Travel ban on directors, MDs of Dhanmondi, PFI securities for defrauding clients

The securities regulator will seek travel ban on top brasses of Dhanmondi Securities and PFI Securities for embezzling clients' funds worth Tk 353.6 million from the consolidated customers accounts (CCAs).

As part of actions against brokers for malpractices, the Bangladesh Securities and Exchange Commission (BSEC) will also ask the depository authority to freeze the BO (beneficiary owner's) accounts of the fraudsters.

All directors and managing directors of Dhanmondi Securities and PFI Securities will come under the purview of the regulatory action, according to a decision made on Wednesday.

The stock market watchdog decided the move at a meeting after cancelling the companies' plea for time extension to fulfill the deficits in their CCAs.

"Many stock brokers fulfilled deficits found in the CCAs while others still may have deficits but at a tolerable level," said BSEC spokesperson Farhana Faruqui.

The stock exchanges are checking CCAs of brokerage firms and submitting reports to the commission. Actions are taken when some parameters, including fund shortages in the CCAs and net capital balance, seem alarming to the regulator, added Ms Faruqui.

Of the two brokerage firms facing immediate actions, Dhanmondi Securities took away Tk 77.4 million from clients' funds as of August 20 this year, while PFI Securities misappropriated Tk 276.2 million as of July 7 this year.

Investors deposit their money into the CCA of a brokerage firm for trading in stocks. Any deficit in the CCA indicates siphoning off money by the broker.

The securities regulator said it would request the department concerned of the central bank to suspend debits from the bank accounts of all directors and managing directors of Dhanmondi Securities and PFI Securities.

It also re-imposed some conditions on both the brokerage firms in line with a directive issued in March 2022.

As per the directive, the brokers will not be able to avail of free limit meaning the concession on the required margin deposited to the bourses for trading in shares.

As per the existing rules, the intermediaries are required to deposit margins before placing buy orders exceeding Tk 100 million, meaning they can purchase shares worth up to Tk 100 million without depositing any margin.

Moreover, their IPO (initial public offering) quota facilities will be scrapped and renewal of their TRECs (trading right entitlement certificate) and DP (depository participant) license will remain suspended.

Earlier on August 30, the BSEC asked the relevant authorities to impose a travel ban on Moshihor Securities' top officials for alleged misappropriation of clients' funds.

Some 68 brokerage firms were found to have moved away clients' deposits from their CCA, worth Tk 4.34 billion, in January 2022. In some cases, clients' deposits were used to purchase furniture and travel abroad.

Later, the securities regulator suspended the DP license of 14 brokerage firms for the illegal act.

Fund misappropriation by four brokerage firms

Four brokerage firms -- Tamha Securities, Banco Securities, Crest Securities, and Shah Mohammad Sagir -- embezzled more than Tk 2 billion.

They sold shares of their clients without informing them, and embezzled funds from the consolidated customers' accounts (CCA) between 2019 and 2021. Trading at the firms has been suspended.

The BSEC in 2023 asked the DSE to settle the claims of the defrauded investors from the Investors' Protection Fund.

The DSE refunded Tk 297.6 million so far to date to affected investors proportionately in two phases.

In the first phase, the DSE refunded Tk 47.60 million to 423 affected investors of Banco Securities, Crest Securities and Tamha Securities in July 2022.

In the second phase, the DSE paid back Tk 250 million from the Protection Fund to 8,581 investors who fell victim to the misconduct of Tamha Securities, Banco Securities, Crest Securities, and Shah Mohammad Sagir.

The investors of the firms are yet to get back Tk 1.70 billion.

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