The stock market watchdog has ordered a further investigation into Shahjalal Equity Management to substantiate preliminary findings that the issue manager failed to raise the alarm when ACME Pesticides raised public funds using fabricated financial statements.
Based on the findings, to be reported within 30 working days from the issuance of the order on Sunday, the securities commission may cancel the licence of the merchant bank.
The move signals a tougher regulatory stance to ensure the accountability of merchant banks in the IPO (initial public offering) process, particularly regarding disclosure standards.
The Bangladesh Securities and Exchange Commission (BSEC) last year identified serious fraud in the IPO documents of ACME Pesticides. In its order, it said the preliminary evidence involved violations of relevant securities laws, including the Dhaka Stock Exchange (Listing) Regulations, 2015, and the Securities and Exchange Ordinance, 1969.
The allegations include failure to ensure due diligence and the submission of false statements in the IPO prospectus.
The BSEC said it had already taken a decision in principle to cancel the registration certificate of the merchant bank, subject to the findings of the investigation.
The probe will examine the firm's latest receivables and payables, assets and liabilities, and any other compliance gaps.
A three-member committee, led by senior BSEC officials, has been formed to conduct the inquiry.
Shahjalal Equity Management was also the issue manager of Dominage Steel Building Systems and Asiatic Laboratories Limited.
The Dhaka bourse found that one of the factories of Dominage Steel had been closed for several months. This prompted the securities regulator to extend the lock-in period by at least three years on the shares held by sponsors, directors, and placement holders.
The same regulatory action has been taken against Asiatic Laboratories, amid fears of shareholders' intention to offload shares at inflated prices following the publication of "unrealistic" price-sensitive information (PSI).
Earlier, the securities regulator forwarded its findings on the IPO of ACME Pesticides to the Anti-Corruption Commission (ACC) to take action against its top bosses, allegedly for receiving the company's placement shares without paying money.
According to the IPO prospectus, ACME Pesticides claimed to have raised Tk 1.2 billion through placement shares issued to a number of companies and individuals, including controversial revenue official Matiur Rahman. Of the total, Tk 800 million was reported by the company to have been invested in land development, infrastructure, and working capital.
However, an inquiry committee formed by the Commission after the 2024 political changeover discovered that the placement shares had been issued without charging the shareholders any money.
Despite this, the company showed funds purportedly raised through the placement shares in its financial statements and adjusted the figures in its bank records, raising serious concerns over the manipulation of financial data.
Sources familiar with the probe said the company's Managing Director Reza-ur-Rahman Sinha, at a hearing, said the top brass had forcibly taken control of the company's bank account credentials and manipulated statements to show fake inflows from placement shares.
Officials likely to face ACC action include Chairman Shanta Sinha, directors Ahsan Habib Sinha and KM Heluar, CFO Selim Reza, and Company Secretary Sabuj Kumar Ghose.
The placement shareholders under scrutiny include individuals and entities - Md. Afzal Hossain, SK Trim & Industries, Matiur Rahman, Bikrampur Potato Flakes Industries, Tafazzaal Hossain Forhad, Javeed A Matin, Bengal Assets Holdings, Chittagong Pesticides & Fisheries, Heritage Capital Management, NRB Equity Management, Anjoman Ara Begum, Brig Gen Sheikh Mohammad Sarwar, Touhida Akter, Md. Ruhul Azad, and Ranu Islam.
Under securities rules, placement shares are subject to a two-year lock-in period. As ACME Pesticides was listed in November 2021, the restriction expired in December 2023-raising the possibility that such shares may already have been offloaded.
Moreover, although the company collected Tk 300 million through the IPO for construction, loan repayment, and machinery acquisition, it reportedly did not repay loans taken from a non-bank financial institution. Instead, it placed the IPO proceeds in fixed deposits and secured further loans against those funds, prompting legal action to block the money.
The BSEC has also decided to initiate enforcement action against the auditor, Shiraz Khan Basak & Co., for failing to reflect the company's true financial condition, while the Financial Reporting Council is expected to examine the role of Shafiq Basak & Co. regarding disclosure lapses.
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