BSEC to sue Nurani Dyeing, its sponsors, auditors, and issue managers

The Bangladesh Securities and Exchange Commission (BSEC) is going to sue Nurani Dyeing and Sweater Ltd, its sponsor-directors, issue managers, and auditors, on account of fraud with the company's initial public offering (IPO).

They will face charges because of their false information, fake document submission during the company's IPO in 2017, and later embezzling IPO funds.

The issue managers and auditors will be held responsible for their false due diligence report.

The BSEC finalised the decision for enforcement at a meeting on Wednesday.

The fraud

The Dhaka Stock Exchange (DSE), in its inspection last year, found Nurani Dyeing's factory and offices closed and its owners had fled the country after embezzling everything they collected from investors and banks.  

BSEC formed an inquiry committee in this regard, where its Deputy Directors Sirajul Islam and Mohammad Ratan Miah, were the committee members. 

The committee found that during its IPO, the company gave misleading details of its liabilities to an unbelievable extent. 

The company said in its IPO prospectus that the long-term loan from AB Bank was Tk100.15 crore from 2016 to 2017, whereas the committee found it was Tk578.05 crore from 2018 to 2020.

The Feni-based sweater exporter embezzled Tk41.14 crore of the Tk43 crore IPO funds by making fictitious payments to related parties and sister concerns.

Three local investment banks – Imperial Capital, EBL Investment, and CAPM Advisory Ltd – as the issue managers, provided the due diligence certificates which were later proven false.

The statutory auditor in 2017 certified that all information in the financial statements was true which was actually not so.

In 2019 and 2020, the company prepared financial reports showing fake exports, sales, receivables, and bank certificates. But the auditor provided a clean report, despite the company's factory being closed then.

In the meantime, sponsor-directors – using their 30.93% company shares as collateral for loans - finally defaulted, and their shares got seized by the bank.

Controversial IPO

Nurani Dyeing's IPO in 2017 was very controversial as the securities regulator under the chairmanship of Professor M Khairul Hossain at the time, approved the IPO despite the firm's loans being in default.

After securing High Court protection in the form of a stay order, the company managed to legally blackout its Credit Information Bureau (CIB) status as a loan defaulter.

A company cannot go public if it or any of its directors is a loan defaulter, according to Public Issue Rules.

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 which damaged the accounts of investors.

Not only did it embezzle the IPO funds and fake the operational status of its business, the company also kept submitting false utilisation reports of the funds it collected from investors.

Ahmed Zaker & Co Chartered Accountants was the IPO auditor as per the prospectus.

According to the IPO prospectus, Mrs Rehana Alam is the chairman, and Sk Nurul Alam is the sponsor and managing director of the company.