Former finance minister Tonio Fenech gets MFSA reprimand over Falcon Funds fiasco

Tonio Fenech and two other directors are now prohibited from taking any new appointments in licensed financial services activities for two years

Tonio Fenech, a Nationalist finance minister up until 2013, was a director of the pension fund
Tonio Fenech, a Nationalist finance minister up until 2013, was a director of the pension fund

The former Nationalist finance minister Tonio Fenech has been given an official reprimand by the financial services regulator, for his stewardship of a pension fund that lost millions in Swedish pensioners’ savings.

Falcon Funds, a pension fund that was marketed in Sweden but whose directors are Maltese, is the subject of a criminal investigation in Stockholm after millions in savings were lost.

After the Swedish pensions authority claimed the fund was unable to pay back €247 million in savings because of ‘major investment fraud’, the MFSA put Falcon Funds under the control of auditors KPMG.

Now, over 15 months since the scandal first made headlines in Sweden and Malta, the MFSA has issued a stern reprimand to Tonio Fenech and directors Ian Zammit and Joseph Xuereb.

“From the review of the modus operandi of the directors of the scheme, the MFSA determined that the Board failed in its primary responsibilities toward the Scheme and its investors,” the regulator said.

Even more seriously, the MFSA has prohibited the directors from accepting any new appointments which require MFSA approval in entities or for activities licensed by the MFSA for a period of two years.

This period starts from the date of communication of the MFSA’s final decision. The three men will also have to inform all the companies they serve, as well as their shareholders, of the regulatory action.

While the directors delegated investment decisions to another firm, Temple Asset Management, the MFSA said Tonio Fenech, Zammit and Xuereb were still responsible to maintain the required oversight on these decisions.

“This required adequate level of oversight on the Investment Manager was not maintained. The directors were expected to use their skills, competence and judgement to act in a responsible manner and with due diligence in the best interests of the scheme and its underlying investors.”

As directors of the pension fund, the three men had specific obligations to ensure that the savers’ investments was protected.

Instead, the MFSA found that the pension fund was in breach of investment rules, “in that the Scheme failed to act honestly, fairly and with integrity in the best interests of its investors.”

The MFSA also said the scheme failed to adopt adequate measures to manage the risks the pension fund was exposed to, and that it failed to check Temple Asset Management’s internal risk limits.

It added that Falcon Funds did not obtain a reliable valuation of “illiquid securities”, which included questionable investments that Temple Asset Management made to benefit a mysterious Swedish trader – Emil Amir Ingmanson.

Ingmanson is suspected of having been planning to take over Temple’s role as investment manager for Falcon Funds, presenting a major conflict of interest.

Court action

Temple Asset Management, run by John Farrell, was the investment manager for the pension fund. The MFSA has fined it a total of €612,000 by the Malta Financial Services Authority over breaches of 23 different standard licence conditions and had its licence suspended.

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.

Falcon Funds’ directors 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 Emil Ingmanson and his London company.