Two different sets of Maltese investors have reported to the Malta Financial Services Authority and will be seeking redress in court following huge losses sustained in investments made internationally which have collapsed and left them with heavy losses.

The complaints they filed are being reproduced verbatim.

 

Investments

The first complaint regards a company with offices in Birkirkara.

A complainant wrote: I was approached persistently by the company in Birkirkara to invest with them in 2009 and after persuading me to visit their offices and that 2009 offered the best opportunities since market prices of bonds were very low due to post crisis general bad sentiment, I invested money with them on the basis that the managing director of the firm, would personally advise me on every move. 

Upon his advice, I invested in bonds of Wind Hellas, EFG Bank Hellas and IIB Bank (Russia), and consequently lost over €30,000. I later discovered these bonds to be junk bonds. The manager never explained the risks related to these bonds, but merely assured me that these represented big opportunities and I should trust in his guidance.

 

Wind Hellas III 2013 Bond

His clients held 8,290,000 nominal units in the 8.5% Senior Unsecured Hellas III 2013 bond issue, 2.34% of the total issue. He used to constantly provide me with this info to reassure me that I was not alone in this bond and that he never suggests risky bonds to a lot of people hence I should rest assured of his guidance. 

He bought these bonds at a junk price of just 5.5 ( nominal price of a bond is 100), however he managed to persuade his clients including me that this price was a market imperfection/abnormality and hence the opportunity of a life time as in few weeks the price will shoot back to its real place. 

What happened in few weeks’ time was that the company was sold in an auction during what in the UK is called a pre pack sale in court of bankrupted companies and this wiped off all subordinated bonds including ours. 

International Industrial Bank (IIB Bank) known as Mezhprombank in Russia

When I lost €21,000 in Wind Hellas which Mr Mangion described as a very unfortunate accident, I wanted to call it a day with investments but Mr Mangion reassured me, on a number of occasions, that my concerns were unfounded and that I should not sell the other investments I was holding.

More than that Mr Mangion advised me to purchase more investments especially the great opportunity being offered by Russia IIB Bank with its 11% Eurobond which had an incredible low market value of 25 when its normal trading was in the 90s.

He guaranteed me that this bond is secured and not subordinated so there is absolutely NO risk  of losing money but to receive the full nominal value of the bond within some months on maturity (hence quadrupling my investment). 

He was so sure of this that apart from showing me that even he personally invested in this bond, he also offered to loan me money free of interest so that I make a big profit on this and hence get back and much more the money I lost in Wind Hellas some weeks before. 

The end result is that this bank was declared bankrupt in 2010 (few weeks after my and other clients of MPM Investments in it) and all news releases are saying that there are no funds to be distributed to creditors as the owner of the bank defrauded the bank itself and took all funds/assets away from it.

Mr Mangion was contacted by this paper and replied:

“As a company we do not offer advisory services. We only offer execution only services. Our 500+ clients can prove this.

Unfortunately we have a particular client who owes us a couple of thousand euro for investments that he gave us through instructions by phone to invest, but had personal financial problems to settle it in time. We extended this settlement issue by a full year considering his personal situation. After waiting a full year we contacted this particular client to settle the pending debit balance. After many excuses we had no other option to file a court case against him to collect the debit amount. In fact we have a hearing next month.

This particular client transacted 26 times in 2 years with us. He is an Internal Auditor and is qualified as Professional Investor. In these 26 transactions, the client invested, among other things, in C rated investments while pocketing short term profits on short term moves.

From these transactions, two were closed at a loss. The Wind Hellas III was purchased by the client at a price of 5.5 cents (bonds mature at 100). He invested €10,000. This clearly showed the distress level of the bond. This same client added a further investment of €10,000 a week later at a lower price. We never gave an advice to the client to invest in this distress bond, especially at those prices. We have emails and Skype history to prove this. As the client insisted to invest in such investment, we executed the trade on his behalf. This was in July 2010. By July of the same year, the company went into administration and the client lost his investment. Since then, the client executed 14 more transactions with us.

With regards to Mezhprombank, kindly note that we never invested in Mezhprombank. This particular client had an investment with IIB Luxumbuorg. Again, the client bought this investment as an execution only basis. He managed to close his positions with no financial loss, thanks to our intervention. This happened in October 2010. Again we have emails and Skype messages as proof to persuade the client not to enter in such transactions.

Even as we work on an ‘execution only’ basis, we still helped the client to follow the respective court cases (Wind Hellas in the UK court, and IIB Lux in Russia). We still update him on their processes even if we are not bound to.

We fully understand that this person is trying to tarnish our reputation via your media and even filed a complaint with the MFSA. The MFSA dismissed his complaint immediately as it was clear that this person is taking these actions now (after three years) because of the court hearing of next month.

Kindly note than in 4 years we had never received a complaint by a client via MFSA.

All documents in our possession show that we tried our best to persuade the client NOT to invest in such risky ventures. We cannot be held responsible for the risks that this client opted to take.

