report, the MFSA said that while it had expected Temple to “demonstrate a culture that supports effective compliance – clearly this was lacking as evidenced by the broad range of breaches that were recorded, touching practically all facets of the Company’s business as a regulated entity.”

Temple also failed to maintain an adequate internal control environment and for a number of months, the company relied heavily on one person, for both portfolio management and risk management – “a situation that was untenable given the manifest conflicts of interest that arose,” the MFSA said.

Among the breaches, Temple was said to have not cooperated with the MFSA in an open and honest manner, had numerous reporting failures, failed to formulate forecasts and analysis of illiquid assets, due diligence of investments, and did not ensure measures to avoid conflicts of interest.

The regulator added that senior management had failed to take necessary decisions when the arrangement made by Temple for the management of conflicts of interest was not sufficient, and did not notify investors of the conflict.

The MFSA’s decision to cancel the company’s licence shall not become operative pending an appeal, and only when the financial services tribunal dismisses the appeal.

The reason Falcon Funds turned into a national scandal in Sweden is because the SPA believes the pension fund benefited from an irregular transfer of savers’ cash during a merger of funds. The trail of breadcrumbs led to Emil Ingmanson, who in November 2013 represented Falcon Funds in talks with the SPA to market its pension funds.

Ingmanson, who owns a Sliema property, wanted to open his own investment copany Falcon Asset Management, which had its address at Temple Asset Management’s offices in Floriana. 

Explainer: Falcon Funds 

Falcon Funds ran three sub-funds (aggressive, cautious, balanced) on the Swedish pension system, allowing pension savers to invest in these funds. As a SICAV, the fund is ultimately owned by the savers themselves, but the fund is run by its directors. 

However, all investment decisions are delegated to another firm – in this case Temple Asset Management – to manage the cash by investing it in high-performing or risky investments that can improve the value of the savings.

An investigation by the Swedish Pensions Authority, prompted by several complaints, revealed that clients from another pension fund, which underwent a merger with another fund, had been misleadingly transferred to Falcon Funds.

Additionally, a consumer call centre employed misleading tactics to entice savers to transfer their accounts to Falcon Funds.

Finally, the SPA said that investments made in “illiquid” instruments meant it would not recoup the value of the savings, so it demanded the return of some €267 million in some 22,000 pensioners’ savings, and kicked off Falcon Funds from the pension platform and filed a report with the Economic Crimes Authority in Stockholm.

The SPA has said that Falcon Funds’ lawsuit against Temple and Ingmanson (it wants a prohibitory injunction on his Sliema property) confirms its original accusations in its own investigation.

Falcon Funds is now under the control of auditors KPMG, on order of the MFSA, to ensure the orderly disbursement of the pension funds.

Falcon versus Temple - How the Maltese pension fund and its investment manager ended up in a court feud

Falcon Funds directors – Tonio Fenech, Joseph Xuereb and Ian Zammit – have taken up a battle in court, accusing Temple Asset Management of having invested over €10 million of savers’ cash in what turned out to be an ‘advance’ to the Swedish trader Emil Ingmanson and his London company.

The accusation appears to confirm the very same allegations of the Swedish Pensions Authority (SPA) when it kicked Falcon Funds out of its private pension platform – but at the time, Tonio Fenech chose to defend Ingmanson, saying he was the subject of an unfair press in Sweden.

An investigation carried out by the Swedish TV programme Kalla Fakta (Cold Facts) in 2016 had crucially revealed an important email that showed that Temple Asset Management were setting up Ingmanson to take over Falcon Funds’ investment decisions with his own company, Falcon Asset Management.

The upshot was a grave conflict of interest at play: money deposited by Swedish pensioners with Falcon Funds was being invested by its investment manager, Temple, into financial instruments owned by Ingmanson, while knowing he planned to replace it as investment manager with his Maltese company Falcon Asset Management.

“The claims made of the links with Ingmanson are at the least speculative,” Fenech first said in June 2016. He described him as a “person of repute”, even declaring that he had “no involvement in the selling or investments decisions of the fund.”

But now Falcon have accused Temple of investing some €10 million in financial instruments to directly benefit Ingmanson’s business – although when the SPA pointed out this conflict, Fenech was adamant that there was nothing to back up these allegations.

Falcon claims they were unaware that money from its €276 million pension fund was used to invest in Ingmanson’s Solid Venture P2P. “Ingmanson procured the Solid Venture P2P investment to use for his Solid Venture [company], which interest was not declared to Falcon.”

It is possible that Solid Venture could have used €3 million of this cash in an emergency loan to the beleaguered payday loan company Trustbuddy, in the summer of 2015. Ingmanson’s ‘kickback’ was supposed to have been a 10% interest. Trustbuddy went bankrupt soon after. 

Falcon’s directors said that when Temple demanded the cash back on the Solid Venture investment, Ingmanson came back saying the redemption would come at a loss of €2.7 million.

“Temple was well aware, or should have been, of Ingmanson’s interests in the investments he was proposing, and invested monies [from the pension fund] without revealing his conflict of interest to Falcon Funds, deceiving the company with a lack of full, honest, transparent information,” Falcon said.

But Temple Asset Management – now facing total suspension from the MFSA – accused Falcon Funds of being well aware that Ingmanson wanted to take over the fund’s investment decisions.

“Ingmanson was the promoter of [Falcon], had an intimate working relationship with the plaintiff company and both of them used to work together way before they were introduced to [Temple],” the company said, painting a different picture from that alleged by Falcon.

Temple said in its reply to the lawsuit that the actual relationship between the two parties “was intimate indeed, to the extent that the said Ingmanson would regularly attend nearly all board meetings of the plaintiff company as a guest.”

It said Falcon Funds’ directors actually planned to allow Ingmanson to take over investment decisions once his company Falcon Asset Management (FAM) obtains an MFSA licence.

Of note is that FAM’s directors at the start included former Bank of Valletta chief executive Tonio Depasquale, with ultimate ownership being vested in an Isle of Man company.

This would have meant that Ingmanson – who acted as a key promoter of Falcon Funds in Sweden – also controversially planned to take over the pension funds’ investment decisions.

Temple said that FAM always intended to take over investment decisions, but the MFSA licence was never issued after the Swedish press reported that Falcon Funds had obtained clients’ accounts fraudulently, leading to an investigation by the Swedish Pensions Authority.

Indeed, Temple further alleged that Falcon’s directors were already aware that Ingmanson could have used money invested in one of his instruments (Solid Venture ETI) to advance a high-interest loan to Swedish payday loan company Trustbuddy, right before its bankruptcy.

“The Falcon Funds board even had a conference call concerning the said articles during Christmas time in 2015,” it said.

“Anthony Fenech, Joseph Xuereb and Ian Zammit were constantly in communication with Ingmanson through emails sent to [his] address… all these emails are related to the period preceding the articles which appeared in the Swedish media and therefore clearly show that the directors were well aware of defendant Emil Ingmanson’s connections with those investments,” Temple said.