Bank of Valletta yesterday challenged Finco Treasury Management, the firm spearheading claims by investors in a waning property fund administered by the bank’s subsidiaries, to bring its claims before a court.

In a strongly worded, lengthy statement headed “BoV tells Finco to either put up or shut up”, BoV, Valletta Fund Management and Valletta Fund Services, accused Finco of sensationalising the matter and running its claim as a “trial by newspaper”. They rebutted Finco’s allegations as “unfounded, misguided and misconceived” and reiterated they acted at all times within the parameters of best practice in the market and their legal obligations.

“If and when Finco considers it appropriate to articulate a proper case against the bank, rather than simply make unfounded allegations and sensationalise public sentiment with misconceived accusations, the bank, as a serious institution, will reply to claims when properly articulated and when evidence substantiating those claims would have to be proffered by Finco in front of a court of law,” the statement read.

Earlier, Finco managing director Paul Bonello told The Times Business that rather than hamper its pursuit of legal and financial redress, BoV’s counter-protest last week significantly reinforced its case against the bank and its subsidiaries over the La Valette Multi-Manager Property Fund.

Finco filed a reply to the bank’s August 19 counter-protest on Tuesday, making significant new claims, among them that “abnormal activity” took place when millions of shares were redeemed from the La Valette Sicav Multi Manager Property Fund in 2007 and 2008.

Finco’s reply also claimed Bank of Valletta clearly admitted in its counter protest last week that it breached the La Valette Sicav Property Fund Prospectus when the Belgravia Property Fund clocked a gearing ratio of up to 400 per cent of net assets in 2006 when the threshold was 100 per cent.

Finco also claimed that, as a consequence, the bank filed an incorrect custodian report for four years – not three as in previous claims – in 2006, 2007, 2008, and 2009.

Yesterday, BoV, VFM and VFS said they had not been formally notified of the reply filed by Finco, but charged: “In its original judicial protest, Finco clearly threatened to take judicial action unless its claims were fully met – which was the most logical next step. However, it has not done so. Instead, it has once again taken the route to file a reply to a counter-protest, which we are advised is a very unorthodox step given that the reply to its claim by the Bank, VFM and VFS was a clear and unequivocal rebuttal of all the claims made in its judicial protest.

“This is a case where the loss in value of the fund was due to a number of reasons, not least of which market movements caused by a global economic crisis – but none of which can be imputed to the Bank, VFM or VFS. To suggest that market disruption only occurred after September 15, 2008 is, of course, complete nonsense.”

The three companies said they had nothing to hide and would reply to any further allegations as and when they were made by whosoever they were made, “at the right time, in the proper manner, and in the appropriate forum as and when the need arises”.

They said Finco’s reference to figures which continued to be quoted in isolation and out of context was aimed at creating confusion in respect of their relevant impact and significance. The statement said no further media statements would be released on this matter.

Finco is leading claims by 72 of its own clients who invested in the La Valette Property Fund which fell to €30 million last March from a top value of €84 million in 2007.

It filed a judicial protest on August 4, which was followed last week by another protest by 170 independent investors in the fund. Mr Bonello claimed the investors have an “extremely strong case” as they fight for their money back with interest. Most of the ‘independent’ investors are pensioners and “pathetic” cases abound.

“Nothing in Bank of Valletta’s counter protest refuted any of the claims made in the previous judicial protests,” Mr Bonello said earlier this week. “We are able to corroborate any of our claims. We will not stop this process. Time will not tire us.”

In the document filed on Tuesday, Finco said it reserved the right to present “at the opportune time” foreign court documents, apart from reports published by London’s The Times and The Guardian, to substantiate its claims that BoV’s due diligence of Belgravia Group was flawed.

The €24 million investment made by BoV subsidiary Valletta Fund Management and its partner Insight Investment of London in the Belgravia Fund at one point represented 41 per cent of the entire fund’s assets. The claimant said “the minimum one would have expected was for VFM and Insight to request the Belgravia fund directors to make available signed interim accounts before committing” themselves to the investment, besides adhering to the La Valette Property Prospectus.

Finco further claimed that while Bank of Valletta, as fund custodian, sent investors around 20 letters and organised various meetings, it failed to give a clear picture of the Belgravia funds’ predicament, including the removal and arrest of previous directors by Barclays Trustees and Jersey regulators, and how others had eluded authorities by fleeing to the Middle East.

Mr Bonello said that most importantly, simple arithmetic showed that the Belgravia Fund ran up a gearing ratio of 400 per cent of net assets as it borrowed €80 for every €20 invested by the fund out of its own net assets.

The prospectus was breached in that very moment in February 2006, Finco’s reply in court said, which meant Bank of Valletta issued an incorrect custodian report for 2006 as well, implying there were four consecutive incorrect reports, not three.

Finco maintained that the Multi-Manager Fund, VFM as manager and director, and Insight as sub-advisor, “risked investors’ funds in the fund with large investments made in breach of the fund’s offering document”.

It also stated that BoV, in turn, as fund custodian, failed to monitor the entire Fund’s adherence to the investment restriction in the offering document and in the fund licence, at least where the Belgravia European Property Fund was concerned.

The protest pointed out that as BoV had majority control in Valletta Fund Management and Valletta Fund Services, another subsidiary, there was no separation of the role of scheme manager and scheme custodian. Independence requirements dictated in the investment rules stipulated by the regulator were, in practical terms, compromised.

The banking group’s structure was complicated by the fact that there were common names on boards of directors and the bank also sold the Multi-Manager Fund throughout its branch network.

The document reiterated the claim that the bank and its two subsidiaries earned up to €7.5 million from the fund and investors.

One of the most significant pieces of information contained in Tuesday’s document surrounded “abnormal redemption activity” that took place in the Maltese fund when the general investing public in the fund was unaware that redemptions in the Belgravia Property European Fund were suspended.

The reply explained how in the year ended September 30, 2008, the Belgravia Fund saw 14,702,538 shares redeemed, following a redemption of just over three million shares in the previous financial year and practically nothing in the previous two years.

In 2008, the shares would have had to be redeemed before August 7, the date the Maltese Fund was suspended and until when investors continued to pour money into the fund without knowing that the underlying funds had been suspended or that “massive redemptions” were being made.

The protest pointed out that the global credit crisis essentially kicked in when Lehman Brothers filed for bankruptcy on September 15, 2008, and international investor panic ensuing after that catastrophic catalyst could not reasonably be attributed to the accelerated redemptions in the Maltese fund.

Finco added that VFM has to date always cited client confidentiality when the claimant only asked for “generic and statistical information on the number, value and date of related party transactions to gauge whether suspicions of impropriety” had any foundation or whether they merited investigation.

Mr Bonello stressed that no improper behaviour was being alleged in the reply. However, Finco called upon the Sicav and VFM to publish all the relevant information to put investors’ minds at rest in this regard. Last week, the Malta Financial Services Authority said it was examining the issues raised in the judicial protests and would issue statements as it deemed necessary.

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