The Bangladesh Securities and Exchange Commission (BSEC) formed an inquiry committee on Monday to investigate the initial public offering (IPO) fund embezzlement of Nurani Dyeing and Sweater Ltd – a Feni-based sweater exporter.
BSEC Deputy Directors Sirajul Islam and Mohammad Ratan Miah are members of the inquiry committee.
In its inspection and investigation last year, the Dhaka Stock Exchange (DSE), found that over Tk41 crore of IPO funds raised by Nurani Dyeing were embezzled by the company's owner entrepreneurs who have already fled the country.
The firm, listed on the stock exchange in 2017, has been engaged in submitting false financial information and fake supporting documents from the outset when it had planned for the IPO.
It was filing fake turnover and fund utilisation reports, until the DSE inspection in mid-2020 found the factory permanently closed.
Nurani Dyeing's IPO in 2017 was very controversial as the securities regulator under the chairmanship of Professor M Khairul Hossain at the time, gave the company IPO approval despite it being a loan defaulter that withheld that information on the Credit Information Bureau (CIB) report with a stay order from the High Court.
A company cannot go public if it or any of its directors is a loan defaulter. Since the BSEC did not obtain any proof of loan default in the CIB report, it did not stop the company from taking money from investors.
DSE inspection found that Nurani Dyeing used Tk11.8 crore of the IPO money to pay back a small part of its defaulted loans which the company entrepreneurs had previously embezzled already.
Tk29.34 crore of the IPO funds were taken away by cash withdrawal or bank transfers to various accounts.
Less than Tk2 crore of the funds they could not embezzle was used to bear the IPO costs and some essential expenses.
The company kept reporting false financial information before it went public and continued until the DSE inspection unearthed the truth.
Its reported turnover of nearly Tk200 crore for the fiscals 2018-19 and 2019-20, and its bank statements that supported a letter of credit for purchasing machinery worth over Tk24 crore out of the IPO funds were all fake.
The company submitted fake bank statements to support its fake turnover, receivables, and even the taxes deducted at source were falsified.
Auditor Shiraz Khan Basak and Company completely failed to catch the fraudulent activities of the company in 2020, the DSE found.
Another auditor, Mahfel Huq and Company, submitted fabricated documents in 2019 in support of over Tk33 crore in transactions and fake financial balances of Nurani Dyeing.
Even in as far back as 2017, the year of its IPO, the company submitted fake documents to overstate its bank deposits and to hide its liabilities.
Nurani Dyeing also concealed its liability to AB Bank of over Tk110 crore and its financial disclosures regarding interest expenses were all false.
AB Bank classified the Nurani Dyeing account in June 2020 and in June 2021, as a company that owed over Tk233 crore to the bank, according to the DSE.
Not knowing about so many fraudulent activities of the company, stock investors were still trading each Nurani share on the DSE at Tk7.1 against a face value of Tk10.
Nurani's stock price began to drop from a range of Tk11-12 in August last year, when the DSE informed investors that it found the factory closed.