How Moshihor Securities misused investor funds under regulator's nose
Moshihor Securities Ltd, a brokerage house, has been misappropriating client funds invested in the capital market for years, evading regulatory oversight by employing multiple servers and databases, according to a letter sent by the Dhaka Stock Exchange (DSE) to the securities regulator last Wednesday.
As of 19 August, the DSE identified a Tk68.58 crore shortfall in Moshihor Securities' consolidated customers' account (CCA), down from Tk75 crore as of 2 May this year.
To curb misuse, the BSEC issued a directive in March 2022 mandating strict actions against any deficit found in CCAs.
The letter also noted that rather than taking action, a concerned official of the Bangladesh Security Exchange Commission verbally instructed a temporary halt to inspections of Moshihor Securities.
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The DSE also discovered significant discrepancies between the brokerage firm's shareholding records in its back-office software and those in the Central Depository Bangladesh Limited (CDBL).
Despite these findings, the last BSEC administration, led by former chairman Professor Shibli Rubayat-Ul Islam, did not take any action.
On 28 August, the DSE, through a letter signed by Md Rabiul Islam, chief regulatory officer (in charge), requested the BSEC to take necessary measures to compel Moshihor Securities to rectify the deficit.
Following the revelation of the fund misappropriation, the new commission, led by Khondoker Rashed Maqsood, took preliminary actions, including seeking a travel ban on the owners of Moshihor Securities and forming an inquiry committee for further investigation.
Stockbrokers are required to maintain separate bank accounts, known as CCAs, to hold unused cash in clients' beneficiary owner's (BO) accounts. It is prohibited to use these funds for purposes other than purchasing securities or collecting commissions and fees.
No Action Despite Major Violations
The BSEC had implemented strict measures for addressing deficits in CCAs, but it made exceptions for Moshihor Securities.
After discovering the deficit, the commission imposed conditions on Moshihor Securities on October 22, 2022, in accordance with securities laws.
However, just a day later, it extended the deadline for the firm until June 2024 to adjust the deficit, as well as relaxed some of the conditions.
Despite this extension, Moshihor Securities did not address the deficit. Subsequently, the commission granted an additional extension until December of this year and also allowed the firm to utilise free limit facilities.
BSEC's questionable stance on deficit
The DSE letter highlighted concerns about the BSEC's lenient approach toward brokerage firms with deficits in their CCAs. The commission reportedly relaxed stringent conditions, extending deadlines and allowing free limit facilities, which some firms, including Moshihor Securities Limited, exploited.
Rather than addressing the issue, these firms misappropriated investor funds, undermining trust in the capital market and negatively affecting investor confidence.
Investors have been filing complaints with the DSE due to difficulties in accessing their funds or transferring shares.
The letter also pointed out issues with data manipulation and misuse of multiple servers and databases by firms like Sinha Securities Limited, Dhanmondi Securities Limited, Gateway Equity Resources Limited, and Moshihor Securities Limited. The BSEC was informed about these companies' use of ASAP Tech Limited for data falsification and mismanagement.
BSEC's recent actions
In response to the situation, the BSEC has taken swift action by requesting a travel ban on Moshihor Securities' CEO Ziaul Hossain Chisty, Managing Director Moshihor Rahman, and Director Sheikh Mogol Jan Rahman due to allegations of misappropriating investors' funds.
On 29 August, the commission sent a letter to the additional police commissioner of the Special Branch, asking for travel restrictions on the said persons.
Additionally, the BSEC has established a five-member inquiry committee to investigate Moshihor Securities, with a mandate to deliver a report within 45 days.
