A fox to guard the henhouse

Infographic: TBS

This is a case of hiring the fox to guard the henhouse. 

The managing director of an asset management company, Universal Financial Solutions Limited (UFSL), has pocketed Tk235 crore of investors' money from four mutual funds using a number of tricks and has flown away to Dubai beyond the reach of regulators, a Bangladesh Securities and Exchange Commission report reveals. 

Syed Hamza Alamgir, the MD of UFSL, used the age-old trick of doctored bank documents to pull the wool over the eyes of various regulatory agencies who could not detect the forgery. In one egregious case, he made four Fixed Deposit Receipts (FDRs) of Tk8 lakh. The bank documents were then doctored to change the amount to Tk49 crore as deposits. He left for Dubai in October last year.

The four mutual funds that the UFSL embezzled from are UFS-Bank Asia Unit Fund, UFS-IBBL Shariah Unit, UFS-Padma Life Islamic Unit Fund, and UFS-Popular Life Unit Fund, with an initial fund size of Tk430 crore.

A newspaper report in January this year about this Tk158 crore embezzlement in the UFSL prompted the High Court to seek an explanation from the BSEC.

A subsequent investigation by the stock market regulator found that Hamza Alamgir had embezzled even more money from mutual funds – Tk235 crore to be exact – than was previously reported, between 2016 and 2022.

The BSEC report revealed that over Tk170 crore of this money was laundered abroad.

Hamza employed a variety of tactics to steal the funds, including transferring money to other organisations linked to him and his relatives and charging exorbitant management fees of around Tk200 crore instead of the typical Tk10-15 crore, the report reveals.

He reportedly managed to keep the auditor, trustees, and custodians of the mutual funds satisfied with his apparent investment activities, reportedly relying on his fake FDRs to give the impression that everything was fine.

The UFSL was licensed as an asset manager in 2010 and had been managing seven mutual funds worth Tk430 crore.

The BSEC has taken action against the audit firm responsible for overseeing UFSL's activities and banned it from conducting any further audits of mutual funds under Universal Financial Solutions.

The Investment Corporation of Bangladesh (ICB), the trustee and custodian of the four mutual funds, has filed two cases against UFSL.

One case has been transferred to the Criminal Investigation Department (CID).

The ICB has also invested Tk48 crore in these funds, the recovery of which has now become uncertain.

BM Yousuf Ali, managing director and CEO of Popular Life Insurance, said they had invested around Tk20 crore in the UFS-Popular Life Unit Fund following a BSEC instruction asking insurance companies to invest in mutual funds.

They also got dividends on time in the initial two years, he said, adding that the misappropriation of the fund has placed Popular Life in a precarious situation.

"We will face a financial crisis if we do not get back our money. We are now waiting to see what measures the BSEC takes in this regard."

Fake investment of Tk59 crore

Meanwhile, the BSEC investigation has found the UFSL's investment papers to be fraudulent.

The business entities in which the funds are claimed to be invested are owned by the UFSL managing director and his associates.

According to Universal Financial Solutions, it invested nearly Tk59 crore from three mutual funds in six business entities in 2016 and 2017.

It invested Tk25.10 crore in Vanguard Traders, Tanzina Fashion, RI Enterprise, Netrokona Accessories, and Multimax International through its UFS-Popular Life Unit Fund. Another Tk25 crore was invested in Netrokona Accessories and Multimax International through its UFS-IBBL Shariah Unit Fund.

The investment tenure was from four months to a maximum of one year with a maximum interest rate of 12.5%. But, the return has not yet been received.

Tk170.69 crore syphoned off

According to the BSEC investigation report, of the total Tk235 crore the UFSL has embezzled, Tk170.69 crore has been laundered abroad. Of the laundered amount, Tk58.90 crore was misappropriated by faking commercial papers in the name of investment, Tk47.92 crore was embezzled by fake FDRs, and Tk63 crore was withdrawn by selling shares of the listed securities.

The probe report also revealed that a Tk58.60 crore loss was made to the funds due to nonpayment of interests on fake investments and fake FDRs. Besides, the funds will get Tk5.82 crore refund from the trustee, custodian, and asset manager due to overcharged fees for reported overstated net asset value (NAV) of the funds.

The investigation found that the UFSL submitted overstated reports to the BSEC, trustees, and custodians every quarter. At the end of the year, it submitted a fake bank balance but the auditor did not verify it.

The investigation revealed that Hamza Alamgir initially transferred the money from the four mutual funds to UFSL's bank account.

Then he withdrew the major share of the transferred amount while he transferred some funds to his associates and their companies. 

The inquiry committee assumed that the bank accounts of Vanguard Traders, Tanzina Fashion, RI Enterprise, Netrokona Accessories, Multimax International, SCEPTRE Commodities, Knitwear Creator, Max Secure, and Mahammad Rafiqul Islam Siddiquee might have been used for such laundering of the fund.

Special audit suggested

The probe body could not determine the amount of money UFSL transferred and/or withdrew from its net gain from the buying and selling of securities, so it suggested conducting a special audit on the UFSL.

In its observation, the inquiry committee said, "These types of fund transfers are clearly a money laundering activity through a manipulation approach. Therefore, these transfers of funds may be further investigated under the Money Laundering Prevention Act to identify the beneficiaries of embezzled funds."

A total of Tk223.56 crore has been withdrawn from the UFCL account since its opening and it had Tk4,178 in balance on 29 December 2022. Its equity capital was only Tk11.18 crore.
 
ICB's action

Officials of the ICB said they could not detect anything about the misappropriation of funds initially. When they did, the money was already laundered abroad.

After the matter of embezzlement came to light, the ICB initially ordered the freezing of all the bank accounts of the asset management company. Then it filed two cases.

TBS could not reach ICB Managing Director Abul Hossen for his comment on the matter even after visiting his office and calling him several times.

However, while speaking to TBS earlier, Abul Hossen said UFSL MD Hamza Alamgir was in contact with the ICB via email and that he assured them of returning the money.
 
BSEC's statement

BSEC Spokesperson Rezaul Karim told TBS that action will be taken as per the law based on the report of the inquiry committee.

"The commission will ensure that the investors are not harmed" he said.

When asked what the commission will do now, he said it can file a case according to the law. "The custodian and trustee also have responsibilities here. Other government agencies concerned also can investigate the matter if they want to," he added.