An 84-year old man suffered an injury at work when he was just 27. After battling in court for 10 years, he was awarded €150,000.

At first he intended to invest them in government bonds, but he was persuaded by the bank to invest them in what are called Preferred Perpetual Securities.

He now stands to lose the bulk of his investment.

A couple sold their restaurant to buy a home but were persuaded by the bank to invest them in these Preferred Perpetual Securities. Now they too stand to lose most of their investment.

Paul Bonello, Managing Director of Finco Trust, yesterday gave these examples as yet another example of how people have been hit by misplaced investment advice from Bank of Valletta’s investment managers.

Mr Bonello was speaking at a press conference at the Phoenicia Hotel in which he updated people on his many-year tussle with the bank regarding the investments in the La Vallette Property Fund.

Yesterday, he also added another ingredient to his barrage of charges against the bank and this time more against MFSA.

Towards the end of his press conference, Mr Bonello gave fulsome praise to Simon Busuttil. He had sent a report on his complaints to the prime minister but received no reply.

Then he contacted Dr Busuttil who investigated the matter. Mr Bonello read from a letter Dr Busuttil sent to the prime minister and Minister Tonio Fenech in which Dr Busuttil said these are people who have lost all their life’s savings. It is difficult, he wrote, to understand why MFSA does not take the legal action it is entitled to take by law to redress these injustices.

Mr Bonello also praised the Labour Party, especially Dr Joseph Muscat and Evarist Bartolo for helping highlight the issue and defending the small investors.

 

 Preferred Perpetual Securities

Mr Bonello spoke first about the issue of Preferred Perpetual Securities. These investment vehicles should only be handled by really expert persons. They are marked as being ‘high risk’ investments but they are sold by BOV as straight bonds.

In the last few years, Finco has submitted a very substantial number of claims for compensation against Bank of Valletta on behalf of clients on the grounds of misselling and breach of MFSA investment regulations when BOV had sold, amongst others, Lehman, RBS, HBOS, Lloyds and Barclays perpetual securities.

These perpetual securities consist in complex, high risk, non-cumulative, irredeemable preference shares that were sold to inexperienced and retail members of the public by Bank of Valletta in a manner that, in the words of the MFSA, “had fallen short of its obligation to be fair, clear and not misleading” as clients were led to believe that these were straight non-subordinated bonds.

Some of these perpetuals have lost all value, such as those of Lehman, whilst others have suffered very substantial reductions in market value, and others have suspended the payment of the dividend.

On 5th January 2012, the MFSA announced it had imposed an administrative penalty of €175,174 on Bank of Valletta after it had established that BOV had:

 “(i) failed to act with the level of care and diligence required of licence holders in order to ensure that the investment advice provided is appropriate and suitable given the customer’s particular circumstances; and

 (ii) failed to take all reasonable steps to ensure that a client has sufficient information which he is able to understand to enable him to take informed investment decisions”.

The MFSA also deals with the individual complaints on a case by case basis.

After an intensive exchange of correspondence between Finco on behalf of the complainants, Bank of Valletta and the MFSA, the MFSA has now concluded and determined a large number of such individual complaints in which the MFSA found in favour of the individual investors and whereby “the Authority recommended to Bank of Valletta to put you in the same financial position you were before you invested in these perpetual securities”, which the Authority explained in layman terms to mean “the repayment of  the capital originally invested as well as an equitable rate of interest for those years during which the complainants did not receive the expected income distributions”. 

The Authority continues to add in each letter of determination that “our recommendation to Bank of Valletta is clear and unequivocal” and the “documentation provides robust evidence in favour of investor”. 

However, the MFSA adds that “in spite of the strong case in favour of the investor, Bank of Valletta has not accepted the Authority’s recommendation, nor does it appear open to the possibility of taking any positive steps to accept the Authority’s recommendation to restore you to your financial position prior to the investment”.

Most of the victims in whose favour the MFSA has found are elderly citizens in their seventies and eighties, including one investor who is 97 years old, none of whom are financially knowledgeable.   

