In a counter counter-protest submitted yesterday Finco, the financial management company, claimed that Bank of Valletta and Valletta Fund Management’s counter-protest does not rebut in any way its (Finco’s) assertions and claims, but rather in certain instances explicitly confirms the assertions made by Finco that BOV, VFM, along with VFS and Insight seriously failed to exercise the diligence required of them in the selection of investments for the fund as well as in their subsequent monitoring.

In addition, Finco claimed they breached the Investment Restrictions in the Offering Document of the Fund; they failed to communicate to investors in the fund in a timely manner, of all relative and material developments in relation to the investments of the Fund and its financial situation; and this in breach of their obligations and duties, including that of acting in utmost good faith qua fiduciaries.

BOV and VFM in their counter-protest claimed that the assertions of Finco regarding the lack of due diligence in respect of Belgravia Group are based on speculative newspaper reports but Finco rebutted that its assertions are based on independent sources such as foreign court documents and this apart from reports contained in newspapers of repute such as The Times of the UK and the Guardian.

VFM and BOV further claimed that “the decision to invest in Belgravia funds took place around February 2006 up to October 2007 and therefore the only relevant information for such decision was that existing and available at the time and that which both VFM and Insight could rely on” but Finco stresses that the minimum one would have expected was for VFM and Insight to request the Belgravia fund directors to make available signed interim accounts before committing the Fund to such investments especially when one considers that such investments amounted to more than €24 million and constituted at one point more than 41 per cent of the entire fund size and assets of the Fund.

VFM and BOV also seem to imply that they do not owe obligations to investors in the Fund, including fiduciary obligations with a clear duty to act in the most honest, transparent, impartial manner and with the diligence of a bonus paterfamilias and with the utmost good faith, Finco said.

VFM and BOV also stated that they kept investors informed of developments and events, and without delay, but this, Finco rebutted, is not true.

It is true that VFM sent several letters to investors and organised various meetings, but Finco reiterates that the information provided was of a formal nature that excluded altogether the underlying substantive negative developments particular to the Fund that were materialising such as for example:

• that Belgravia suspended the redemption requests of the Fund on a de facto basis in March 2008 (which fact has been disclosed for the first time in the counter-protest of 19 August);

• that both a criminal and regulatory investigation into Belgravia was on-going;

• that the Jersey Financial Services Commission had suspended the Belgravia Funds because:

“(a) each of the Suspended Funds are currently without adequate or effective management or financial or accounting controls in place; and

(b) the true and correct value of the investments or other assets of the Suspended Funds cannot currently reasonably and reliably be ascertained by the Belgravia Fund Managers”.

A typical example of VFM’s selective reporting, Finco adds, is the report that the Belgravia funds had new directors without reference to the fact that the previous directors had been removed by Barclays Trustees and by the Jersey Financial Services Commission, that some of the said directors had been arrested and that others still had evaded arrest by fleeing to the Middle East.

In the counter-protest, VFM and BOV state: “the limit on the level of gearing that the Fund’s underlying real estate property funds may be exposed to is of a maximum of 100 per cent of their respective net assets”; and they then add: “when one considers the Belgravia European Property Fund regulations at the time the fund was launched and therefore at the time that the Fund invested therein (from February 2006 up to October 2007), it results that this fund was bound not to borrow more than 80 per cent of the gross cost of the properties it was buying”.

But Finco rebutted that while it results from VFM’s and BOV’s counter-protest that the Belgravia European Property Fund could borrow “80 per cent of the gross cost of the property”, meaning that the Fund could borrow up to €80 for every €20 invested by the Fund out of its own net assets, this equates to a gearing ratio of up to 400 per cent of net assets which exceeds by far the 100 per cent of net assets stipulated in the Fund’s Investment Restrictions according to its Offering Document.

The fact that the Belgravia European Property Fund had a gearing ratio well in excess of the 100 per cent limit stipulated in the Fund’s Offering Document was in fact confirmed by its 2006, 2007 and 2008 Audited Accounts, Finco says, adding that it is absolutely not true that which VFM and BOV said that “the restriction was within the investment restriction (v) of the Investment Restrictions of the La Valette SICAV Multi Manager Property Fund”;

Therefore, Finco adds, VFM’s and BOV’s statement that “at the only time that is relevant for the purposes of adherence to the Investment Restrictions, there was no breach of the investment restrictions parameters of the Offering Document” is ‘absolutely untrue’.

VFM’s and BOV’s admission in para. B16 that the Belgravia European Property Fund was allowed to borrow up to “80 per cent of the gross cost of property”, meaning a gearing ratio of 400 per cent, confirms, Finco states, that in fact the Fund, VFM as Manager and Director of the Fund, and Insight as Sub-Advisor, risked investors’ funds in the Fund with large investments made in breach of the Fund’s Offering Document, which breach occurred as soon as the investments in question were made, that is already in February 2006.

BOV in its capacity as Custodian of the Fund, failed to monitor the Fund’s adherence to the Investment Restrictions in the Offering Document and in the Fund Licence at the very least with respect to the Belgravia European Property Fund, and this right from the moment such investment was made in February 2006.

