Ring Shine Textiles scam: BSEC imposes travel bans on 13

Highlights

• Shares worth Tk275cr existed only on paper
• Tk112cr shares allocated, but whole amount embezzled
• Ex-tax official Matiur involved in the scam
• FAR Group Chairman Faruk also in syndicate
• Regulator imposes travel ban on 13 key figures

A syndicate, including the controversial tax official Matiur Rahman and FAR Group Chairman Abdul Kader Faruk, has embezzled hundreds of crores of taka by issuing new shares of the foreign-owned Ring Shine Textiles Limited without investing any money, according to findings of the Bangladesh Securities and Exchange Commission (BSEC).

An Indian national named Ashok Kumar Chirimar, who worked as the company's supply chain agent, is also involved in the fraud scheme.

The BSEC in a press release yesterday announced its decision to impose a travel ban on a total of 13 individuals connected to Ring Shine Textiles. This includes the company's sponsors, former directors, managing director, executive director, CFO, and company secretary, including Faruk and Chirimar.

The manipulative group allocated shares worth Tk112 crore (at a face value of Tk10 each) but did not deposit any money into the company's account.

Instead, with the alleged assistance of regulatory bodies, the group raised Tk150 crore in capital from the stock market after the company's listing, subsequently selling their free-of-cost allocated shares and exiting the market.

Ordinarily, pre-placement shares are subject to a lock-in period. However, the commission, then led by former BSEC chairman Shibli Rubayat Ul Islam, granted permission for these shares to be sold on a case-by-case basis. As a result, while the company's 12 sponsor-directors did not sell their allocated shares, 64 placement shareholders out of 76 individuals involved did. Currently, the company's shares, originally valued at Tk10, are trading at Tk3.20.

Share issuance

Ring Shine Textile incorporated with Tk4000 as paid-up capital in 1997 in Bangladesh, engaged in the manufacturing of grey and finished fleece fabrics of various qualities and dyed year to the textile and garments industry. 

It raised its paid-up capital in 2002 to Tk9.95 crore and then further it raised its paid-up capital in 2018 to Tk285.05 crore, issuing new 27.51 crore shares at Tk10 each to 11 foreign sponsors jointly 59.44% and to seventy-three external local investors jointly accounting for 40.56%. 

In 2019, under the leadership of former BSEC chairman M Khairul Hossain, Ring Shine Textile received approval to raise Tk150 crore from the stock market through an Initial Public Offering (IPO).

A BSEC official told TBS, "Typically, placement shares are blocked after listing. While the IPO was approved during the tenure of the M Khairul Hossain commission, the Shibli Rubayat Ul Islam commission later permitted the sale of these shares on a case-by-case basis. This facilitated the manipulative group in selling their shares and recouping their capital."

40% shares held by 64 individuals

According to BSEC documents, 27.51 crore shares were issued to 76 individuals, including the company's sponsor-directors, FAR Group Chairman Faruk and his family members, tax official Matiur and his family members, and several other high-ranking government officials from that period.

The entire Tk275.10 crore worth of shares, issued at Tk10 each, existed only on paper. The company received no funds in exchange for these shares, as none of the 76 individuals, including the company's sponsor-directors, made any deposits.

The commission's report reveals that Faruk and his family members, specifically 24 individuals associated with him, were allocated 8.32 lakh shares in the company's pre-placement, accounting for 29.2% of the total newly issued shares. 

Within Faruk's family, his two wives, Nasreen Akhter Banu and Hosne Ara Begum, were allocated 56.73 lakh (1.99%) and 61.92 lakh (2.17%) shares, respectively. His daughter, Rezwana Rahman Rini, received Tk20.55 lakh. Jakia Khondoker and Monira Khandoker were allocated the largest portions, with 1.19 crore and 1.13 crore shares respectively.

Matiur's family received 15.75 lakh shares

The family members of tax official Matiur were issued 15.75 lakh shares, totalling Tk1.57 lakh at a face value of Tk10 per share. However, company sources indicate that they too did not provide any payment for these newly issued shares.

Matiur's family-affiliated entity, Global Shoes, received 5 lakh shares, while Matiur himself received 2.5 lakh shares. Additionally, 8.25 lakh shares were allocated to several other individuals associated with him.

How Kader involved in scam

According to a BSEC letter, Ashok Kumar Chirimar proposed the company to appoint Abdul Kader Faruk and a friend for the intended IPO. 

The logic behind this was Faruk is an expert in listing of the securities in the market and he has already listed a number of his companies that raised a significant amount of money through IPO.

The commission later stated that from the start of the process, it was a violent scheme to get an unfair advantage of public funds by window dressing of the financial statements. 

The letter also stated that from the very start of the process, it was an organised financial crime preplanned by Chirimar and Kader, which ultimately involved statutory auditors, issue managers and pre-placement shareholders of the company. 

Following Ashok's assurance, Ring Shine Textile's management arranged a meeting, leading to an agreement that granted Faruk control over 40% of the total shares, including post-IPO and post-IPO rights issues. This 40% shareholding, under Kader's control, was stipulated to be transferable and sellable to any party or company at any time solely at his discretion.

After signing a Memorandum of Understanding (MoU) with the company, Kader, with Sung Wey Min, managing director of Ring Shine, started to prepare fictitious books of accounts and other related documents to raise capital through private placement, the letter stated. 

BSEC's decisions

The BSEC has decided to impose a travel ban on a total of 13 individuals from Ring Shine Textiles, including the company's sponsors, former directors, former managing director, former executive director, former CFO, and company secretary, for providing false and fabricated information in the IPO prospectus.

Furthermore, in light of the corruption related to Ring Shine Textile's share placement through the signing of an MoU with Faruk instead of an issue manager, the BSEC has decided to refer the matter to the Anti-Corruption Commission (ACC) for action against the former directors, managing director, and company secretary.

The chief executive officers of the two issue management firms responsible for the company's issue management – AFC Capital Limited and CAPM Advisory Limited – have been banned from all capital market-related activities for five years. This decision stems from their alleged provision of false information in the IPO prospectus and Due Diligence certificate, which harmed investors' interests. Additionally, the BSEC has initiated the process to cancel the registration certificates of both issue managers.

For their role in certifying five years of false and fabricated financial statements for Ring Shine Textiles from the 2015-16 to 2019-20 financial years, the BSEC has decided to lodge a complaint with the Financial Reporting Council (FRC) against the four involved auditing firms: Ahmed & Akhter, Chartered Accountants; Shiraz Khan Basak & Co, Chartered Accountants; Mahfel Huq & Co, Chartered Accountants; and ATA Khan & Co, Chartered Accountants, as well as their partners.

Finally, the BSEC has decided to refer the external placement holders of Ring Shine Textiles to the ACC for action. These holders are accused of misappropriating funds by having shares allocated in their names without depositing money into the company's accounts or by making only partial deposits. The commission has also decided to refer Faruk, identified as the main mastermind behind the Ring Shine Textile placement corruption, and Chirimar, for action by the ACC due to their involvement.