BSEC fines Dhanmondi Securities, directors Tk 0.5m for misusing clients' funds

The Bangladesh Securities and Exchange Commission (BSEC) has imposed a combined penalty of Tk 0.5 million on Dhanmondi Securities Ltd. and four of its directors for misappropriating clients' funds from its consolidated customers account (CCA) and engaging in a series of regulatory violations.

The action follows a detailed inspection by the Dhaka Stock Exchange (DSE), which found irregularities in the company's financial records and fund management.

Dhanmondi Securities has been fined Tk 0.1 million, while its directors Md Mizanur Rahman Khan, Akhter Jahan Khan, Md Mazbahuddin, and Asif Islam Khan have each been penalised Tk 0.1 million for their involvement, according to the monthly BSEC enforcement report for July.

The DSE investigation revealed a fund shortage of Tk 170.29 million in the CCA as of June 14, 2022.

Though the company later reported a reduced deficit of Tk 71.54 million on September 4 of the same year, further scrutiny uncovered that this adjustment was based on fabricated financial records.

After scrutinising the company's documents, the DSE's inspection team found some fake financial entries in their ledger and receive/payment vouchers.

"The company preserved fake ledgers in their back office software and these were provided to the inspection team," the DSE report stated. These records were found to be inconsistent with the company's actual bank statements.

The DSE initially imposed operational restrictions on Dhanmondi Securities after detecting irregularities but later lifted them when the company showed a temporary surplus in the CCA. However, upon further inspection, the surplus was determined to have been the result of fictitious entries.

CCA accounts, required to be maintained by stock brokers with scheduled banks, are used solely for clients' funds related to stock transactions. Any deficit in these accounts typically indicates misappropriation or misuse of clients' money.

According to the securities rules, if there is any shortage or deficit in the CCA at any time for any reason, the stockbroker shall immediately report the matter to the stock exchange.

But without reporting the deficit, the Dhanmondi Securities showed fake financial positions in the CCA, the DSE report said.

"It appears to the inspection team that they were involved in fraudulent activities by providing false statements to the exchange regularly," said the report.

The company also made excess payments to its clients even though they had not sufficient balance, it added.

In one example cited in the report, a client named Sumon Hossain, with a negative balance of Tk 3,391, was paid Tk 116,255. Such payments contributed to the CCA deficit.

The company's other violations include the use of unauthorised mobile numbers in the clients' BO (beneficiary owner's) accounts.

According to the DSE findings, the company used mobile numbers of their employees in many BO accounts of its clients.

As a result, the employees were the beneficiaries of the unethical trading activities conducted in the clients' accounts.

As per the rules, the stockbrokers are required to make any kind of payments through account payee cheques. But the company made cash payments to its chairman, directors and managing director.

A stockbroker is allowed to maintain only one CCA, but Dhanmondi Securities maintained three CCAs in breach of the rules, the DSE report said.

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