Vatican left contrite in offshore scandal with Malta at its heart

From Rome to Malta, via Panama and Dubai: the Vatican bank claims its financial advisors and their Maltese firms used its millions to make a quick killing at its expense. Now it wants them back

Pope Francis made financial reform a keystone of his papacy, appointing various oversight committees and introducing tighter management inside the Vatican Bank
Pope Francis made financial reform a keystone of his papacy, appointing various oversight committees and introducing tighter management inside the Vatican Bank

God’s bankers have been caught up in a “menacing web of intrigue and suspicious transactions”, lawyers for the Vatican’s bank are claiming.

A €17 million claim for damages filed in the Maltese courts is promising to reveal a ruse by Italian financiers who run Maltese investment firms, to hive off millions into a property company owned by offshore firms in Dubai and Panama.

The Istituto per le Opere di Religion (IOR), otherwise known as the Vatican Bank, says a committee it set up to invest €30 million of its cash was misled by the directors of Futura Investment Management – Alberto Matta and Girolamo Stabile – and their affiliated company in Luxembourg, Optimum Management.

Matta and his company are already under the spotlight of the Malta Financial Services Authority, having had an application to upgrade the licence of Futura Funds frozen, ostensibly over Optimum’s role in managing funds for the Banco Nazionale di Vicenza – now fused with another bank into a new entity on orders of the European Central Bank. 

At the heart of the matter is an alleged ruse to use the Vatican’s money to buy a company that owns the Exchange Palace in Budapest, by taking over a non-performing loan it was issued by a Hungarian bank.

While the IOR believed its money was going to be used to take over the loan directly, it found out that Futura Investment Management made an undeclared profit of €11.6 million, ostensibly after duping the Vatican on the price of the Hungarian deal.


Into the cougar’s mouth

In 2013, the IOR set up its ‘Ad Maiora’ committee to consult on how to invest €30 million through the offices of Optimum Management.

The committee decided to use the money to buy out a non-performing loan of €32 million issued by a Hungarian bank to the developer and owner of the Exchange Palace, and convert that loan into an 84% share in the Hungarian company redeveloping the property.

To do this, IOR invested €21 million of its cash in ‘class B’ shares of the Kappa fund, which was run by Futura Investment Management, so that together with other investors in the fund, they would raise enough cash to take over the redevelopment project.

Italian banker Alberto Matta: his request for an MFSA upgrade of his licence in Malta has been frozen
Italian banker Alberto Matta: his request for an MFSA upgrade of his licence in Malta has been frozen

But the IOR now claims that, unbeknown to the committee, an offshore company in Dubai called Holdabco set up the Luxembourg firm Cougar Real Estate – just nine days after the decision to buy the loan – so that Cougar would buy out a 90% share of the company that owned the Exchange Palace.

While Cougar acquired the loan for €20.4 million, the money in the Kappa fund – which included other investors’ cash – was used to buy up all Cougar’s shares for €32 million.

This resulted in an instant €11.6 million profit, which IOR claims ultimately went to Cougar’s owners – Holdabco and another minority shareholder, a Panamanian firm called Alpininvestissements.

On its part, Futura used another of its sub-funds, Newton, to buy out the non-performing loan for €20 million, and then assigned the loan to Kappa for €20.4 million.

Enraged by the revelations, the IOR claimed it was misled, believing its money was being used to buy shares in Kappa that would have been invested directly in the Budapest development.

“None of these developments was ever communicated to the Ad Maiora committee… the effect of these transactions was to deviate nothing less than €11.6 million of the IOR’s cash invested in Kappa, through a structure that is devoid of any economic reasoning,” the IOR’s lawyers in Malta said.

“It is clear that the IOR has been abusively caught up in a menacing web of intrigue and suspicious transactions.”

Instead, Futura’s directors – amongst them the Italian banker Alberto Matta, himself also a director of Cougar – used the money differently, apart from inflating the price for the Hungarian loan.

“There is a clear conflict of interest: Matta is a director of Optimum and Futura… Matta is also one of the principal, if not sole beneficiary, of Optimum Management. Matta and Girolamo Stabile are, or at least were, directors of Cougar. No mention was ever made of Cougar’s involvement or inflation of the Budapest palace’s price in the meetings of the Ad Maiora committee.”

When the IOR realised it had been misled on the price of the non-performing loan, it also found out that its €21 million was invested in Kappa’s ‘class B’ shares, which carried the entire risk of the equity. Other investors in Kappa’s ‘class A’ shares were earning a 7% annual return.

But when in 2015 the IOR demanded its money back, Futura suspended any redemptions from the Kappa fund.


Unholy finances

The Vatican’s case in Malta is an interesting piece in a jigsaw puzzle of financiers misusing the IOR finances

• In 2014, the IOR opened judicial procedures at the Vatican tribunal against its former directors – Paolo Cipriani and Massimo Tulli – holding them responsible for the loss of €27.8 million invested in the Ad Maiora fund

• One of the directors of Futura Funds Sicav, which is registered in Malta and run by Futura Investment Management, is Joseph Xuereb (pictured) – a director of Falcon Funds, the pension fund delisted by the Swedish pensions authority and recently reprimanded with a two-year ban on new directorships

• Futura Funds’ request for an upgrade in 2014 to become a full alternative investment fund manager (AIFM) in Malta has been frozen by the MFSA, ostensibly over Futura’s links to the problems faced by Banca Popolare di Vicenza, which had an artificially high share price. When the ECB ordered the bank to reduce the value, many retail clients lost millions in savings. The bank also invested €350 million in funds run by Optimum, which, in turn, invested in assets managed by Futura. That cash was in a circular investment to buy shares on the secondary market from the Banca Popolare di Vicenza. As a result of the MFSA’s decision, Futura’s Malta-based funds cannot take on new business or have assets under management over €100 million. The company is contesting the ruling.

• Witnesses in the Maltese case will include IOR representatives, the Maltese FIAU, representatives of PriceWaterhouseCoopers, Bank of Valletta and Valletta Fund Services, and Prof. Paolo Colombo to explain how Futura Funds deviated €11.6 million to Cougar Real Estate

• The case is against Futura Funds, Futura Investment Management, Optimum Evolution Fund and Optimum Asset Management, Alberto Matto and Girolamo Stabile.

RIGHT OF REPLY by Optimum Management

In regards to the article published in Malta Today on October 11, Optimum Asset Management notes:

- Futura Fund SICAV, the bond sole subscriber, has sued the real estate company Maiora Group spa, the bond issuer, at the Tribunale di Bari (the Bari Court) to ensure the repayment of such bond in due time.

- If reference is made to Optimum-Ad Maiora (a fund of funds), there has been no loss in such fund. On the contrary, the investment in Ad Maiora (a fund of funds) was profitable: as such it was exited generating a total return for the investor (IOR) in excess of 7%.

- The lawsuit initiated by the IOR regards Futura-Kappa (a real estate fund), which invested in 2013 with the objective to acquire, refurbish, reposition and sell the Budapest Exchange Palace, one of the most prestigious buildings in the Hungarian capital. The IOR entered into contractual commitments to invest €41 million. Nonetheless, it only invested €17 million and is, therefore, clearly in default on the remaining €24 million. We are suing the IOR in Malta for breach of contract.

- Optimum and the funds it managed did not participate in any activity aimed at increasing or supporting the value of the shares of Banca Popolare di Vicenza. Optimum is not involved in any investigation related to Banca Popolare di Vicenza.