30 months on, no meaningful action to compensate UFS scam victims

Scam-hit asset management company (AMC) Universal Financial Solutions (UFS) has not yet paid a single penny back out of the Tk 2.07 billion siphoned off from its clients' funds about 30 months back.

As the fund embezzlement made headlines, the High Court on its own initiative ordered the accused, including UFS managing director Syed Hamza Alamgir, to refund the entire amount by October 2023.

The accused also made a promise in writing to the Bangladesh Securities and Exchange Commission (BSEC) that Tk 1.25 billion of the misappropriated cash would be refunded by May 2023, said commission sources.

Neither did the accused comply with the HC order nor did they keep the promise. Despite the fact, no one among the trustee of the four open-ended UFS funds, subjected to fraudulent means; the securities commission, and investigating agency Anti-Corruption Commission (ACC) has made any move to advance legal actions to realise the money or bring the corrupt to book.

Meanwhile, regular operations of the unit funds have remained halted for more than two years following the suspension of bank and BO (beneficiary owner's) accounts linked to the funds. So, not only are the funds incapable of trading in securities in their portfolios but also cannot receive dividends coming from investments in listed securities.

This is the backdrop against which defrauded investors seem to be the only party destined to suffer.

Cases at standstill

The Investment Corporation of Bangladesh (ICB), which is the trustee of the funds, filed two cases - one criminal case and another money suit -- against the accused in January 2023. The criminal case has been merged with the case filed by the ACC in December 2023 on the grounds that both cases dealt with the same matter.

According to sources at the ICB, the lower court issued arrest warrants in the criminal case against the top executives of the UFS, including Mr Hamza Alamgir. Prior to that, Mr Alamgir left the country. The three other UFS executives were granted anticipatory bail from the High Court on health grounds.

The remaining 20 accused have absconded.

The securities regulator also filed a criminal case with the chief metropolitan magistrate court in December last year. The court ordered further investigation by the Criminal Investigation Department (CID). The CID is to submit a report by the end of this month.

On the HC order to refund money, ICB's lawyer advocate Manjur Alam said the accused had sought time extension several times, saying they were unable to make refunds as their bank accounts had been frozen by the Bangladesh Bank.

Later on, the HC bench that issued the order was dissolved.

"The ACC [a respondent to the HC order] could have made a move to place the matter before another bench of the High Court," said ICB's lawyer Mr Alam.

Hafizul Islam, deputy director of the ACC, who filed a case on behalf of the ACC, could not be reached for comment over the phone despite repeated attempts by the FE correspondent.

"The cases have remained stalled because no one pursued them in court," said barrister Abul Kalam Azad, a lawyer of the Supreme Court.

"So, ICB has also fallen short of measures to move the legal actions forward," he added.

However, an official from the ICB's legal department said they had continued their legal pursuit against the UFS executives and were currently collaborating with the ACC.

In the entire episode of the scam, the ICB is also a big loser as an investor of the funds.

Regulatory actions only help worsen funds' health

The UFS mutual funds (MFs) consist of investments in both money market and the capital market. The funds had Tk 612.3 million remaining after the embezzlement, according to an audit by the ICB.

The open-ended pooled funds were managed through 17 bank accounts, also frozen by the central bank in January 2023. So, the funds have been unable to receive dividends paid by listed companies and returns from other investment instruments.

For instance, BRAC Bank sent dividends worth Tk 5.8 million in 2023 to bank accounts of the MFs but the money returned to the company.

An aggregate amount of dividends of Tk 53.90 million could not be received from listed companies by the UFS funds in 2022 and 2023.

The suspension of the bank accounts has only worsened the possibility of investors getting anything in future out of their investments.

Moreover, the regular trading in the portfolios has remained suspended.

Industry insiders said the authority could stop only the cash outflow from the funds' banks accounts and that the regular sell-buy in the BO accounts should be restored under a special management to help revive the affected funds.

How did the embezzlement take place?

The pooled funds invested unit holders' money in investment vehicles, such as FDR (fixed deposit receipts) and listed securities.

According to an investigation report of the ACC, the UFS's top executives, including Mr Hamza Alamgir, chief investment officer Muminul Islam and manager Sakib Al Faruq, embezzled money on the pretext of investing in FDRs. They also moved away cash proceeds from selling assets in the portfolios.

For example, UFS's top executives purchased shares worth Tk 175.43 million in the portfolios of the unit funds between January and December 2022. During the period, the AMC sold shares worth Tk 814.15 million from the portfolios.

As much as Tk 638.71 million from the sale proceeds was not deposited into the bank accounts of the mutual funds. The money was transferred to the personal bank accounts of Mr. Hamza through RTGS (real time gross settlement) and a company named Sceptre Commodities owned by Mr Hamza and his allies, the ACC said in its probe report.

The ACC investigation also revealed that the UFS executives had invested a substantial amount of money in un-approved commercial papers, which are an unsecured form of promissory note that pays a fixed rate of interest, issued by different private organisations, many of which existed only on paper.

The accused had received a no objection certificate (NOC) from the trustee in favour of such investments, said the ACC. Consequently, four senior officials of the ICB were included in the list of the accused in the case filed by the ACC.

Insiders said two of the officials had gone to retirement with retirement benefits before the scam became public. Another official, who went to retirement after the revelation, is yet to get any retirement benefit while the fourth accused, who is still in job at the ICB, did not face any action.

Two auditors, who had been hired by the UFS, helped the asset manager fabricate financial statements of the funds and the financial statements were approved by the trustee. In regulatory actions, the auditor was banned from auditing listed securities.

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