Saturday, November 22, 2008

Securities and Exchange Commission probing printing scam of fake shares

Recent arrests of an owner of a Karachi based printing press and graphic designer for printing fake shares of companies listed at stock exchange, including Norrie Textile Mills Limited, confirms the initial findings of the on-going investigations initiated by the Securities and Exchange Commission of Pakistan.
A well placed source in SECP informed on Friday that earlier in September 2008, the Central Depository Company, Karachi (CDC) reported to the SECP that in an attempt to enter its shares on the CDC in electronic format, Norrie Textile Mills Limited had fraudulently represented that it has a paid up capital of Rs 598.6 million divided in Rs 59.8 million shares (beyond its actual reported capital of Rs 48.6 million). These were registered with CDC as a result of the fake declaration filed by two directors of Norrie Textile Mills Ltd i.e. Zakaria Ghani and Khalid Abid M Shah. These shares were thereafter entered into the CDC system by way of deposit of physical shares through various brokers including 21 million shares by Al-Mal Securities, one of the associated companies of Norrie Textile Mills. Such physical shares, are deposited with the brokers and are presented to the share registrar as per procedure to be dematerialised and kept in record, however, the recent confiscation of fake printed shares by the FIA substantiates the apprehension that no such physical shares were deposited earlier by the different participants, including the brokerage firm, and that these fake shares were being printed to unlawfully build the share record and to conceal the issue of fake shares by Norrie Textile Mills Ltd.
Earlier the Commission initiated action and the CDC eligibility of Norrie Textile Mills Ltd shares was revoked and the trading status of the share registrar of the company M/s First Investec Modaraba, Al-Mal Securities and other suspected individuals involved was suspended / blocked. The Commission further ordered an inspection under section 231 of the Companies Ordinance, 1984 to inspect the books of accounts and books and papers of company to verify the issue of 55 million fake shares by the company beyond its reported paid up capital comprising of 4.8 million shares. Simultaneously, another enquiry was authorised under section 21 of the Securities and Exchange Ordinance, 1969, to investigate the dealings and transactions in the shares of the company. However Norrie Textile Mills Ltd, its share registrar and the brokerage firm involved did not provided the requisite books and records to the authorised officials of the commission, and instead resorted to legal notices to the Commission. The Commission requested the authorities for the Police support to attain access to the records of Norrie Textile Mills Ltd, which unfortunately could not be made available to it. Later on, the commission requested the Honourable High Court of Sindh, Karachi for access to the records of the Norrie Textile Mills Ltd, in a pending matter of J.M. No. 16 of 2006 already filed by the Commission.
The High Court of Sindh directed the Norrie Textile Mills Ltd, through its order dated September 25, 2008, to produce all the records before the inquiry officers appointed by the Commission within 15 days of the said order. However, Norrie Textile Mills Ltd succeeded to get another extension of 15 days from the Honourable Sindh High Court on October 28, 2008. Upon expiry of this extension, Norrie Textile Mills Ltd was apparently getting the fake certificates printed to build their record for production before the SECP inspectors or the Court. On enquiry from SECP it was revealed that every time an inspection of record is sought, various companies manage to get stay orders, which prevents SECP from carrying out inspections and detect fraudulent activities thus undermining the shareholders and public at large.
The SECP is empowered to inspect all records and investigate matters related to the company transactions under the Companies Ordinance 1984 and various other laws administered by the SECP despite the fact that no loss or prejudice of any sort is caused to the company whose records are sought to be inspected, all kind of dubious methods are employed by the companies to delay the inspections by filing appeals and petitions in Court.

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