In spite of the benevolent impression given by the new bank  chairman in his interview to The Sunday Times of the 30th September in which Mr Mifsud Bonnici expressed the desire to come to  a negotiated settlement of this issue, Bank of Valletta continues to refuse  to honour any of the MFSA numerous recommendations. 

Bank of Valletta has stated that: “The bank is aware that these complaints have been investigated by the Consumer Complaints Manager of the MFSA.  You seem to imply that the outcome of this investigation should have a bearing on the bank’s own view of the merits of each complaint.  The bank strongly disagrees with any inference of this nature…  the bank has viewed and continues to view the recommendations made by the MFSA merely as opinions expressed by the Consumer Complaints Manager.  The bank does not consider any of these recommendations as binding”.

Mr Bonello said the MFSA has inexplicably failed to make use of the powers granted to it in terms of Article 21(3) of the Investment Services Act whereby, having ascertained that a service provider – such as Bank of Valletta - has “failed to comply with … Investment Services Rules” which has caused “an investor to suffer loss or has been otherwise adversely affected”, may apply to the Civil Court to “order that person responsible for the contravention to pay into court such sum as appears to it to be just having regard to the extent of the loss or adverse effect, and order such sum to be paid out as the court may direct to the persons who have entered into transactions as a result of which losses or adverse effects have been suffered”. 

Such recourse to the courts by the MFSA would spare elderly and inexperienced members of the public the trauma and expense involved in lengthy conventional court litigation, with the real risk that such senior citizens will not outlive the timelines normally involved in court litigation.

Finco considers that such recourse to the courts by the MFSA is more than ever opportune in these circumstances where the MFSA has established that the breach of Investment Services Rules does not constitute some isolated case, and where the offending bank – whose largest shareholder is the government that also appoints its chairman - refuses to honour the recommendations of the regulator.

Moreover the MFSA fails to explain its motivations for the exercise of its discretion not to use its statutory powers, which failure constitutes a direct affront to the legitimate expectations of Maltese citizens in the European Union that a public authority should exercise its statutory discretions reasonably, transparently and accountably.

As to the amount invested through BOV, Mr Bonello said that in the case of Lehman Brothers alone, the bank held €61 million. He asked who was it who bought these investments. Besides this, there are other investments in other banks with problems.

 

 

The La Valette Multi Manager Property Fund

 Finco would like to update those clients who “accepted” the bank’s  Conditional Offer of 26th May 2011. 

Finco does not comment on those cases of clients who have not accepted the offer and have commenced judicial action and these comments do not apply to those cases.

Finco continues to insist that the MFSA Directive of the 1st June 2012 does not do justice with the investors. 

It was the MFSA itself that has established and reported in detail that:

- Valletta Fund Management “wrongly applied the investment restrictions in the Prospectus” and of having failed “to property monitor its delegates including Insight Investment Management”;

- Bank of Valletta as Custodian “wrongly applied and wrongly monitored the application by others of investment restrictions in the Prospectus” and of having “failed to make accurate reporting in the Fund’s annual financial reports” for many years in succession;

- Bank of Valletta as a sales intermediary agent committed gross mis-selling practices. 

In such circumstances, the proper remedy was a total refund of capital invested (well above €1 per share) plus interest, and not an arbitrary Salomonic justice of €1 per share, Finco said. 

Moreover the distinction between experienced investors and non-experienced investors on the basis of whether an investor entered into $50,000 transactions or not is altogether artificial and does not address the substantive issues of who is an experienced investor or not. 

The exclusion of execution-only investors from the benefit of the directive is likewise mistaken because the MFSA did not make a substantive assessment of whether these execution-only sales were an abusive practice or not.

Mr Bonello fulminated against the use by the bank of declaring a legal action against it as having run out of time. This (preskritta) option is used in the Criminal Courts but should not be used by the bank, and certainly not against elderly persons who are not conversant with the practice of the law, he said.

As in the case of perpetual securities, in spite of the impression given by the Bank Chairman in his Sunday Times interview of the  30th September, there has been no concrete step or proposal from the Bank to find a negotiated solution to this dispute.