Market regulator bans audit firm over anomalies
The securities regulator has banned audit firm Ahmed Zaker and Co from the stock market for collaborating with an asset management company to embezzle investors' funds.
In an order issued on Wednesday, the regulator said the firm would not be allowed to audit the financial statements of any mutual funds or listed companies.
The Bangladesh Securities and Exchange Commission (BSEC) further said that the order will remain in force until further orders.
It is alleged that the audit firm assisted Universal Financial Solutions (UFS) in embezzling Tk158 crore of investors' money.
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In a preliminary investigation, the commission has found evidence that Syed Hamza Alamgir, managing director of the asset management company, embezzled the money from four open-end mutual funds managed by it and fled abroad. And the embezzlement process started in 2018. The money was misappropriated by showing fake fixed deposit receipts (FDRs) and assets.
Auditors for three of these four funds were Ahmed Zaker and Co. Another firm's auditor was Rahman Mostafa Alam and Co. But the audit firms have given the validity of the fake assets and FDRs over the last four years.
BSEC spokesperson and Executive Director Rezaul Karim told The Business Standard, "Ahmed Zaker and Co was summoned to the hearing by the commission's inquiry committee. But it did not cooperate with the committee by not appearing at the hearing. Therefore, this punitive action has been taken against it."
He said that they will write to the Institute of Chartered Accountants of Bangladesh (ICAB) to take further action against the firm.
However, when asked why no action was taken against another audit firm, Rahman Mostafa Alam and Co, he did not respond.
This correspondent called Zabed Ali Mridha, partner of Ahmed Zaker and Co, but he did not pick up the phone.
Abu Ahmed, stock market analyst and former economics professor at the University of Dhaka, told TBS, "People invest in mutual funds with the hope of making a profit. But this kind of cheating with people's trust is not acceptable at all. Those involved in this should be brought under befitting punishment."
UFS' scam
This asset management company got licence from the BSEC in 2010 and changed ownership in 2013. The company currently manages five open-end funds. Two more funds have been approved.
At present, the total assets of the mutual funds managed by the company are around Tk460 crore.
Among these, BSEC has found evidence of money embezzlement from four funds – UFS-Popular Life Unit Fund, UFS-IBBL Shariah Unit Fund, UFS-Padma Life Islamic Unit Fund, and UFS-Bank Asia Unit Fund.
The Investment Corporation of Bangladesh (ICB) is the trustee and guarantor of these funds.
According to BSEC sources, so far information of Tk158 crore embezzlement has been found. The investigation is still ongoing. The embezzled amount is believed to be Tk300 crore. The commission started an investigation against the company in June last year. Syed Hamza Alamgir fled abroad before this news was spread.
According to sources, the main sponsors of these funds are Islami Bank, Popular Life Insurance, Padma Life Islamic Insurance, and Bank Asia and the National Bank has also made an investment of Tk50 crore. Currently, National Bank is active in trying to recover the money.
Syed Hamza Alamgir told TBS from Singapore, "We have made some mistakes. We will return the money to the investors. Now we need some time."
Another asset management company is in discussion
Alliance Capital Asset Management has been accused of misappropriating Tk72 crore. It has embezzled the money from MTB Unit Fund and Alliance Sandhani Life Unit Fund managed under it. And on the basis of this complaint, the BSEC has launched an investigation.
However, Asadul Islam, managing director of the asset management firm, said, "There was a mismatch of Tk72 crore due to problems in accounts. Now the matter is settled."
The BSEC has formed separate investigation committees against the country's top asset management companies, Race Management, LR Global, and ICB Asset Management.
The committees will look into the assets, dividends, and management capabilities of the mutual funds managed by these companies.
Performance of fund managers
According to a report by LankaBangla Securities, the portfolio loss of listed closed-end mutual funds in 2022 was 8.27%. That is, the assets of mutual funds have decreased.
Currently, 37 closed-end mutual funds are traded on stock exchanges. However, only three funds' unit face value is trading above Tk10. And 36 out of 37 funds have their unit prices stuck at the floor price.
Market insiders believe that most mutual funds remain below face value due to a lack of confidence in asset management companies.
Data on open-end mutual funds is not available as they are not listed on stock exchanges.
AIMS Asset Management has done well amid such dismal performance by fund managers. The mutual fund portfolio managed by the firm had the highest portfolio return of 46.46%. And LR Global has performed the worst. The portfolio size of mutual funds managed by the firm decreased by 12.13%.
