Karm Farrugia: 'underprivileged' investors trusted BOV during fund fiasco

Farrugia, whose own €20,000 investment in the fund was reduced to just over €10,000, said he expected the bank to “do more than just wait for the Malta Financial Services Authority’s findings while challenging the protesters to file a lawsuit… In these intervening years, the bank’s solid reputation will be seriously dented, a situation far worse in financial terms than through any gratuitous compensation announced now.”

The bank is being held responsible for the way the fund, once valued in excess of €84 million, was depleted to €24 million. The fund was managed by the bank’s investment arm Valletta Fund Management, which invested the cash in global real estate funds.

Specifically, a €17 million investment in the Belgravia European Property Fund lost in excess of 90% and is today estimated at €1.3m, while other investments originally valued at some €47 million have fallen to €18.5 million.

A judicial protest first filed by Finco Treasury Management accused the bank of not being transparent with shareholders when it failed to disclose that the Belgravia fund’s directors were being criminally investigated for fraud by the Jersey police, and that its shares had been suspended by the Jersey Financial Services Commission.

Farrugia, writing in The Times, said his investment starting dipping in October 2007 and again in April 2008 but the last thing on his mind “was that the fund had been in troubled waters.”

“Imagine my disbelief when only three months later (August 2008) I was informed that redemption requests were ‘temporarily’ suspended… However, I did discover that 40 per cent of the fund had been invested in Belgravia. This percentage turned out to be even much larger in the months that followed, by which time even some of the fund’s other investment outlets had attained the Belgravia status.”

Farrugia writes that “what hurt [him] more” was that BOV did not inform him of how many other shareholders had been allowed to redeem their investments by the time the ‘temporary’ suspension was announ­ced. According to annual reports by VFM, some 14 million shares were redeemed between October 2007 and August 2008

“At this rate, had I been among the privileged, more than my original investment of €20,000 would have been recovered. But, of course, that would have been at the expense of those remaining unredeemed – the under-privileged whose trust in BOV stayed solid.”

Farrugia says that in February 2009, the bank informed shareholders “some positive developments”, only to be informed a month later it was no longer possible to determine the value of any holding.

When in May 2009, the bank was claiming a “slight improvement... leading to a recovery of property prices”, his investment had plummeted to €10,124.95. “Half of my investment wiped out because I wasn’t among the ‘privileged’, albeit loyal to BOV.”