Price manipulation: Big insurance company being investigated for insider trading

Trading in Adamjee stock soars 5.5 times before bonus shares announced.

KARACHI: The most profitable company in Pakistan’s general insurance industry is under investigation for alleged insider trading and share price manipulation, sources told The Express Tribune.

The investigation into the matter was set in motion immediately after Adamjee Insurance Company – which is part of the country’s largest conglomerate run by business tycoon Mian Muhammad Mansha – convened a meeting of its board of directors on November 11 without notifying the stock exchange in advance.

In addition, the company’s board of directors recommended during the meeting that interim bonus shares in proportion of 182.9% – 1.8 shares for every share held – be issued besides proposing an increase in the company’s authorised capital from Rs1.5 billion to Rs3.7 billion while altering its Memorandum and Articles of Association.

When contacted by The Express Tribune, the spokesperson for Adamjee Insurance insisted that the company “fully complied with all the relevant legal obligations under the KSE listing regulations as well as all applicable laws, rules and regulations.”



He added that the notice of the board meeting held on November 11 was not required to be sent to the KSE.

However, Regulation 29 in Chapter VIII of the listing regulations of the KSE says otherwise: “Every listed company and issuer of listed security shall notify to the exchange at least one week in advance the date, time and place of its board meeting specially called for... (the) declaration of any entitlement for the security holders in the manner notified by the exchange from time to time.”

Unusual volumes

More alarming is the fact that the recommendation of 182.9% bonus shares in an unannounced board meeting coincided with an unusually high turnover in the stock of Adamjee Insurance on the Karachi bourse.

For instance, average daily turnover in the company’s stock during November 1 and November 7 remained at 251,700 shares. However, in the subsequent two trading sessions on November 8 and November 11, the daily average turnover jumped to 1.38 million shares.

In other words, the average trading volume of Adamjee Insurance increased 5.5 times in the run-up to the announcement of 182.9% bonus shares in the board meeting of the company held on November 11.

Quite remarkably, the share price of Adamjee Insurance has risen from Rs81.23 on November 11 to Rs103.32 on November 28, reflecting an increase of 27.2% in just 11 trading sessions.

Moreover, its share price was Rs72.92 at the beginning of November, which signifies price appreciation of 41.7% between November 1 and November 28.

Commenting on the issue of alleged insider trading on November 8 and November 11, the company spokesman said it would be futile to speculate whether any stock movement was a result of insider trading in the absence of specific incriminating information.

“The company has fully complied with its obligations under the relevant legal provisions to prevent insider trading in this particular instance,” he added.

According to the Securities and Exchange Commission of Pakistan (SECP), which is the top regulator of the country’s corporate sector, the KSE management has taken up this issue with the company.

“The company has submitted its reply, which is being reviewed by the KSE. We are in touch with the KSE in this regard,” a spokesman for the SECP told The Express Tribune.

“We are currently looking into the matter of a significant change in the price and volume of the scrip with special reference to insider trading and price manipulation,” he stated.

Published in The Express Tribune, November 30^th, 2013.

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