It is a welcome development that the country's securities regulator that hitherto, to a large extent, has been docile and toothless, has started biting. Late last week, the regulator imposed a substantial amount of fine on a listed company, a brokerage firm and some individuals for alleged 'misuse' of IPO funds and 'manipulation' of share prices. In one case, a listed company reportedly made available 'false' information and 'fake' bank statements on the utilisation of funds it had mobilised through the initial public offering (IPO). In another incident, a brokerage firm and some individuals had allegedly manipulated share prices of a listed dry cell manufacturing company four years back.
The actions, it seems, have much to do with the recent changes made in the upper echelon of the Bangladesh Securities and Exchange Commission (BSEC). There are valid reasons behind thinking so. The allegations of fraudulence and irregularities in the stock market are nothing new, but, until recently, appropriate steps to deal with those and response to investors' grievances have been very scanty. A section of stock market investors had tried to alert the securities regulator about the company in question when it had floated an IPO back in 2018, but nothing was done. The company could mobilise its targeted amount of funds that it had, allegedly, spent on purposes other than mentioned in the IPO. Similarly, some individuals and a brokerage firm joined hands in 2015-16 and manipulated the share prices of a listed dry cell manufacturing company. The offence was detected by the regulator back then. Yet no action was taken. Indifference on the part of the BSEC, to be honest, was largely responsible for the two crashes and current moribund state of the market.
For instance, the misuse of IPO funds is an old issue. It has surfaced time and again, yet the BSEC did not take appropriate actions to discourage others from doing the same. There are problems with the scrutiny of IPO applications and relevant other checks before allowing an IPO for public subscription. Parties, including the BSEC, in many cases, do not undertake an all-important physical inspection of project sites and proper scrutiny of their financials. The skipping of all these essential steps does often give rise to many unpalatable questions.
However, such negligence, deliberate or otherwise, in ensuring proper scrutiny over the years has taken a heavy toll on both investors and market. Many instances are there where companies got listed on the bourses producing rosy financials. But within a very short time, all their claims proved to be hollow. Diversion of IPO funds by the listed companies to activities other than those mentioned in their prospectuses is illegal under relevant securities law. Yet companies have been committing such an offence almost regularly.
The issue manager, the BSEC and relevant others are required to make rigorous scrutiny of the IPO proposals, especially the financial reports, before their floatation. Here, the audit firms do always have a very important role to play. Unfortunately, questions have been raised on occasions about honesty and professional integrity of a section of audit firms. The Institute of Chartered Accountants, Bangladesh (ICAB) and the Financial Reporting Council (FRC), however, are now trying to identify the 'black sheep' in the profession and straighten them out. Undeniably, regulatory failures have largely contributed to the decline of the country's stock market. The latest actions on the part of the newly organised Commission would surely raise expectations among genuine investors. Hopefully, the regulator will continue such efforts taking into confidence other key stakeholders in the market.
