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SEC halts Premier Bank IPO for 'irregularities'

MONJUR MAHMUD
The Securities and Exchange Commission yesterday suspended a Tk 55 crore public floating of Premier Bank Ltd after around 25,000 beneficiary owners' (BO) accounts suspected to be fake had been found in an investigation.
The bank allegedly used a single address to open around 15,000 accounts. Only a few addresses
were mentioned to open the rest around 10,000 accounts, mainly at its Mohakhali and Gulshan branches.
The capital market regulator in its preliminary investigations found Premier Bank's depository participant (DP), Equity Partners Ltd, which has been managing the largest ever initial public offering (IPO) in the banking sector, and Anwar Securities Ltd also involved
in the alleged irregularities.
It is now alleged that one of the bank's directors with political links may have a role in the opening of the accounts to subscribe the majority of the IPOs.
The SEC formed a four-member team led by its Executive Director Monsur Alam to further investigate
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the alleged irregularities and to report within 45 days. SEC directors Farhad Ahmed, ATM Tariquzzaman and Mahbubul Alam are the three other members.
"This is the first instance that the regulator has been forced to suspend subscription of an IPO," Alam told newsmen yesterday at his Dhaka office.
He said, "The decision [of suspension] has been taken on the basis of the findings of our preliminary investigations into a number of allegations," adding, "We have already conveyed our decision to the bank and the issue manager."
The SEC investigations found that Premier Bank had opened approximately 25,000 BO accounts from January 17 to February 9, an abnormally high rate of account opening by a DP. The SEC had licensed the bank to work as a DP back in May 2004, but the bank opened the first BO account as late as on January 17 last.
"The rate and the way of BO account opening look very suspicious to us," said Alam.
He said as it is mandatory to mention a bank account number and the branch of the bank to open a BO account, the inquiry committee will probe whether Premier Bank also has opened any false bank accounts, which is an act of money laundering.
The SEC ED said the commission believes the activities of Premier Bank will hurt the interests of the capital market as well as the investors. The SEC has urged general investors not to deposit any money against the IPO until further decision.
Talking to The Daily Star yesterday on the issue, Central Depository Bangladesh Limited (CDBL) Managing Director Mohammed Habibus Samad said, "A depository participant is supposed to abide by the rules and regulations of the SEC and cannot open BO accounts in such a way, which is a violation of rules."
"The depository system is becoming a mess," he observed. On an average, around 10,000 BO accounts are being opened a day, he said, expressing the fear that in such a situation the CDBL system might fail. As instance, Samad said the number of BO accounts increased from 3.01 lakh on February 10 Thursday to 3.12 lakh
on the next working day, yesterday.
PREMIER BANK'S VERSION
Premier Bank Board of Directors Chairman HBM Iqbal yesterday said: "Can my employees not open accounts to purchase shares?"
Premier Bank Managing Director Kazi Abdul Mazid denied knowing about the alleged scam, saying, "I have no information."
"A number of employees of some garment factories in Chittagong, who are our clients, have opened accounts," Mazid said, adding, "They have done this properly and they are easily identifiable. The SEC may verify their authenticity and should have served a show-cause notice before suspending the IPO."
ALLEGATIONS
Last month, Dhaka Stock Exchange (DSE) sought SEC's intervention in the Premier Bank's IPO process, which it alleged to be designed to limit participation of general investors.
In a letter to SEC Chairman Mirza Azizul Islam, DSE requested to act in this regard with topmost priority for the interest of investors.
In the face of severe criticism, Premier Bank was forced to change its IPO subscription period from February 20-26 to February 22-27 and increase the number of bank branches for receiving money from the public.
According to the earlier schedule, the IPO subscription were to open on February 20 and continue until February 26 at the 20 Premier Bank branches across the country and two other commercial bank's branches in Cox's Bazar and Rajshahi.
As the seven-day period included only three and a-half working days, February 20 and 21 being holidays and February 25 a Friday, it was apprehended that many people would not be able to deposit money in such a short time.
Many small as well as big investors also suspected that the bank might try to manipulate the IPO process.
After receiving many such allegations and objections, the SEC chairman earlier admitted that they had overlooked the points before approving the prospectus. The SEC also warned the company about the flaws.