KSE offers investors in bankrupt brokerage house peanuts

ISLAMABAD: The one thousand and seven hundred people who invested their money through brokerage house Eastern Capital Brokers Ltd are being offered only six per cent of what they lost by the Karachi Stock Exchange (KSE).

The investors, not surprisingly, are unhappy with the offer.

“The offer is unacceptable to us,” said Muhammad Naeem, a representative of more than 1,700 small account holders.

Talking to The Express Tribune, Naeem said, “We were left stunned when Munir Ladha, [the owner of Eastern Capital] fled to Dubai, despite his name being on the Exit Control List.”

The company, valued at Rs482.89 million, went bankrupt last year. It was registered with the KSE in 2007 against a security of Rs500 million. Four other companies are also alleged to have been involved and were expelled by the KSE along with Ladha’s company, he added.

“We wrote a letter to the KSE and Securities and Exchange Commission of Pakistan (SECP) last year, seeking that the shares be transferred to other companies,” said another investor Muhammad Iqbal Khar.

On April 26 KSE replied that they had received 1,638 claims against Eastern Capital. A copy of the response is available with The Express Tribune.

The letter said that the net funds available for distribution through liquidation of assets of the Eastern Capital added with maximum allowable contribution from the Investors Protection Fund comes to Rs32.51 million.

Copies of records obtained by The Express Tribune show that the brokerage house, without consent or authority, transferred the shares of their clients and pledged them with a bank to obtain financing. This money was mostly used by Ladha for purchase of shares and payments of personal expenses, alleged Naeem.

He further said that the KSE’s top management had allowed Ladha and his brother Abdul Samad Ladha to continue the sale and purchase of shares amounting to over one billion rupees.

The investors have appealed to the chief justice of Pakistan to take suo motu notice of the case and also accused SECP chairman Salman Ali Sheikh, SECP executive director Aqif Saeed, KSE managing director Muhammad Sohail Biala, former commissioner of the SECP and other relevant authorities of being aware of the fraud that was taking place.

Meanwhile, the former zonal marketing officer of Eastern Capital in Dera Ghazi Khan, Muhammad Tariq, said that the Ladha brothers also looted the company’s employees.

“I lost shares worth of Rs1 million,” he said. According to Tariq, one of the reasons for the company going bankrupt was also the fall of the market.

Haroon Askari, the head of operations at the KSE, said that more than 1,200 complaints had been received against the Ladha brothers.

“According to reports, they had been involved in looting money for years but the KSE suspended them and another four members on August 13, 2009,” he said, denying charges that the KSE officials were involved.

Meanwhile, a senior SECP official, requesting anonymity, told The Express Tribune that the commission had received a number of complaints from investors against KSE brokers during the first half of 2009, mainly pertaining to alleged non-transfer of shares and non-payment of funds.

However, SECP spokesperson Obaidullah Ansari rejected claims that officials were involved. “The KSE guarantees the safety of interests of all investors as well as registered companies,” he said, adding “if someone is found guilty, they will be penalised.” The companies as well as SECP officials will not be spared if guilty, he said.

Published in the Express Tribune, June, 2010.