Updated | Bank of Valletta must refund €3.4 million to investors who lost savings in La Valette property fund

Bank of Valletta has to refund the full capital and interest of lost savings from the La Valette property fund, the arbiter for financial services has declared

Finco managing partner Paul Bonello
Finco managing partner Paul Bonello

The financial services arbiter has put an end to the La Valette property fund saga, ordering Bank of Valletta to refund millions in lost savings with interest, due to alleged misselling.

The decision by the arbiter, a post created by the Labour administration after 2013, is for the payment of €3.4 million plus legal interest of 8% from the date of complaint, to some 500 aggrieved investors.

Bank of Valletta announced in a company statement that it was still reviewing the details of the decision and the board of directors will be discussing the matter and deciding on the appropriate actions to take in the best interests of the Bank.

The complaints were submitted by stockbroker Paul Bonello of Finco Treasury Management and law firm Refalo Zammit Pace in July 2016, with the decision having been overdue since 2017.

The investors had complained that the 75c share offer by BOV in 2011, offered just weeks before sanctions were issued, was insufficient. A further 25c share compensation ordered by the MFSA was also considered insufficient.

In a statement issued later in the day, Finco Treasury Management said the arbiter had analysed every single underlying fund in which the La Valette Multi-Manager Property Fund had invested in, where investment restrictions had been broken. The restrictions on ‘gearing’ concerned limits on how much could be invested in funds with debts larger than 100% of their net asset value.

“It was the fund manager Valletta Fund Management’s job, to see that the investment restrictions in the prospectus were not broken. The arbiter confirmed the complainants’ the that the fund invested in nine underlying funds in breach of restrictions on gearing.”

Finco said that the nine funds incurred losses of €33 million up until 2011, and accused BOV of issuing custodian reports where it insisted that no breaches of investment restrictions had taken place, “misleading investors for year since 2006”.

Finco added that the arbiter was critical in his decision of the way the structure offering the LVMMPF operated: all related parties had different conflicts of interest, since VFM was a BOV subsidiary.

“The arbiter said that BOV’s ‘take it or leave it offer prohibited the complainants from negotiating the terms of the contract they were about to sign,” Finco said, quoting the decision.

The company said the arbiter was convinced that BOV’s 75c offer was a breach of consumer rules, and that BOV’s actions were not just, equal or reasonable.

Quoting the arbiter’s decision, it said “the majority of clients were elderly investors who had expected to be entering a safe investment with operators who knew more than they knew, and who would observe the prospectus rules they themselves issued, with self-imposed restrictions they had to observe. This did not happen as observed by both the MFSA and the arbiter.”

The complaint relates to the long-running dispute investors have had with BOV after they had lost their savings when they had purchased shares in the supposedly low-risk La Valette property fund for up to €1.1650 per share plus initial charge. The Malta Financial Services Authority fined BOV six times between 2011 and 2012 for misselling the fund to inexperienced investors and for breaching its own investment restrictions – particularly when it invested €17 million in the now-defunct Belgravia European Property Fund.

Around 2,300 investors accepted the bank’s subsequent compensation of 75c per share on condition that that they waive legal action against the bank should the MFSA find it had breached property fund conditions.

Others, represented by Finco, demanded that BOV repay them based on the value of the shares at the time of investment and were indeed eventually compensated in full. However, BOV ignored the MFSA’s subsequent demand to bring compensation up in full for the other 2,300 who had accepted its original offer.

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