Defrauded brokerage clients to be paid from DSE investors’ protection fund – for the first time

The Bangladesh Securities and Exchange Commission (BSEC) has decided to settle defrauded customers' claims with four collapsed brokerage firms with the money available in the "Dhaka Stock Exchange Investors' Protection Fund."

The fund, which stood at Tk19 crore until January 2023, will be paid to the customers of Tamha Securities, Banco Securities, Crest Securities, and Shah Mohammad Sagir & Co Limited on a pro-rata basis after scrutinising their total claims worth nearly Tk200 crore.

That means investors will get one-tenth of their money back from the fund. 

According to BSEC officials, the commission has recently taken the decision and will give direction to the Dhaka Stock Exchange (DSE) in this regard very soon.

This will be the first time the fund will be used since its formation nearly a decade ago.

If the embezzled money were recovered from the four brokerage houses, it would be submitted to the DSE Investors' Protection Fund.

M Saifur Rahman Majumdar, acting managing director of the DSE, told The Business Standard, "We have not yet received any letter to this end. But we are working seriously on how to use the fund to protect the investors."

Additionally, the bourse is working to make a scheme on how to pay the affected investors by selling the fixed assets and licences of the brokerage firms, he added.

"We have already paid around Tk20 crore against the claims of the investors that were submitted to the stock exchange," M Saifur Rahman Majumdar further said.

Professor Abu Ahmed, a capital market expert, said earlier that the existing system in 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.
 
DSE Investors' Protection Fund 

The DSE Investors' Protection Fund came into being through a gazette notification in August 2014.

The fund was created to protect the interests of investors in the case of default by brokerage firms.

After five years, if not claimed, any benefits from untraceable brokerage firms will be submitted to the Investor Protection Fund.
 
Tamha Securities 

According to the Dhaka exchange, Tamha Securities Ltd embezzled Tk139.67 crore of clients' money by illegally using added software and providing fake information on their investment status. Of this, Tk92.57 crore was cash and securities of Tk47 crore.

Around 720 complaints were submitted against Tk52.39 crore of Tamha Securities. But only 227 claims involving Tk5 crore have been settled till date.

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

The brokerage firm has deposited Tk10 crore with the stock exchange, which has already paid the money to the affected investors. 

Banco Securities

In June 2021, the Dhaka Stock Exchange suspended the trading of its member Banco Securities Limited for the embezzlement of Tk60 crore, according to its primary findings.

After investigating the account of the brokerage firm, the DSE found a deficit of Tk128 crore in its consolidated customer account. Of this, Tk66.11 crore was in cash, and Tk61.97 crore was in securities.

Later, the stock exchange filed a case against the brokerage firm as well as its chairman and directors.

They are Abdul Muhit, Shafiul Azam, Waliul Hasan Chowdhury, Nurur Ishan Sadat, A Munim Chowdhury, Jamil Ahmed Chowdhury, and the company itself. The complaint was filed with

Motijheel Police Station in the capital.

Crest Securities

Crest Securities Ltd closed its operations and also shut down its office without any prior announcement. Due to the sudden closure, the investors are worried about the security of the money and shares invested in the company.

The stock exchange got a deficit of Tk65.30 crore from the firm's consolidated customer account. Of this, Tk44.90 crore was in cash, and Tk20.40 crore was in securities.

A total of 6,480 complaints were submitted against 21,180 beneficiary owner (BO) accounts with the brokerage house. Out of the firm's Tk48 crore claims, Tk1.32 crore were settled by the stock exchange.

The Dhaka Stock Exchange held Tk2.23 crore of the brokerage firm, which was supposed to get a dividend as a member of the bourse.

Shah Mohammad Sagir & Co

The country's premier bourse suspended the transactions of Shah Mohammad Sagir & Company Ltd due to its failure in trade settlements. After an inspection, the DSE found that the brokerage firm embezzled Tk13.74 crore.

A total of 4,187 complaints were filed with the firm, and 1,081 claims from investors still remain unresolved.

The Dhaka Stock Exchange held up Tk0.78 crore of the brokerage firm, from which it was supposed to get a dividend as a member.