Brokerage house had failed to transfer APO’s shares to CDC. PHOTO: PPI
The Securities and Exchange Commission of Pakistan (SECP) has dismissed the appeal of First National Equities Limited (FNEL) against the imposition of a Rs500,000 fine for misusing the shares of an investor.
The earlier SECP order had found that FNEL, a trading right entitlement certificate holder of the Pakistan Stock Exchange, had violated rules by using shares actually owned by Abandoned Properties Organization (APO) without due authority.
“The facts of the case are quite clear that the appellant (FNEL) has used complainant’s (APO) shares without due authority. The appellant’s undertaking to the complainant regarding the settlement of the claim provides sufficient ground to establish the alleged violations of the appellant,” the final SECP order said.
According to the order, APO approached the regulator after the brokerage house failed to transfer its shares into its Central Depository Company (CDC) investor account.
After the regulator took up the matter, FNEL agreed to pay APO the sale proceeds against the disinvestment of shares in question.
The original order showed that FNEL mishandled 324,430 shares of EFU General Insurance and 618,814 shares of Pakistan State Oil (PSO) that were actually owned by APO.
Instead of transferring the shares into the CDC investor account, FNEL promised to pay APO a total of Rs149.7 million based on the share prices of the two companies at the closing value of April 5, 2013.
The SECP implicated the brokerage house in the use of the investor’s shares without due authority, as FNEL agreed to compensate APO. In response to the SECP’s show-cause notice to FNEL, the brokerage house “admitted the facts of the show-cause notice” and provided assurance that the complainant’s claim would be “fully settled”.
After the admission of violations by the FNEL representative, the SECP imposed a penalty of half a million on it. However, the brokerage house filed an instant appeal against the order, saying the show-cause notice was issued in a perfunctory manner.
It also claimed that the show-cause notice was issued without lawful authority and the SECP was not competent to issue it. The appeal said it was erroneous to hold that the CEO of FNEL admitted to the facts of the show-cause notice. “Indeed no such admission was made by the CEO; therefore, the impugned order is liable to be set aside,” the brokerage house claimed in its appeal.
However, the appellate bench of the SECP found that the admission by FNEL to the alleged violations mentioned in the show-cause notice and its undertaking regarding the settlement of the complainant’s claim was “sufficient to prove the guilt of the appellant”.
The SECP said in its final order that the FNEL CEO admitted to the alleged violations before the SECP. “The undertaking to settle the outstanding claims is evidence that the violations were committed and accepted by the appellant… Why would anyone give the undertaking to settle the liability if there is nothing outstanding against it?” the order of the appellate bench of the SECP said.
Published in The Express Tribune, January 29th, 2016.
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