Regulator finds 68 brokers guilty of siphoning money

Six of them yet to adjust consolidated account deficits of Tk 2.5b

Mohammad Mufazzal | Sunday, 22 January 2023

On a fine Monday morning in June 2020, investors discovered that the owner of Crest Securities Md Shahid Ullah absconded with Tk 420 million from the funds of its clients, having shut the brokerage firm.
The money was withdrawn from the account known as consolidated customer account (CCA) opened with a scheduled bank in the name of the stock broker.
Investors' money usually goes to one such account of the brokerage firm that they deal with for share transactions. The firm uses the money deposited by a client against their BO (beneficiary owner's) account to purchase shares.
The embezzlement was followed by stringent actions by the securities regulator in March 2022, including an end to the dividend payments to brokers against their holdings and to quota facility in initial public offering.
The Bangladesh Securities and Exchange Commission (BSEC) also intensified monitoring.
While examining data of consolidated accounts between February 2022 and early January 2023, it found that as many as 68 brokers siphoned money from their consolidated accounts through illegal means resulting in a deficit of Tk 4.34 billion.
The penalties forced 62 brokers (Trading Right Entitlement Certificate holders) adjust their account deficits.
Six brokerage firms have yet to adjust Tk 2.52 billion in their consolidated accounts.
How did the embezzlement happen?
Crest Securities presented forged records of share transactions against 22,000 BO accounts of its clients to the securities regulator and the investors while moving away cash from the consolidated account.
The illegal act was repeated twice in 2021 by two other firms -- Banco Securities and Tamha Securities.
Before 2021, the stock brokers had the scope of withdrawing funds from the consolidated accounts through cash payee cheques.
The unscrupulous stock brokers used cash payee cheques to remove money from consolidated accounts for their own purposes.
Many of the brokers received funds from clients but did not deposit those into the consolidated accounts. There were incidents when brokers purchased securities using clients' money for their separate accounts keeping clients in the dark.
The mismatches in the accounts came to light when the stock exchange and the securities regulator found deficits in the accounts. In other cases, clients failed to purchase securities even after depositing money against their BO accounts with vouchers issued.
BSEC's response
The regulator issued an order that no broker would use cash payee cheques from February 25, 2021 onwards. Alongside, it began looking into the transaction records against consolidated accounts.
Upon finding deficits in 68 brokers' accounts, the BSEC also stopped renewal of the brokers' licences and suspended "depository participant" licences, needed to participate in day-to-day transactions, for as long as they fixed the problems.
The regulator said the brokers would not get dividends and would not enjoy quota facility in IPOs, repeat public offering (RPO), and qualified investors offer (QIO).
Facing the measures, the brokers adjusted the deficits in their accounts, except for six firms.
Requesting anonymity, a senior official said the Dhaka Stock Exchange lifted the restrictions for those after collecting bank statements and scrutinising the consolidated accounts.
What's next?
Claims of around 25,000 clients are yet to be dissolved by three brokers -- Tamha Securities, Banco Securities and Crest Securities.
Insiders said the matter could not be solved with the brokers' assets only. Their property includes broker license and the stakes at the exchange and dividends kept held with the DSE.
The assets of the brokerage firms declined significantly after the 2010-11 stock market debacle. Now it is not possible to settle the clients' claims selling the brokerage firms.
A DSE official said investors' claims cannot be settled with the assets of Crest Securities.
DSE Managing Director M Shaifur Rahman Mazumdar said the DSE had realised Tk 90 million from Tamha Securities by selling its assets. "We are trying to realise money from Crest and Banco securities."
Another DSE official said the securities regulator had appointed a third-party auditor to assess the assets of the three stock brokers.
"The settlement of the claims is not possible without confiscating the properties of the brokers."
BSEC spokesperson Mohammad Rezaul Karim reassures that presently there is no scope of deficits in the consolidated account as the regulator and stock exchanges have intensified monitoring.
Most of the deficits detected recently resulted from misconducts that took place long ago, he said, adding no one would get away with embezzling investors' money and shares as further strict measures would be put in place in the days to come.
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