BSEC opens probe into conflict of interest in Nafeez's company
According to an office order issued on Tuesday, the BSEC has formed a three-member committee to investigate the irregularities in fund management and the conflict of interest involving the Alternative Investment Fund
The Bangladesh Securities and Exchange Commission (BSEC) has initiated an investigation into the conflict of interest arising from an investment in the Alternative Investment Fund of Bangladesh by a person connected with the fund manager Strategic Equity Management Limited (SEML), and the trustee Premier Bank Limited.
All three are connected to Chowdhury Nafeez Sarafat, former chairman of Padma Bank, his wife Anjuman Ara Shahid, and his brother Chowdhury Jafarullah Sarafat.
In a separate development, the commission today (18 September) decided to form a three-member investigation committee to look into Strategic Finance Limited, a full-fledged merchant bank, according to a press release.
Keep updated, follow The Business Standard's Google news channel
Strategic Finance is a subsidiary of Strategic Finance & Investments Limited, a non-banking financial institution (NBFI) founded by Nafeez Sarafat in 2020.
According to an office order issued on Tuesday, the BSEC has formed a three-member committee to investigate the irregularities in fund management and the conflict of interest involving the Alternative Investment Fund.
The inquiry initiative comes nearly three years after MK Alamgir, founding chairman of Farmers Bank – later renamed Padma Bank – filed a complaint with the BSEC in 2021, claiming that his successor Nafeez Sarafat invested Tk100 crore from the bank in the Alternative Investment Fund through his other company SEML, which constituted a conflict of interest.
The Business Standard found that Padma Bank invested Tk100 crore in 2015 in the Alternative Investment Fund, which was registered that year with a total size of Tk500 crore. At that time, Nafeez was on the bank's board. The fund manager SEML is owned by his wife Anjuman Ara Shahid, which constituted a conflict of interest. Moreover, the trustee of the fund is Premier Bank, where his brother Jafarullah Sarafat was an independent director that same year, according to the Premier Bank annual report.
MK Alamgir, who was removed from the Padma Bank board in 2017 on allegations of corruption, filed the complaint against Nafeez when Shibli Rubayat-Ul Islam was the BSEC chairman.
However, Shibli, who resigned from his post after then prime minister Sheikh Hasina fled the country in the face of mass protests, did not take any initiative to investigate the matter.
Later, the new commission, led by Chairman Khondoker Rashed Maqsood, finally initiated the investigation.
What will be investigated
The members of the newly formed investigation committee are Additional Director Mohammad Amdadul Hoque; Deputy Director Md Rafiqunnabi; and Assistant Director Mohammed Abu Hena Mostafa at the BSEC.
The committee has been tasked with completing the inquiry and submitting a report, along with a scanned copy, to the commission within 60 days.
The committee will investigate whether the investments of the "Alternative Investment Fund of Bangladesh" from its inception to the present date were in compliance with the investment parameters of the Bangladesh Securities and Exchange Commission (Alternative Investment) Rules 2015 and constitutive documents. It will gather and examine valid evidence related to all investments of the fund and investigate any conflict of interest arising from investments with a connected person of the fund manager and the trustee.
The committee will also collect all official bank statements of the fund from the inspection date to the present and confirm balances at the end of accounting years. It will gather valid evidence of interest/profits received from term deposits and other balances with banks/financial institutions over the life of the fund and collect and analyse valid evidence of dividends/capital gains received from investments in listed and non-listed securities from inception to the present.
Additionally, the committee will analyse and report on the fund's operating expenses, including the BSEC annual fee, management fee, trustee fee, and other fees, from inception to the present. It will also obtain evidence regarding any illicit payments (if any) from the fund's bank accounts for the benefit of the fund manager or other parties and evaluate the roles of the fund manager and trustee in the governance and oversight of the fund in compliance with relevant rules and constitutive documents. The committee will address any other matters as required by the inquiry officers.
How Nafeez used Padma to invest in his wife's company
In 2015 and 2016, Padma Bank invested Tk45 crore into two newly established mutual funds – Tk25 crore in the Strategic Equity Management Shariah Fund and Tk20 crore in the Strategic Equity Management Fund – both managed by SEML.
However, he did not stop there; he invested funds from this asset management company into a new non-bank finance company in which both his wife and son Raheeb Safwan Sarafat Chowdhury are shareholders.
He established this non-bank finance company Strategic Finance Investments Limited (SFIL) in 2020, falsely presenting two foreign firms based in the US and Canada as shareholders.
The two companies – Canadian Maple Strategic Wealth Management LP and US-based Statisticker Inc – were listed as having invested Tk50 crore in SFIL and holding 50% of the shares. However, both companies were found to be fictitious.
SEML now holds 6% shares in the new finance company SFIL.
Anjuman used multiple layers to keep her relationship with SEML hidden.
For instance, Mashiur Rahman, a retired bureaucrat who served as director general of the Telecom Division at the Ministry of Posts and Telecommunication, is now the chairman of Strategic Equity Management. He was appointed as the director by SoftHorizon, which is owned by Anjuman Ara, according to the Registrar of Joint Stock Companies and Firms (RJSC).
When contacted, Mashiur Rahman said he has no relation with SEML. He is only an employee of Nafeez's company CdNet Communications. He is the CEO of CdNet Communications where Nafeez holds major shares. Nafeez is also with SFIL which is also a shareholder of CdNet, he added.
"I was kept as nominated director in SoftHorizon and nominated chairman for SEML, but I know nothing about those companies," Mashiur Rahman told The Business Standard.
"I was not even asked about the nomination for the chairmanship of SEML. I suddenly came to know that I had been nominated as chairman of this company. They [Nafeez and his wife] would sometimes bring letters about such nominated directorship to me, and I would agree if there was no objection," he said.
Before joining CdNet, he served Bangladesh Submarine Cables PLC for more than four years until 25 June 2022. Soon after his retirement, he joined CdNet on 25 August 2022.
"Nafeez picked me as I have long experience working with the Submarine Cables PLC," he said.
The government issued three submarine cable licences in the private sector in September 2022 to Summit Communications, CdNet Communications, owned by Nafeez, and Metacore Subcom Ltd.
When contacted, Nafeez said, "SEML is not owned by my wife."
When asked about Padma Bank's investments in his companies during his tenure, Nafeez responded, "I was neither the chairman nor the Audit Committee Chairman of Padma Bank's Board of Directors when these investments were approved by Muhiuddin Khan Alamgir (former chairman) and Babul Chisty (former EC chairman). Additionally, the Audit Committee does not approve investments."
