MFSA had not inspected failed company’s books for six years – director

Maltese Cross director Jean Claude Bugeja lost €6.2 million in clients' funds to recoup €250,000 loss

An accountant charged with misappropriating millions in clients’ investments lost over €6.2 million in a bid to recover a €250,000 loss and claimed that the Malta Financial Services Authority had not carried out an inspection for six years, a court heard yesterday.

The revelation was made during the compilation of evidence against 42-year-old accountant and the director of Maltese Cross Financial Services Ltd, Jean Claude Bugeja, who is pleading not guilty to misappropriating and laundering €4 million in clients’ funds between January 2008 and August 2014.

Taking the witness stand, prosecuting inspector Ian Abdilla said things started to go wrong in July 2008, when the accused lost some €250,000 in a €1 million investment.

The court heard that in an effort to recoup his losses, the accused allegedly misappropriated investors’ funds, eventually losing €6.2 million in failed investments over an six year span.

During questioning, Bugeja is said to have described the system as “very easy” to exploit, claiming that the MFSA’s last inspection of the company’s books was in 2008. During the MFSA inspection, Bugeja told police, he gave auditors a summary of what the clients had and not what they were meant to receive.

Moreover, Bugeja told police, in an effort to examine the accounts, the MFSA auditors only checked with the banks’ documents and not the clients themselves.

Inspector Abdilla explained that the police’s investigations started after the other directors of Maltese Cross Financial Services Ltd – namely Robert Cutajar and Stephen Spiteri – filed a criminal complaint in which they claimed that Jean Claude Bugeja had admitted to a €6 million shortfall in clients’ assets.

The court heard that subsequently, Bugeja – who owns 85% of the firm’s shares – was ordered to resign from his post by the MFSA. The financial watchdog also suspended the company’s operations and banned Bugeja from providing any financial services and prohibited him from accessing the company’s records, IT system, or offices.

Maltese Cross Financial Services Ltd was formerly known as Island Financial Services Ltd, but after its previous directors put it up for sale, the accused bought it to avoid revealing what was going on.

“This had been going on since 2008 ever since he [Bugeja] liquidated some of his clients’ assets without their knowledge, and lost some €250,000. From then on, he used the clients’ funds to try to recoup these losses, but the losses continued to accumulate, eventually totalling around €6.2 million,” the inspector told the court.

The inspector explained that things started to go wrong in March 2008, when Bugeja sought to invest €1 million in a BNP Paribas Fund.

“The company only managed to raise €700,000, and therefore, Bugeja liquidated €300,000 in clients’ assets without informing anyone. The investment went well and he made a profit of around €8,730,” he said.

However, the inspector said that Bugeja’s decision to invest in another BNP Paribas Fund proved to be his undoing, as this time he lost about a quarter of a million euros.

“He used the clients’ funds to meet the minimum investment requirement of €1 million. The value of the fund went down, and in July 2008, he lost some €250,000,” he said.

The inspector said that in a bid to recover the losses, Bugeja continued to make more investments, opting for more risky investments which could yield a higher profit.

“Eventually, during 2012 and 2014, the investments continued. The investments became more risky in an attempt to recoup the losses. By 2014, the total losses stood at €6.2 million, and only €500,000 remained of clients’ funds,” he said.

The inspector also said that Bugeja had admitted to fabricating two bank documents and whenever his clients requested their money, he used to pay them by misappropriating the funds of other investors.

“He [the accused] told me that no one knew of the shortfall – not even the directors, or his family. He liquidated anyone’s funds in a bid to make good his losses, including those belonging to his father and wife.”

“He was very serene. He told me that now that the case ended up in court, he is feeling relieved because he does not have any more energy,” the inspector said, adding that the accused had cooperated with the police.

Lawyer Joe Giglio was defence counsel, while Inspector Ian Abdilla prosecuted. Lawyers Stefano Filletti, Giannella de Marco, Kathleen Grima, Gianluca Caruana Curran, and Adrian Delia are parte civile.

The case continues on 14 October.