The Bangladesh Securities and Exchange Commission (BSEC) has levied a total fine of Tk 0.5 million against Dhanmondi Securities Ltd. and four of its directors for the misappropriation of client funds from its consolidated customers account (CCA) and for committing multiple regulatory infractions.

The penalty comes after a thorough examination by the Dhaka Stock Exchange (DSE), which identified discrepancies in the company’s financial documentation and fund management practices.

Dhanmondi Securities has been fined Tk 0.1 million, while its directors Md Mizanur Rahman Khan, Akhter Jahan Khan, Md Mazbahuddin, and Asif Islam Khan have each received a penalty of Tk 0.1 million for their roles, as detailed in the BSEC’s enforcement report for July.

The DSE’s investigation uncovered a fund shortfall of Tk 170.29 million in the CCA as of June 14, 2022.

Although the company later claimed a reduced deficit of Tk 71.54 million on September 4 of the same year, further investigation revealed that this adjustment was based on falsified financial records.

Upon reviewing the company’s documents, the DSE’s inspection team discovered several fraudulent financial entries in their ledger and in the receive/payment vouchers.

“The company maintained false ledgers in their back office software, which were presented to the inspection team,” the DSE report indicated. These records were found to be at odds with the company’s actual bank statements.

Initially, the DSE imposed operational restrictions on Dhanmondi Securities after identifying irregularities, but these were later lifted when the company reported a temporary surplus in the CCA. However, subsequent inspections revealed that this surplus was a result of fictitious entries.

CCA accounts, which stock brokers are required to maintain with scheduled banks, are exclusively used for clients’ funds associated with stock transactions. A deficit in these accounts usually signifies misappropriation or misuse of clients’ funds.

According to securities regulations, any shortage or deficit in the CCA must be reported immediately to the stock exchange by the stockbroker, regardless of the reason.

However, the Dhanmondi Securities failed to report the deficit, instead presenting false financial positions in the CCA, as stated in the DSE report.

“The inspection team believes that they engaged in fraudulent activities by consistently providing false statements to the exchange,” the report noted.

Additionally, the company made excessive payments to clients despite insufficient balances, the report indicated.

For instance, a client named Sumon Hossain, who had a negative balance of Tk 3,391, received a payment of Tk 116,255. Such transactions contributed to the deficit in the CCA.

Other violations by the company include the use of unauthorized mobile numbers in clients’ BO (beneficiary owner’s) accounts.

The DSE findings revealed that the company utilized the mobile numbers of its employees in numerous BO accounts belonging to clients.

Consequently, the employees benefited from the unethical trading activities carried out in the clients’ accounts.

According to regulations, stockbrokers must conduct all payments through account payee cheques. However, the company opted for cash payments to its chairman, directors, and managing director.

While a stockbroker is permitted to maintain only one CCA, the Dhanmondi Securities maintained three CCAs, violating the rules, as reported by the DSE.