Paul Bonello of Finco Treasury Management Ltd yesterday hit back at the results of an investigation by the Malta Financial Services Authority into the La Valette Property Fund, after Bank of Valletta announced the MFSA’s investigation had not found evidence confirming accusations that bank staff or people close to it redeemed their shares on the basis of insider information before the fund was suspended in August 2008.

But Mr Bonello, who yesterday afternoon received a full copy of the MFSA report, points out that the MFSA has “confirmed that BOV staff did ‘decide to redeem their shares from the Fund during the months prior to the suspension of the Fund’s units on 8 August 2008. So the redemptions did take place as a matter of fact”.

The MFSA report, he adds, says that from “its investigations it resulted that 72 per cent of BOV Group staff/officials who held shares in the Fund as at 1 April 2008 did not redeem such units prior to the suspension of the Fund’s units on 8th August 2008. The remaining 28 per cent were the main focal point of this part of the Authority’s investigation.”

Bank of Valletta issued a press release claiming victory in the long, drawn-out saga but, according to Mr Bonello, it had only quoted selected excerpts from the MFSA report of 19 January.

The MFSA, he points out, actually made the following two findings:

“The Authority’s investigation did not reveal any evidence to substantiate the claim that BOV staff or persons connected to them used confidential information as a basis for their decision to redeem their shares from the fund prior to suspension of redemptions that took place on 8 August 2008.”

“The MFSA also examined the redemptions by a member of the Board of the La Valette Sicav of 72,099.089 shares in the La Valette Property Fund which were disposed of in 2008, at a price ranging between €1.1429 and €1.071,” Mr Bonello cites.

The Authority concluded, “it resulted that at the time of the director’s redemption of units in the Fund, the director concerned had become privy to material non-public information regarding the Fund. The Authority concluded that the director was in breach of the Articles of Association of the La Valette Funds Sicav and Article 136A(1) and Article 136A(3)(b), (c) and (d) of the Companies Act.

“The Authority said the La Valette Property Fund is not a listed company and consequently the provisions of the Prevention of Financial Markets Abuse Act 2005, including the sanctions therein, do not apply to the Fund’s operations,” he adds.

But after the MFSA reprimand of the director in question, John Ripard, on 19 January, it was reported in the media that the BOV chairman had distanced himself completely from Mr Ripard, saying that, “John Ripard is not, and has never been, a member of the Bank of Valletta board, management or staff”.

Mr Bonello quotes from the news report: “Mr Chalmers spoke of the other accusation that there were people privy to privileged information. He was emphatic when he said that this was absolutely not the case. Chalmers also commented on the spurious references to a Sicav director of unimpeachable integrity who had in fact disclosed in the annual report in 2008 that he had redeemed his funds. This kind of attack is irresponsible.”

“At the time of that June 2011 interview, Mr Chalmers was solidly behind Mr Ripard, and the bank still is,” Mr Bonello charges. “No amount of sophism or splitting of hairs will change the substantive fact that John Ripard is a Bank of Valletta associate, body and soul, and a director of the Sicav. And Finco Treasury Management Ltd’s reference to the MFSA of allegations of improprieties in effecting withdrawals included the SICAV director in addition to other related and connected persons.”

Finco also flags a number of inconsistencies in the report. For example, Mr Bonello questions, “Why did the MFSA use 1 April as the watershed date when Finco Treasury Management Ltd had brought to the attention of the MFSA that Belgravia European Property Fund Ltd Audited Accounts as at 31 December 2006 were published in January 2008?

“These Financial Statements were shocking in that they revealed a steadily worsening gearing and trading situation. A very negative serious picture emerged. The writing was very clearly on the wall! It must have dawned on some readers of these Financial Statements that the two other sister Belgravia companies (Belgravia European Logistics and Belgravia IFN China) whose Audited Accounts had never been published since formation could not be in much better shape.”

He also suspects that it was “with effect from January 2008 that the withdrawals increased substantially and that we suggested, in writing, that the MFSA should, in our humble opinion, commence the investigation”.

