Investors in a collapsed property fund last night hailed the financial regulator’s decision to slap a “landmark” fine on Bank of Valletta and its fund management subsidiary, saying their allegations had been vindicated.

The bank, on the other hand, said it would be appealing the decision.

The Malta Financial Services Authority yesterday fined BOV and Valletta Fund Management Ltd a total of €347,816 for regulatory breaches in relation to their La Valette Multi Manager Property Fund.

The MFSA said the managers of the property fund and the bank, as the fund’s custodian, had failed “to act with the level of care and diligence required of licence holders with regards to the conduct of their ­business”.

The property fund has been the subject of a number of judicial protests filed by about 300 investors who claimed breaches of investment restrictions laid down in the fund prospectus.

The investors also claimed that the fund invested in nine underlying funds that “exposed investors to gearing of more than 100 per cent of their respective net assets”.

The property fund’s losses are in part being blamed on the Jersey-based Belgravia Financial Services Group Ltd, whose funds were suspended in 2008 and which was placed under criminal investigation. La Valette Funds Sicav had a substantial investment in Belgravia and the investors claimed they were given “a misleading account of the situation”.

Late last month BOV chairman Roderick Chalmers announced that the bank was ready to settle the dispute with investors by buying back their shares and offering compensation to the tune of 75c per qualifying share in an exercise costing €45 million. Investors were given until June 30 to take up the limited offer.

In its first reaction to the MFSA’s decision, BOV yesterday reiterated that it did not agree with the authority’s interpretation of investment restriction and insisted that it would be appealing the decision.

“Both BOV and VFM remain firmly of the view that the conclusions of the MFSA are wrong in fact and at law… in any event, BOV and VFM maintain that, even if the view of the MFSA were to be upheld, the offer made by BOV fully compensates the investor for any loss incurred as a result of any incorrect application of the investment restriction,” the bank said.

The bank said that the offer price was based on the performance of the fund as against two independent external low geared fund reference points.

But Finco Treasury Management Ltd (Finco), which represents investors, said the MFSA’s decision fully vindicated the allegations and assertions of Finco and Buttigieg Refalo Zammit Pace & Associates, first made in July 2010.

It called the regulatory decision a landmark, “the first of its kind in Malta”, and the fine of €149,821 on VFM as a “record”.

“BOV ought not to have challenged Finco, the investors and the MFSA in such manifest circumstances of wrongdoing, causing unnecessary hardship to its clients, the Bank itself and Malta’s financial services industry,” it said.

It said the larger part of the losses incurred by the Fund were attributable to breaches of gearing restrictions in the prospectus. “The Fund has lost an estimated €35 million out of a related cost of €52 million in the impugned investments...

“The decision of the MFSA confirms the thesis of the investors in the Property Fund that they were not provided with the fund that the prospectus purported to offer, but with an investment product with altogether different specifications in terms of risk and return.”

It said BOV was now liable to pay redress and as far as possible restore the consumer back in the position they would have been “had it not been for BOV and other functionaries’ acts and omissions”.

“Now is the time for all parties involved, be it the MFSA, BOV, the government, the political parties and investors to act according to their legal and moral responsibilities, each in its own sphere.”

It demanded to know whether the MFSA had approved BOV’s conditional offer to investors of 75c per qualifying share.

“The MFSA is obliged to have an opinion on the fairness of the offer and if it does not consider the offer fair and equitable, it is legally and morally obliged to use its powers to issue directives to BOV and to the Fund... in order to have the BOV Offer withdrawn or suspended.”

It also reiterated its request for a full copy of the MFSA report in order to ensure basic parity of arms and the right of investors to take fully informed decisions.

And as major shareholder of the bank, the government had “a social, economic and political responsibility to act fairly and in line with the legitimate expectations of investors and citizens”.