How a stockbroker embezzled TK140cr client assets

Infograph: TBS

Stock investors having accounts with Tamha Securities Ltd, a brokerage firm in the Dhaka Stock Exchange (DSE), were getting regular updates from the broker of their stockholdings, buy-sell orders executions.

Even, the investors were receiving the regular cash dividends by the listed companies to the bank accounts.

It was beyond doubt of the clients that all have been fake since 2012.

The stockbroker secretly introduced a parallel software database to report fake cash and securities balances, fake buy-sell order execution updates to the clients and regulators.

Cash dividends the defrauded investors were supposed to receive from listed companies each year were being sent to their bank accounts by the broker itself, since it had previously sold the shares off, leaving everyone in the dark.

Tamha Securities embezzled Tk82 crore in cash from client balances in the beneficiary accounts, alongside its clandestine selloff of client shares worth Tk58 crore.

Based on the findings of a four-member investigation committee, the Bangladesh Securities and Exchange Commission (BSEC) has decided to sue Tamha Securities Ltd for the Tk140 crore fraud, and money laundering.

The fraud broker victimised several thousand clients, said regulatory sources.  

Tamha Securities came into focus in early December when some of its clients began complaining about irregularities within their broker.

On 9 December last year, the DSE suspended the company's business and trading operations upon the allegations of embezzlement. 

Market people said owing to such incidents unveiling one after another, investors are increasingly losing confidence in small brokerage firms. 

"The country's bourses have repeatedly failed to monitor brokerage firms' activities effectively. Thus, such incidents are happening time and again," they added. 

They said stock exchanges usually take a reactive measure instead of proactive ones to prevent such incidents. 

Professor Abu Ahmed, a capital market expert, said the existing system in the brokerage firms should be changed because, in the current one, investors' money is not secured.

"Investors' money should be linked with their bank accounts instead of that of the brokerage firms," he added.

BSEC Commissioner Dr Sheikh Shamsuddin Ahmed said "We will have zero-tolerance against any brokerage firm that damages investors' trust."

Earlier, the commission suspended the trading operations of Banco Securities, and Crest Securities upon embezzlement allegations. Also, they have been sued. 

Banco, and Crest Securities embezzled Tk66 crore, and Tk48 crore respectively from their consolidated customer accounts.

Similarly, Shah Mohammad Sagir Securities, Dawn Securities, Sylhet Metro City Securities, Trendset Securities, and Moharram Securities Limited have also allegedly embezzled investors' money.

None of the firms' client liability is cleared yet.

Key people of Crest Securities and Banco Securities were detained by the police last year and their representatives are in talks with the stock exchange officials to compensate defrauded clients out of the proceeds of selling their other assets.

The stock exchanges concerned also have their last option to sell off the brokerage firms to pay back the victim investors, alongside their ongoing efforts for litigation and mediation.

There are 250 brokerage firms in the DSE and 148 in the Chittagong Stock Exchange providing brokerage services to their customers.  

In the last one year, the regulator issued 58 brokerage licenses for the DSE and 23 for the CSE.