Vatican chases millions in bid to stop Malta fund from ‘abusive’ sale

Millions in euros in Vatican bank cash are at stake in a Maltese court case, as lawyers for the Holy See are now asking the courts to prevent an investment firm from selling its assets to a Hungarian company

The IOR says a Dubai firm was used to create a real estate company just nine days after the IOR’s decision to buy a 90% stake in the loan used for the redevelopment of the Exchange Palace of Budapest. But the Vatican bank claims it was duped into paying more money for the loan, after Cougar acquired the loan for ‘just’ €20.4 million, with a resulting €11.6 million in Vatican cash going to Holdabco
The IOR says a Dubai firm was used to create a real estate company just nine days after the IOR’s decision to buy a 90% stake in the loan used for the redevelopment of the Exchange Palace of Budapest. But the Vatican bank claims it was duped into paying more money for the loan, after Cougar acquired the loan for ‘just’ €20.4 million, with a resulting €11.6 million in Vatican cash going to Holdabco

Millions in euros in Vatican bank cash are at stake in a Maltese court case, as lawyers for the Holy See are now asking the courts to prevent an investment firm from selling its assets to a Hungarian company.

God’s bankers were caught up in a “menacing web of intrigue and suspicious transactions” –  lawyers for the Vatican’s bank claim – in an alleged €17 million ruse by Italian financiers who run Maltese investment firms.

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.

Originally in 2013, the IOR set up a committee to decide on how to invest €30 million. The decision was to have Futura buy out a non-performing loan of €32 million from the owner of the Exchange Palace, and then convert that loan into an 84% share in the Hungarian company redeveloping the property.

But the IOR claims Futura made an undeclared profit of €11.6 million by duping the Vatican on the price of the Hungarian deal; and then by planning to sell Futura’s 90% stake in the Exchange Palace’s holding company, to Cougar Real Estate of Luxembourg, which is, in turn, owned by a Dubai firm.

Now the Vatican’s lawyers want to stop Futura from selling its shares in the Exchange Palace to Cougar.

The IOR says the Dubai firm Holdabco set up Cougar just nine days after its decision to buy the Exchange Palace loan. Cougar was used to acquire the non-performing loan for €20.4 million, with the resulting €11.6 million in Vatican cash going to Holdabco and another minority shareholder, a Panamanian firm called Alpininvestissements.

“It is clear that the IOR has been abusively caught up in a menacing web of intrigue and suspicious transactions,” the IOR’s lawyers said, accusing Futura and its directors of inflating the price for the Hungarian loan.

More recently, on 23 November 2019, IOR learnt that Cougar was being sold to another company, Indotek Group Hungary.

“Futura clearly intends to sell and dispose of its share in the development project by assigning its 90% share in the project via a sale of its shares in Cougar itself,” the lawyers said. “Neither Cougar nor Futura have provided IOR with any disclosure of the transaction leading to the sale of the investment.”

Futura has also sued the IOR, claiming the Vatican entered into contractual commitments to invest €41 million but only invested €17 million, and was therefore in default on the remaining €24 million.

Right of reply obo Futura Funds

We write on behalf of Futura Funds Sicav p.l.c., Futura Investment Management Limited, Optimum Evolution Fund SIF, Optimum Asset Management SA and Mr Alberto Matta and make reference to the 14 December 2019 article ‘Vatican chases millions in bid to stop “abusive” sale’.

It is very evident that the article reiterates uncritically the contents of an injunction recently filed by the Istituto per le Opere di Religione [IOR], without taking into account the strong rebuttal filed by our Clients contesting the spurious claims of IOR.

IOR alleges that it was “duped” into paying an inflated price for the Budapest Exchange Palace, with the resulting mark-up diverted to third-party entities. This is manifestly false.  

Indeed, despite IOR’s allegations about a lack of transparency, the details of the transaction were clearly indicated by our clients to IOR prior to the execution of the investment.

The decision to approve the higher acquisition price of €32 million (instead of a more risky transaction structure but with lower entry price) was taken by the investment committee set up by IOR. So much for “intrigue” and “suspicious transactions”!

In detail: IOR, and the investment committee it had itself set up, was offered by our clients the opportunity to invest €20.4 million directly into a non-performing loan, with a view to eventually try to convert this into a majority share in the company owning the Budapest Exchange Building, or alternatively wait for the liquidation process to run its course (resulting from the bunruptcy of the borrower) and hopefully recover an amount equal to the full notional of the loan.

IOR however made it clear that it would not invest into a non-performing loan (with bankruptcy proceedings of the borrower already ongoing and a liquidator having been appointed by the Hungarian Insolvency Courts), since it deemed that this was a risky and reputationally problematic instrument. 

IOR, through its advisors, stated that it would have preferred to acquire the asset once this had been de-risked, that is, after the bankruptcy deactivated, to then invest into the underlying property or a “cleaned-up” asset.

For this to happen, however, third party investors had to be found who would be willing to acquire the NPL, assume the related risks (which IOR was unwilling to assume), and attempt to achieve the termination of the liquidation proceedings and then convert the loan into shares of the company owning the building (by potentially agreeing to a settlement with the creditor company).

Naturally, the price of the unencumbered asset was much higher than the price of the NPL with its inherent risks. In fact, the Budapest Exchange Building was appraised by international valuation experts Jones Lang Lasalle at much higher than the €32 million which IOR committed to invest (and of which only €17 million were ultimately invested).

The truth is that IOR defaulted on its undisputable contractual obligations and has been trying in every possible way to find legal ground in order to avoid the inevitable and severe consequences of this.

Therefore, our clients strongly reject the allegation that such a transparent process, clearly put forward to IOR and its investment committee prior to execution (and approved by the latter), could be considered a “suspicious transaction”. 

What is, indeed “suspicious”, is the fact that our clients are being attacked for an investment decision which was openly discussed with and, ultimately, decided upon by IOR’s investment committee and external advisors.

In this respect, we believe the timing of the decision is highly significant. The investment took place only a few weeks prior to the unexpected and unprecedented resignation of Pope Benedict XVI. The election of Pope Francis led to major changes with IOR including, since 2013, the replacement of three Chairmen, two Directors-General, most of the internal senior functions and even many members of the Cardinals Commission.

New management launched a scathing critique of the previous management of the Institute and, particularly, the former DG Paolo Cipriani and his deputy Massimo Tulli, against whom the IOR has brought legal proceedings before the Vatican Tribunal and in Italy. 

The Institute’s real goal is not to protect its investment. On the contrary, our client contends that, through its actions, not least its refusal to honour a €24 million residual capital commitment pivotal in the development of this major real estate project, IOR is consciously putting the Hungarian investment at risk, to strengthen its allegations of mismanagement against Cipriani and Tulli.

It is, to say the least, unfortunate, that our clients have ended up in the crossfire between various factions within IOR, with the Institute blithely unconcerned about the reputation of our clients, the success of its investment and the rights of other third-party investors in the same project, which have nothing to do with the ongoing dispute! 

Mamo TCV Advocates

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