Issue link: https://maltatoday.uberflip.com/i/188841
14 BUSINESS & FINANCE maltatoday, WEDNESDAY, 9 OCTOBER 2013 Investor temptations-to risk or not to risk W George Mangion hen individuals invest they do so in the hope of obtaining a return on that investment decision. Therefore they pitch their expected return against the ever-present risk factor and wait for the actual return, which they hope will leave them with a profit. Risk fluctuates according to the financial instrument and in no case is it constant; sometimes reaping a profit and other times reaping a loss. Additionally, it is a common denominator that investing in financial instruments is not the field for bargain hunts but rather a field for calculated risk played out. But far from the big corporate players trading in high risk stocks and shares in nanosecond time, pension and life investment conjure up images of far less volatile investments with lower risk investments made with reasonable expectation of return. However, while popular with retail investors largely for 'combining fear and hope in one package' a retirement fund is not a guaranteed income investment and risk of loss is still present since while 'the financial engineers who put together the guaranteed-incomefor-life products did a good job, 'in this imperfect world there's still no such thing as the perfect risk-free investment' (Duncan Hood). As cries of 'caveat emptor' ('let the buyer beware') echoed through history, the tables started to turn when it became obvious just how wide the rift in inequality between the buyer and seller was. This power struggle was most notable in the financial sphere, lending itself to more enhanced efforts at investor protection and ultimately translating into tones of 'venditor emptor' ('seller beware'). The investors who placed their savings in the ARM fund held bonds, which rank among the low-risk products that guarantee a return. However right now, the same investors have been stripped of nearly all hope that they will ever see any return at all as the fund goes into liquidation. The Luxembourg ARM fund was suspended in November 2011, subsequently refused a license grant by the Commission de Surveillance du Secteur Financier (CSSF) and recently ordered into liquidation proceedings. This is not a result of bad financial climate or the product performing badly, but rather the medium itself which was brought to a halt. So while risk typically stems from the fund not performing well, there are other risks that could materialise. It was argued by many that placing the fund into liquidation was not in the investors' interest, however the Court still sealed this damning verdict. Where does this leave the investors? It is being purported by Bob Sharpe – leader of ARM Help – that the biggest detriment ensued from the length of time for which the fund was suspended by the Luxembourg regulator before a decision was taken. Does the causal link between the regulator's delay and the detriment of investors go unnoticed and without remedy, or could a founded case be made? The Luxembourg Financial Services Compensation Scheme ruled in February that there was no civil liability in independent investment firm Rockingham's advice to investors who were counselled into placing their money in the ARM fund and that it therefore could not uphold any such investor claims made. This decision the FSCS based on the premise that the loss suffered by investors was caused not by the bad advice given to them but by the failure of ARM to be awarded a license. In June this decision of refusal was to be re-visited after new evidence was admitted. In June 2013 ARM marketing firm Catalyst was placed in default, allowing claimant investors to seek compensation under the FSCS. Currently, the investors are being told that their return will have to wait until the liquidator appointed determines legal ownership of assets remaining, hardly the hoped for result when making their initial investment. Back to Malta, one cannot omit to mention the La Vallette Multi-Manager Property Fund case from 2011 that saw investors who were deemed inexperienced receive compensation of €1 for every unit invested in January this year. As the claims keep mounting, the case has recently been given a political Hail Mary whereby wronged investors were given the new governmental administration as its knight in leading battle against the local bank for compensation. An interesting document has come to light entitled 'Settlement Agreement' and dated 18 January 2012, which was quoted on local media. Before the date of this Agreement, the MFSA had already expressed itself in the clearest possible manner that Valletta Fund Management had failed to observe the investment restrictions of the prospectus of the La Valette Property Fund, that Bank of Valletta had issued clean custodian reports based on the their interpretation of the Prospectus' Investment Restrictions. Observers lament that both VFM and BOV had failed to exercise oversight and monitoring over their delegates. This is not to forget that one of the directors of the fund was found to have withdrawn shares from this Fund when in possession of sensitive information. Bank of Valletta was later found to have practically breached the rules of investment services licence holders in mis-selling the Property Fund. VFM and BOV were fined over €600,000 yet ostensibly, such a director was given a reprimand for what can be alleged insider dealing when seen in the light of other revelations about the above mentioned agreement signed between the ex-chairman coterie of friends dated 18 January 2012. After MFSA's damning conclusions subsequent to its investigations, any SICAV director would have left no stone unturned to make sure that they would sue whoever was responsible for risking away the Sicav investors' money entrusted with them. Now the media revealed that in fact the management (top political appointees) signed an agreement that contains a number of unilateral declarations that they have done nothing wrong. VFM, BOV and the directors of the Sicav declared that they have "at all times acted honestly, in good faith and in accordance with their legal, contractual, statutory and fiduciary obligations". The beauty of all this that a government- controlled bank has in the recent past fully indemnified top management (no general fell over his sword) for damages and court expenses not only the SICAV but also all the directors of the La Valette Funds Sicav in their personal capacity. Hence Bank of Valletta headed by its own coterie of advisors have quietly indemnified each other and the case is now dead and buried while the protagonists all happily get appointed on other boards in the private sector. While Rome burns, the Roman consul plays the harp and ordinarily investors lick their wounds in silence. To conclude: is the local investor adequately safeguarded by the regulators when one reads about such cases of Arm fund and La Valette fund (not to mention the hapless buyers of travel vouchers in the Fantasy Tours collapse… now in court-led liquidation)? The saga of investment temptations continues unabated. gmm@pkfmalta.com George Mangion is a partner in PKF an audit and business advisory firm LIKE POLITICS? Join our staff reporters in parliament TODAY under the MaltaToday internship programme * Get up close to Malta's decision-makers * Learn more about the legislative process * Get introduced to the world of journalism by shadowing and assisting our reporters * Successful interns will receive letters of recommendation INTERESTED? Send a one-page letter of interest and CV on email mvella@mediatoday.com.mt - only shortlisted candidates will be contacted maltatoday