Fines nothing but way to cover up failure to punish market frauds

The imposition of fines by the securities regulator is nothing but a symbolic action with rare occasions when it translates into meaningful punishment for stock market fraud.

The Bangladesh Securities and Exchange Commission (BSEC) still prefers levying monetary penalties to filing lawsuits against individual and institutional investors and other market stakeholders in actions against manipulative trades and transactions in the secondary market.

In doing so, the market watchdog avoids hassles in pursuing cases.

On the other hand, the accused easily gets away with not paying the fines by exploiting loopholes in securities rules and regulations.

Therefore, penalties have become an action not meant to deter market manipulators from committing repeated offences; rather they are seen as a mechanism to cover regulatory failures.

Fines routinely converted into certificate cases

As per the Securities and Exchange Ordinance 1969, an accused, who has been asked to pay a fine, will get three months' time to submit an application to the commission, seeking a 'revision' of the regulatory decision.

Irrespective of whether the accused has made a plea or not, they, upon the expiry of the duration, will get another six months to make an appeal for a review of the penalty.

If the accused does not show up or the regulator fails to close the matter through the enforcement of a concluding action in the nine months, the next move to be taken is filing a certificate case with a magistrate court.

The magistrate will then order the accused to appear before the court and ask both the parties - BSEC and the accused - to place their arguments.

Case hearings are often delayed or postponed for reasons, such as the absence of the accused or the court taking longer than expected to issue summons or delayed execution of court orders by the police.

The BSEC must closely follow the development of a case and engage with the judicial and enforcement bodies to move the cases forward.

That proves to be challenging given the shortage of manpower in the legal department of the BSEC and their expertise, said an official of the securities regulator, preferring anonymity.

The BSEC official, who had worked on certificate cases, said that as many as 54 cases were dismissed in early 2024 as the court had not received supporting documents and explanations from the regulator.

"It's a failure of the regulator if it is unable to realise penalties," said Khushid Alam Khan, a lawyer of the Supreme Court.

Direct lawsuits go nowhere

Since fines are difficult to enforce, the regulator can directly file a case under the 1969 ordinance with the Sessions Court. The court has the authority to impose a fine starting from Tk 0.5 million or issue a jail term of maximum five years or both.

Again, the legal proceedings are cumbersome and lengthy. Hearing dates are changed frequently for the absence of the accused or witnesses.

Even if a judgment is delivered in the lower court, it can be stayed by the HC following a plea by the accused. Eventually, cases remain pending for a long time.

There is an infamous case to remind the BSEC of the futility of legal actions. The case was filed in 2007 over the manipulation of the stock of BD Welding.

According to a probe report of the regulator, BD Welding had purportedly received an email from Saudi Arabia's Al Awad Group showing an interest to invest in the company.

The company communicated the matter to the bourses and price sensitive information on this was disclosed on the bourses' websites.

Daily Industry published a news item on the matter of supposed foreign investment in collaboration with the company's managing director SM Nurul Islam, said the BSEC probe report.

The editor of Daily Industry, Enayet Karim bought 20,500 and 1,72,00 shares of the company at Tk 6-Tk 13 in two phases between December and February 2007 and sold the shares at Tk 46.

There was another disclosure later on that the visit by the Saudi company's representative had been delayed and then another disclosure ruled out the possibility of the investment.

Mr. Karim sold the shares before the latest PSI, according to the findings of the regulator.

Seven years after the filing of the case with the Sessions Court, it was transferred to the special tribunal formed in 2012 for quick disposal of cases tied to the secondary market.

The special tribunal awarded each accused a three-year jail term along with fines of Tk 2 million.

According to BSEC officials, the High Court (HC) in 2015 quashed the case filed over the manipulation of the stock price of BD Welding by its managing director and the editor of the daily.

A BSEC official, who is familiar with the case developments, said the HC in an order had acquitted the accused despite the fact that the conviction of the special tribunal was based on an inquiry report and statements by the witnesses.

He said the BSEC appealed against the HC order in 2017 but the petition never appeared on the cause list.

"Only the filing of a case or an appeal does not serve any purpose unless the cases are pursued properly for hearing," said advocate Khushid Alam Khan, adding that the BSEC has shortcomings in dealing with legal issues.

Acknowledging the weaknesses of the regulatory body, barrister Abul Kalam Azad, a lawyer who works for the regulator, said the accused persons have a lot of legal options to defend themselves against regulatory actions.

It takes a long time to get judgment from the lower court. The accused then can go to the High Court.

"It's not easy to get schedules of case hearings in the upper court amid the scarcity of benches," said Mr Azad. The accused, who are usually financially strong, appoint prominent lawyers with high payments. Their lawyers are more proactive than those of the securities regulator.

All the while, the BSEC bears the expenses with a thin possibility to win a case.

So, it has stopped filing any case and continued to impose fines on manipulators who create stock rallies to make hefty profits by offloading inflated shares to the general public.

The success, however little, is that once in a while fines are recovered when the accused feels embarrassed by law enforces' knocking on their door frequently.

Usually, market operators, which have to get their licences renewed, tend to pay fines to keep their operations uninterrupted.

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