The parties responsible for alleged manipulation in the financial disclosures of some companies willing to go public still remain out of the regulator's net, as the stock market watchdog is trying to shift its responsibility to others for such acts, experts and stakeholders said.
According to them, the regulator cannot skip the responsibility of taking actions against the 'manipulators' just depending on the statutory requirement: "The company and the issue manager shall ensure due compliance with all statutory conditions and the Bangladesh Securities and Exchange Commission (Public Issue) Rules, 2006."
The parties who are mainly involved with the process of submitting window-dressed balance sheets include issue managers and auditors.
The criticism of the securities regulator became stronger after a packaging company was allowed to raise funds allegedly by submitting doctored accounts.
On the other hand, the Dhaka Stock Exchange (DSE) has said that their opinion on the financial disclosures of some companies, whose IPO approvals came under heavy criticism, was negative.
The DSE earlier used to submit its observations prepared by its expert panels on the companies, which submitted IPO proposals.
But later the DSE abolished its expert panels as the securities regulator allegedly did not take into account their observations.
"The DSE was sceptical about the revenue earnings of a company. Investors' hassles could be avoided if the regulator considered our suggestions," said a DSE official.
Depending on the clause mentioned in prospectus, the Bangladesh Securities and Exchange Commission (BSEC) on several occasions in the part tried to defend the claims of not taking measures against the issue managers and auditors responsible for submitting doctored financial disclosures.
"We have to depend on the certificates of issue manager and auditors while approving the IPO (initial public offering) proposals," said Mohammad Saifur Rahman, a BSEC executive director.
On the other hand, the Section 18 of the Securities and Exchange Ordinance, 1969, has said, "No person shall, in any document, paper, accounts, information or explanation which he is, by or under this Ordinance, required to furnish, or in any application made under this Ordinance, make any statement or give any information which he knows or has reasonable cause to believe to be false or incorrect in any material particular."
As per the Merchant Banker and Portfolio Manager Rules, 1996, a merchant bank involved in the management of an issue will provide all matters and due diligence certificate for the issuer company, willing to go public, to the Commission.
And the BSEC will cancel the licence of an issue manager for providing false information to the commission.
The licence of an issue manager will also be cancelled by the Commission if it is convinced that the issue manager has worked against the interest of the investors, the rules said.
When asked who will be responsible for the companies' non-compliance, Mizanur Rahman, an associate professor at the Department of Accounting and Information Systems of Dhaka University, said some issue managers and the auditors are the beneficiary groups of the IPO process.
"That's why it's not logical to depend only on the jobs of issue managers and auditors only, without ensuring punishments against those responsible for inflated disclosures," Mr. Rahman said.
He said in no way the regulator can avoid its responsibilities by showing the clause which states the responsibility of issue managers and auditors.
"This kind of clause will not survive if it is contested in the court as the regulator is the ultimate guardian of the investors and the market," Mr Rahman added.
The former president and incumbent director of Dhaka Stock Exchange (DSE) Shakil Rizvi said many companies were shifted to the OTC (over-the-counter) market in 2009 because of non-performing status.
"But the issue managers who were behind the IPO proceedings of such companies did not come under scrutiny," Mr Rizvi told the FE.
Echoing Mr Rizvi, another former DSE director Hanif Bhuiya stressed making public the names of the issue managers who had brought faulty issues since the inception of the capital market.
"Issue managers never turn down the companies which go to them for going public with poor fundamentals. Moreover, the issue managers suggest the companies on how necessary documents will have to be prepared to get regulatory approval," Mr Bhuiya told the FE.
He said the securities regulator makes public the names of the stock brokers responsible for wrongdoings.
"We welcome the pattern of such regulatory actions against the stock brokers and dealers responsible for wrongdoings. But the question is that why such a pattern will not be applicable in the case of issue managers and others," Mr Bhuiya added.
Mohammad A Hafiz, former president of Bangladesh Merchant Bankers Association (BMBA), has supported the opinion of the bourses' leaders stating that an issue manager must face music for bringing bad issues to the market.
"Apart from my community, I urge the securities regulator to ensure proper punishment for bringing the issues whose ultimate destination will be the OTC market," Mr. Hafiz told the FE.
When asked whether the securities regulator took stern actions against the issue managers responsible for submission of faulty accounts, the BSEC officials said in one or two cases actions had been taken against the issue managers.
"The rouge auditors are also another party submitting fabricated financial disclosure of a company willing to go public. That's why the regulator and Asian Development Bank (ADB) have proposed the formation of Financial Reporting Council (FRC)," said BSEC Executive Director Mohammad Saifur Rahman.
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