Five investors deny authorising Malek Spinning share sales as BSEC launches probe

The Bangladesh Securities and Exchange Commission (BSEC) has launched an investigation into disputed sales of Malek Spinning Mills PLC shares from the accounts of five investors, focusing on conflicting claims between First Security Islami Capital & Investment Ltd, a merchant bank, and City Brokerage Ltd, a panel broker of the merchant bank.

The dispute centres on who instructed City Brokerage to sell the shares. According to the BSEC's inquiry order dated October 18, City Brokerage claimed it received the sell orders from First Security Islami Capital, while the merchant bank denied issuing the instructions. The five investors also denied authorising the sales, prompting the regulator to investigate how the transactions were initiated, executed and settled.

The relationship between the two institutions is central to the case: City Brokerage is identified in the order as a panel broker of First Security Islami Capital. The BSEC will examine how the disputed orders passed between them, who authorised the transactions and whether the brokerage followed the required procedures before executing the sales.

Investigators will verify the original sell-order sheets reportedly maintained by First Security Islami Capital and compare them with documents submitted by City Brokerage to the commission. They will also examine the authenticity of signatures and determine whether the documents were prepared at the relevant time or subsequently fabricated, backdated, altered or otherwise manipulated.

The inquiry will further trace the movement of the shares and sale proceeds, including how First Security Islami Capital provided securities for settlement despite reportedly denying issuing the sell orders. Investigators will examine whether the proceeds were adjusted against margin liabilities and whether the shares were subject to lock-in restrictions or margin financing.

The commission has appointed Md Saiful Islam, additional director (general) at the BSEC; Mohammad Nuruzzaman, assistant director (general) at the BSEC; and Md Saiful Islam, manager at the Dhaka Stock Exchange PLC, to conduct the investigation. They have been asked to submit their report within 60 working days.

The team will identify any violations or irregularities attributable to the parties concerned, quantify the financial impact and recommend appropriate regulatory or enforcement measures.

The case raises questions about the safeguards governing transactions between a merchant bank and its panel broker, particularly the verification of client authorisation and the maintenance of reliable order records. However, the inquiry order does not establish wrongdoing by either institution or any other party; the investigation is intended to determine the facts.