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The Bangladesh Securities and Exchange Commission (BSEC) has claimed to have taken a comprehensive strategy to recover investors' funds embezzled by stockbrokers.
The market watchdog asked the prime bourse to settle small claims with the brokers' funds or assets kept with it, said sources in the BSEC.
As for the recovery of large funds, it considers seeking legal opinions so that it can involve law enforcement agencies in bringing the intermediaries to book and making them pay back their clients.
The FE requested the BSEC to provide updated data of unsettled claims but it refused to give the information.
Embezzlement and mismanagement of clients' funds by brokers have remained long-standing unresolved problems. Major scams so far involved Crest Securities, Tamha Securities, Banco Securities, Shah Mohammad Sagir & Company, and Mashihor Securities.
The misappropriation of funds and shares by Mashihor Securities is the latest scam that happened in August last year. It siphoned off clients' funds and shares amounting to more than Tk 1.68 billion.
Law enforcement agencies 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.
Measures such as suspension and freezing of the firms' BO (beneficiary owner's) accounts and bank accounts and travel ban on owners of the companies proved futile.
On behalf of defrauded investors, the BSEC cannot file criminal cases but can take actions for violation of the securities rules, insider trading and illegal transactions of securities.
So, it now looks to engage different state agencies in filing criminal cases against the brokers, said Md. Mahbubul Alam, a BSEC executive director.
Some cases have already been lodged by agencies, such as the Anti Corruption Commission, against stockbrokers, including Tamha Securities.
But legal moves often result in further complications instead of solutions.
For example, the lower court in 2022 ordered the confiscation of assets of the owner of Tamha Securities to settle investors' claims. In light of the court order, the BSEC issued a directive.
Later, Pubali Bank, which had given a loan to Tamha Securities, appealed against the court order. The court then withdrew its order.
Against the backdrop, the securities regulator last week requested the ACC to take legal measures for the recovery of investors' money.
BSEC Executive Director Mr Alam said victims' role is important in recovering funds.
"Many cheques, received by clients from the stockbrokers, bounced but no clients filed cases against the brokers."
In January 2023, the BSEC found 68 brokers guilty of siphoning off clients' money.
Many claims have been settled, including those of clients of Sinha Securities. However, a large number of investors are yet to be compensated.
Sinha Securities paid off clients' money by selling shares of one of its owners in a listed company.
Settlement of small claims
As per the regulatory decision, the stock exchanges will have to facilitate the settlement of small claims.
A senior official of the Dhaka Stock Exchange (DSE) said they had been sitting with brokerage firms and intensifying pressure on them to settle clients' claims.
Tamha Securities, Banco Securities, Crest Securities, and Shah Mohammad Sagir & Company embezzled investors' assets worth more than Tk 2.0 billion in total between 2019 and 2021. Transactions in these brokerage firms have remained suspended.
Meanwhile, the DSE refunded around Tk 300 million to some investors of the four brokerage firms in two phases in 2022 and 2023.
How did brokers embezzle funds?
To make investments in the secondary market, clients of stockbrokers deposit funds into consolidated customers' accounts (CCAs) maintained by the brokerage firms.
Brokers have the scope of withdrawing funds from the CCAs, with cash payee cheques.
Those, who took away clients' money, used cash payee cheques.
Some of them received funds from clients but did not deposit the money into the CCA. There were incidents when brokers purchased securities using clients' money in their separate accounts, keeping clients in the dark.
Moreover, there were cases when investors' securities were sold from their BO (beneficiary owner's) accounts through duplicate back-office software.