DSE moves to settle claims for affected clients

More than a year after investors lost their assets due to fund embezzlement scandal at Moshihor Securities, the Dhaka Stock Exchange (DSE) has taken a move to address the claims of affected clients.

The prime bourse has urged the clients of the brokerage firm to apply by October 30 for the transfer of their existing shares or recovery of their funds.

In a press statement issued on Sunday, the DSE urged the clients holding shares under the firm's beneficiary owner (BO) accounts to transfer their holdings to other brokerage firms by submitting the prescribed Central Depository Bangladesh Ltd (CDBL) Form-16.

"In case of embezzlement of money or shares or both, respective clients are requested to submit complaints," reads the DSE statement. Clients of the brokerage firm will have to file their claims along with proper documents.

A senior official of the DSE, speaking on condition of anonymity, confirmed that the stock exchange is working with Moshihor Securities to refund investors in phases. Discussions regarding the matter are ongoing.

The prime bourse has already received claims amounting to Tk 300 million from the affected investors, he said, adding that those who are yet to make claims must apply by October 30.

"We need to ascertain how much in assets [both funds and shares] the investors had with the brokerage firm," he added.

The Moshihor Securities scandal

Moshihor Securities, a brokerage firm of the Dhaka bourse, defrauded its investors by illegally using duplicate back-office software and providing fake information on their investment status, evading regulatory oversight.

The embezzlement came into light in August last year after the DSE unearthed a deficit of Tk 686 million in the consolidated customers' account (CCA) and many investors fell into a big trouble.

A deficit in a consolidated customers' account (CCA) is a shortfall in the funds a brokerage firm holds for its clients, indicating possible misappropriation, or embezzlement of client money.

Deficits in CCA can lead to regulatory actions, such as halting trading, suspending licenses, and freezing accounts. These actions are taken to protect investors and ensure the brokerage firm resolves the fund shortage.

There are a lot of investors who have seen their shares sold off and had their funds embezzled by Moshihor Securities. Later, a DSE inquiry had found that the brokerage firm misappropriated Tk 1.61 billion in total.

After detecting the embezzlement, the DSE had halted trade at the firm along with suspending its DP (depository participant) licence.

The Bangladesh Securities and Exchange Commission (BSEC) also imposed travel bans on its managing director, directors, and CEO of the brokerage firm.

Some of the affected investors had been sitting with brokerage firms and intensifying pressure to settle clients' claims while some signed with the brokerage firm as it promised to repurchase all shares belonging to the client that were sold by Moshihor Securities unlawfully. But no one has got back shares or money as yet.

A broader issue for the market

Embezzlement and mismanagement of clients' funds by brokers have remained long-standing unresolved problems. Major scams involving other brokerage firms such as Crest Securities, Dawn Securities, Tamha Securities, Banco Securities, and Shah Mohammad Sagir & Company have collectively cost investors over Tk 3 billion between 2019 and 2021.

Presently, trading in these firms has been suspended.

The misappropriation of funds and shares by Moshihor Securities is the latest scams that were exposed in August last year after the new BSEC Commission led by Khondoker Rashed Maqsood took charge.

Meanwhile, law enforcement agencies on August 30 last year imposed a travel ban on Moshihor Securities' CEO Ziaul Hossain Chisty, Managing Director Moshihor Rahman, and Director Sheikh Mogol Jan Rahman over the accusations of fund misappropriation.

The financial crime took place because of the absence of strict monitoring by the DSE and the securities regulator, market analysts said.

However, the DSE refunded around Tk 300 million to the affected investors of four brokerage firms -- Banco Securities, Crest Securities, Tamha Securities and Shah Mohammad Sagir -- on a pro-rata basis although the full claim amount was much higher.

The DSE settled claims by selling assets of these brokerage firms and from the investors' protection fund.

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