 

HSBC Share Shop

On 30 April, this paper sent the following question to HSBC Bank Malta: “I have been told that HSBC Shareshop was selling bonds / shares in SNS Reaal up to the day when selling was suspended and people in Malta who invested there have lost everything.  Is this true? Your comment please.

An HSBC Bank Malta spokesperson replied: "As a matter of policy, HSBC does not comment on specific clients. Clients can identify and buy a number of bonds through HSBC, who source these securities from external regulated markets in order to fulfil client orders on an execution only basis."

Frans Faas, the Dutch investigative reporter, will be coming to Malta next week to meet HSBC disgruntled investors who lost money in the SNS Reaal bank in The Netherlands.

The bondholders meeting is scheduled to be held on Wednesday 15th at the Corinthia Palace Hotel, De Paule Avenue, Attard (starting time 7.30pm)

In a letter he sent to the Financial Conduct Authority of the UK, Mr Faas refers to Maltese investors in SNS through HSBC Bank Malta.

He wrote: “As chairman of the Bondholders Foundation SNS (Stichting obligatiehouders  SNS) I kindly draw your attention on/ask your assistance for the following.

Our foundation acts in the interest of (former) bondholders in SNS Reaal/SNS Bank who have suffered losses from the expropriation of subordinated debt (without compensation) in this Dutch bank.

Approximately 200 persons spread all over the world  have registered so far and their total loss amounts to €125 million. Among the participants are institutional as well as private investors. This e-mail concentrates on the problems of the latter and is caused by dubious business conduct of HSBC which will be substantiated below.

At first we were surprised that among the 200 participants there were more than 30 Greek private investors and after studying their stories we found out that they had all bought the SNS bonds through HSBC Greece.

An evaluation has led to the conclusion that there was a constant violation of MIFID-regulation and the simplest example from that is that these clients were told that the minimum face value of this bond was €50.000 (which forced them to invest a majority of their available funds, if not all, in this subordinated bond of the troubled Dutch Bank in a period (October 2012-January 2013) when the problems of SNS were already widely known.

[To avoid miscommunication, the €50.000 minimum face value is typical for the OTC market, not a market where retail investors normally trade and on Euronext, the regular place for  private investors, the bond was traded in multiples of €1.000].

We have therefore organized two bondholders meetings in Greece (31/3 and 28/4) and filed a complaint at the Hellenic Capital Market Commission (preliminary 1st of April,  definite 30th of April) whereby we grounded the violations of MIFID (a.o. appropriateness, suitability, best execution and conflict of interest) by HSBC which have not only led to the damage in the SNS case but might have a more widespread effect because of the apparent ‘expectation gap’ between what the bank thinks it services and the public thinks it receives. A copy of the complaints are available on request.

We have contacted HSBC in London but they considered it as a Greek problem and the communication with the legal counsel in Athens remained fruitless so we were forced to consider legal actions. A situation with incriminating features (predating of forms) is currently under investigation.

However, by coincidence we also discovered 183 victimised Maltese investors who we originally thought were all advised by an intermediate (All Invest) who is now winding up its business but after some publicity from our side approximately 20 clients from HSBC were identified and the same pattern emerged (minimum investment €50.000 etc.).

For reference purpose I would like to point out that the other Maltese investors who were serviced by All Invest were able to invest substantially lower amounts (i.e. €15.000 on average).  We have therefore decided to organize a bondholders in the week starting May 13th in Malta and have informed the Maltese Financial Service Authority (MFSA).

While we have made good progress in our own research, we also have to realize that the impact of our conclusions might be beyond the original scope of our foundation and therefore also of interest to other regulatory bodies.

In this specific situation we have therefore decided to inform you because HSBC has its headquarters in the UK and the perceived counterparty in the SNS Bond transactions on the OTC market in Malta is Rothschild (which is also UK based according to my information).

Our specific question is therefore whether the FCA sees for itself a role to play in this specific case, how our foundation could assist you in this process and how the FCA could help us in achieving our goals.

Mr Faas told this paper: “We see various opportunities to help people get – part of – their money back and the subordinated character of the bond does not prevent that. Parties that have played a questionable role are:

A. The Dutch State/Ministry of Finance who by abusing their power and misinterpretation of the Intervention Act expropriated on false ground and by using incorrect information on the financial position of SNS deliberately downplayed the value of SNS so that that could offer a compensation of 0.

B. The Dutch Central Bank who ostentatively failed in their regulatory role and when they have realized that, took a panic action by threatening to withdraw the bank permission of SNS which was totally unnecessary.

C. The former Management of SNS that overestimated the competences of the company which leads to a disastrous take over of a large real estate company and after they have realized that cooking their books in order to prevent the market to discover that.

Furthermore the expropriation and the compensation of 0 can be challenged at the European Court of Human Rights which has in at least 2 cases raised a verdict in which people from abroad were given extra protection against expropriation.”