The MFSA’s methodology

In carrying out its investigation, Mr Bonello said yesterday, that although the MFSA conclusions refer to “staff or persons connected to them”, “nowhere in the report does it result that the MFSA investigated any redemptions made by favoured clients who were tipped off by bank officials, nor of the methodology used to ascertain who were the family members of the BOV Group staff, especially close relatives and those living in the same household.”

A proper investigation of this type of impropriety looks out for glaring circumstantial evidence, Mr Bonello insists. “Such as for example the over €16 million of withdrawals in 10 months from the La Valette Property Fund, being 16 times the value of the redemptions made in two years from the competing and local HSBC Property Fund, leading one to think that the psychological DNA of Maltese BOV investors is completely divergent and alien to the HSBC Maltese investors as if they had an altogether different culture.

“Having found prima facie circumstantial evidence, it should then be for the Economic Crime Police Unit and the Courts to assess the culpability or otherwise of prima facie cases.”

Mr Bonello says that Finco Treasury Management assisted in the provision of potential evidence of cases where third party investors alleged that they had knowledge of bank staff who were “exhorting their prime clients and friends and relatives to sell”.

He says, “One of them made a declaration on his signature, mentioning names on 22 December 2010 and sent it to MFSA. This investor never heard from the MFSA. In May 2011, when I read his allegations during a public meeting without mentioning names, this brave man stood up and assumed paternity for that statement. Still the MFSA did not ask him in for discussions. In August 2011, he signed a sworn affidavit and sent it to the MFSA. They had still not spoken to him by 3 November 2011 when they announced that they would be publishing their report on the investigation of misuse of information imminently.

“It was only because the next day the client’s legal adviser wrote to the MFSA and brought this to its attention that, in the last few weeks, the MFSA has invited this whistleblower from Dingli to their office, at first telling him to attend unaided by his legal adviser, although they then made a ‘concession’ to have him accompanied by his legal adviser.

Finco, Mr Bonello said yesterday, has repeatedly reminded the MFSA to investigate the mispricing of net asset values.

He said yesterday that, “It is evident that the MFSA report has not considered the very important aspect of the indicative valuations of properties and incorrect net asset value prices of the underlying companies, and the resultant net asset value per price on the basis of which 2008 redemptions were made.

“Finco Treasury Management Ltd believes that this aspect must still be investigated, because if these strong suspicions are confirmed, one has to see how the MFSA proposes to apply the legal instruments in the field of fiduciary and trustee law in order to trace money in case of unjust enrichment and to compensate innocent investors.

The September 2008 Audited Accounts of La Valette Sicav were qualified by external auditors PwC because a number of underlying funds were suspended and the fair valuation of these funds was not possible or available to the Sicav. These investments were carried in the balance sheet at practically similar prices to how they were valued in the interim accounts as at 31 March 2008.

The implication, Mr Bonello says, is that “redemptions between January and 7 August 2008 continued to take place at over-inflated property prices and resultant net asset prices, and redemptions were thus made at between €1.07 and €1.14 per share.

“The real net asset price of the La Valette Shares should have been calculated on objective valuations and accurately, or else if this was not possible in 2008, then all redemptions from the Fund were to be suspended immediately in early 2008 without leaving a free-for-all for eight months. As it happened, those who managed to withdraw the funds, innocently or not, had a bumper profit because they got €1.14 to €1.07 instead of a much lower revalued effective realisable price of €0.28 when it would start trading again.

“In the months after suspension of the redemptions, all chickens came home to roost, corrections were made to the carrying value of the property and there were very heavy losses every year in the La Valette Property Fund, most of which losses occurred earlier but were recognised later.

“The La Valette Property Fund, in its suspended state, continued to take periodical knocks in mark-downs of fair value of properties, with the end result that a series of underlying funds of the La Valette Property Fund costing over €52 million were reduced to €14 million − a loss of €38 million.

“The larger part of the €16 million withdrawn from the fund two years earlier resulted in an unjust enrichment for those who withdrew their shares, with the sacrificial lamb being the investors that remained in the Fund who effectively paid for the over-pricing in the net asset value per share of 2008.”

“Made simpler, a classic case of robbing Peter to pay Paul.”