The securities regulator has initiated enforcement action against Dutch-Bangla Bank Ltd. (DBBL) over what it described as a conflict of interest linked to a plan to purchase a multi-storied building.
On August 26, the bank's board of directors decided to acquire a 21-storey commercial building in Motijheel, Dhaka, with a total floor area of about 207,340 square feet, at a cost exceeding Tk 10.16 billion.
DBBL subsequently sought approval from the central bank, stating that the building would be used as its corporate head office.
After disclosure of the board's decision, the Bangladesh Securities and Exchange Commission (BSEC) sought details of the proposed transaction through the Dhaka Stock Exchange (DSE). The market regulator learned that, if executed, the deal would involve a related-party transaction, as the building is owned by the parents of the bank's incumbent chairman.
The property belongs to the wife of M Shahabuddin Ahmed, the bank's founding chairman, and the mother of Sadia Rayen Ahmed, the current chairman of DBBL.
"The bank's price sensitive information (PSI) did not mention anything about such a related-party transaction. It's a serious violation of insider rules," said BSEC spokesperson Md Abul Kalam.
Companies often incur losses in such transactions due to overpricing of assets for the benefit of property owners, he added.
Following similar malpractices by several companies, the securities regulator revised the definition of PSI in 2022. The revised definition includes unpublished information indicating a company's financial position, performance or asset value, as outlined in regulations such as the BSEC (Prohibition of Insider Trading) Rules, 2022. These rules require companies to establish policies for identifying and disclosing such information.
"The BSEC has already sent the matter of the bank's inter-party transaction to its enforcement department, and the regulator will take measures in line with the rules," Kalam said.
He also said the central bank was unlikely to allow the bank to purchase the building, as the BSEC had raised concerns over the issue in a letter sent to Bangladesh Bank (BB) in October.
Businesses are weakened by inter-party transactions that are executed at the expense of companies for the benefit of individual owners or related parties, and there have been many such instances in the past.
"That's why the securities regulator will summon bank officials to a hearing to hear their explanations," the BSEC spokesperson said.
In its letter to the central bank, the BSEC said the bank's PSI had failed to inform shareholders and investors about the related-party nature of the transaction, as required under the Prohibition of Insider Trading Rules, 2022.
The omission constitutes a serious breach of disclosure obligations and raises questions about transparency and potential conflicts of interest, thereby undermining the principles of good governance and investor protection in the capital market.
"That's why the securities regulator has started an enforcement proceeding against DBBL and the responsible persons of the company" under the securities rules.
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