240 investors in waning VFM fund fight for their money back

More than 240 investors in a property fund valued at €84 million in 2007 and worth €31 million last March are determined to fight to get their money back with interest, Paul Bonello, who spearheaded one judicial protest against Bank of Valletta and was involved in a second, told The Times Business.

Many of the investors are pensioners.

On Tuesday, 170 investors filed a judicial protest against Bank of Valletta and against La Valette Multi-Manager Property Fund, a sub-fund of La Valette Sicav plc, which is managed by Valletta Fund Management, a joint venture between BoV and Insight Investment of London. The protest was signed by lawyer Ian Refalo.

A similar protest was filed by 72 investors on August 4.

Mr Bonello, of Finco Treasury Management Ltd, the Floriana-based company which filed the first protest on behalf of its own clients, said the investors were seeking to be fully compensated in terms of law.

“We believe we have an extremely strong case,” he said. “There are two fundamental questions that we are seeking answers to: Have the licence conditions and fund prospectus been breached? Did Bank of Valletta, as custodian of the fund, issue a true custodian report for 2007, 2008, and 2009?”

Share values have plummeted from €1.07 in August 2008 when redemptions from the fund were suspended, to 52c last June. Only 27c may be redeemed immediately in cash.

Investors claim Sicav and VFM failed in their capacity as director and manager of Sicav to exercise skill and diligence in the selection of investments and their monitoring when this fund was promoted by VFM and BoV.

The claimants indicate these shortcomings as significant contributory factors which led them to suffer substantial losses, independently of negative market trends.

The fund of funds was meant to invest in the best of breed globally, guarantee investors peace of mind, while specialist experts were to monitor their investments which were meant to do well even in circumstances where other asset classes would suffer.

The lengthy protests claim, among other things, that investments were made into a number of Belgravia Funds at a time when Belgravia was the subject of negative press over the dubious history and profile of persons connected with it.

Mr Bonello said that when the fund was suspended by the Jersey regulatory authorities and a criminal and regulatory investigation began, investors were not informed that the Belgravia offices were raided by serious fraud police.

Neither were they informed that Belgravia funds were suspended by the Jersey regulators. The fund had a legal duty to communicate all facts on a timely basis. Investors claim VFM reported that new Belgravia directors were appointed without indicating their predecessors had been removed and arrested, while others had fled to the Middle East.

The investors also claim that restrictions were breached when some underlying funds borrowed up to 13 times more than they were allowed to under gearing ratio restrictions contained in the prospectus.

Mr Bonello added the judicial protest was only the investors’ first step in their efforts to seek legal redress and were prepared to pursue their claims for as long as it took.

He explained the investors were mostly pensioners, some of whom had sold property they had inherited, while others took early retirement. Among the investors are former workers of Malta Drydocks and two widows with dependent children. A couple are illiterate.

Mr Bonello explained that for his own clients involved in the first judicial protest the losses did not spell financial disaster as property investments did not constitute more than a small share of the total portfolio as part of a structured asset allocation plan. However, for the 170 involved in the second court action, the situation was far more serious with dire consequences as life savings were involved. He believed 95 per cent of the investors were not financially literate in spite of the “experienced investor” declarations they would have signed.

He added that the evidence pointed to the fund being mostly sold to investors involved in the second judicial protest by BoV financial planning officers at the bank’s branches. Mr Bonello stressed that it was in the public interest for the case to be dealt with by the regulatory authorities and the courts swiftly. He believed the fundamental issues at the core of this case were matters of public interest that involved small investors’ savings and trust in financial institutions and the fledgling fund industry in Malta.

In a statement yesterday, the Malta Financial Services Authority said it was examining the issues raised by the judicial protests “both from the consumers’ perspective as well as from the supervisory aspect”.

“The MFSA is bound by confidentiality and will not disclose information on its workings with consumers and licence holders,” the regulator said. “In specific cases, both complainants and service providers will be advised of the authority’s findings and decisions at the appropriate time.”

In a statement issued on August 6, Bank of Valletta said investors were kept informed of developments related to the property fund but did not give any details.