Not only did BOV issue clean Custodian Reports for the three successive years that ended on 30 September, 2007, 30 September, 2008 and 30 September, 2009, but furthermore, with the information available to it that the Belgravia European Property Fund could borrow up to “80 per cent of the gross cost of the property”, BOV also failed its duties when it issued a clean Custodian Report even for the year ended 30 September, 2006, which means that BOV issued an incorrect report not merely for three but for four successive years, Finco said.

In relying on the said Custodian Reports, Finco was misled by BOV’s failure as a result of which Finco continued to invest in the Fund until it was suspended instead of redeeming and withdrawing its investments in the Fund when still in time to do so without difficulty as it would have done had the Custodian Report reported the breach of the Offering Document.

Finco further claimed that the segregation of roles, duties and loyalties between the various functionaries, in particular between the Manager and the Custodian of the Fund, was severely compromised:

• BOV has a majority control in VFM and VFS;

• between them BOV, VFM and VFS earned the sum of up to €7,500,000 from this Fund and investors in this Fund, whether directly or indirectly, most of which going to the coffers of BOV;

• BOV is the SICAV and the Fund’s main salesperson, earning a very substantial part of the initial charge of up to four per cent on sale of the Fund’s shares;

• the highest officers and executives of BOV are also officers and general managers of the SICAV and / or VFM and / or of VFS.

In their counter-protest of 19 August, VFM and BOV state that VFM and Insight had submitted: “an application as of the 17 March, 2008 in order to redeem part of the investment of La Valette Multi Manager Property Fund in Belgravia European Property Fund but it was advised by the directors of the Belgravia funds that the request could not be accepted because the fund had been suspended from the next dealing date”.

Facts of such importance were not brought to the attention of investors in the Fund in a timely manner, Finco says, in so far as Fund investors were only advised of these facts by the SICAV and VFM on 7 August, 2008 namely when investors were advised that redemptions in the Fund had been suspended. Some investors continued to invest in the Fund at the then prevailing price almost up to 7 August, 2008 without any knowledge of the suspension of underlying funds and of the massive redemptions being made in the Fund itself, Finco claimed

From a review of the Annual Financial Statements of the Fund it is apparent that the following redemptions were made:

• For period ended 30 September, 2005 – 0 shares redeemed;

• For year ended 30 September, 2006 – 166,422 shares redeemed;

• For year ended 30 September, 2007 – 3,022,877 shares redeemed;

• For year ended 30 September, 2008 – 14,702,538 shares redeemed.

By 7 August, 2008, the global credit crisis had not yet entered the meltdown phase and had not yet caused general and global public panic, which meltdown effectively commenced only with the Lehman Brothers filing for bankruptcy on 15 September, 2008.

Finco has repeatedly requested the SICAV and VFM for further generic statistical information to determine the exact months in which this abnormal level of redemptions was concentrated.

The motivation invoked so far by VFM to Finco’s request for information is that of client confidentiality, when Finco has merely requested generic and statistical information on the number, value and date of related party transactions to gauge whether its suspicions of impropriety have any foundation or otherwise and whether they merit further investigation. It did not request the identification of any investors.

As long as this information is not provided, the abnormal redemption activity that occurred during the period when the general body of investors were not yet privy to the fact that dealing in the Belgravia European Property Fund was suspended, remains questionable, Finco said.

At this stage Finco is not alleging any improper behaviour in this regard, however, in view of the substantial redemptions taking place during the year ended 30 September, 2008 (and which must have necessarily taken place up to 7 August, 2008, namely the date when the SICAV and VFM suspended redemptions in the Fund) Finco is calling upon the SICAV and VFM to publish all necessary information to put the minds of claimants and all other investors at rest that there were no investors who may have benefited unfairly from the information available to the SICAV and to VFM with regard to the suspension of redemptions in the Belgravia funds before this information was made available in the public domain by redeeming their investments in the Fund to the detriment of the remaining body of investors;

Finco concluded that as a consequence of this unlawful and prejudicial conduct on the part of all the respondents, including BOV, it has suffered damages as explained in its judicial protest of 4 August and it calls once more upon the SICAV to immediately take all the necessary action to protect and safeguard the interests of investors in the La Valette Multi Manager Property Fund, including by taking any legal action necessary in the name of the SICAV against all those responsible, inter alia, those persons responsible for the management and administration of the Fund and those responsible for the care and custody of the investments of the Fund, including adherence to the terms and conditions included in the Offering Document and the licence conditions of the Fund.

At the same time, Finco calls upon the respondents to come forward within one week for the liquidation and payment of damages suffered by it as a consequence of the negligence, lack of skill, care and diligence, and the breach of their responsibilities, including their fiduciary duties and their failure to abide by the terms and conditions of the Offering Document and the licence conditions of the Fund, and is hereby holding all respondents responsible for any further additional damages that may be suffered by claimants as a consequence of their improper conduct.