Sylnet Securities suspended, CSE steps in to pay back clients' funds

The Chittagong Stock Exchange (CSE) has suspended the operation of Sylnet Securities Limited due to its failure to return clients' money.

Additionally, the CSE has taken the initiative to assist investors in retrieving their funds.

On Tuesday, the port city bourse published a notice in a daily newspaper asking investors to submit supporting documents for their payables within the next 15 days.

According to officials at the stock exchange, the operation of the brokerage firm, which had been conducting business since 2010 with a licence from the CSE, was suspended in November 2022 in compliance with the directive from the market regulator.

The Bangladesh Securities and Exchange Commission (BSEC) took this action in response to repeated complaints by investors who had not received their dues back from the brokerage firm, added the CSE officials.

ATM Shoeb, managing director of Sylnet Securities, which has branches in Sylhet, Sunamganj, and Naogaon, denied allegations of embezzling clients' money.

"We used to trade shares with late payments from clients, which resulted in a deficit in customers' accounts. The deficit has been created due to outstanding dues from clients," he told TBS.

"We are making efforts to resume operations by meeting the deficit in our consolidated customers' accounts," he added.

When contacted, CSE acting managing director Ghulam Faruque declined to comment on the matter.

According to BSEC sources, there is a deficit in the consolidated customer account of Sylnet Securities because of which the brokerage firm is not repaying its customers. And to ascertain whether this money has been embezzled, the commission formed an investigation committee at the end of June.

Earlier, the firm was fined by the market regulator in 2013 and 2020 for violating securities laws.

When a broker misuses the idle cash of its brokerage clients, the consolidated customer account balance becomes negative. Pouring back the same amount of money is a must to make the account balance positive. 

The firm will also not enjoy any dividend as a shareholder of stock exchanges, despite the special quota to subscribe for primary shares, until the consolidated customer account deficit is cleared.

Embezzlement of clients' money in the country's stock market is not new. Earlier, seven brokerage firms with the CSE and Dhaka Stock Exchange (DSE) embezzled clients' money. The dues from these firms have not yet been fully settled.

Four brokerage firms of CSE embezzled Tk50 crore from clients. Due to this situation, the business activities of Sylhet Metro City, Trendset Securities, Firstlead Securities, and Moharam Securities have been suspended. CSE is trying to pay clients' dues by selling the licences and assets of these companies.

A CSE official said that 30% of the company's clients' dues have already been paid by selling the licence of Trendset Securities. However, Sylhet Metro City's licences and assets could not be sold due to a writ moved by the owners. And the CSE is trying to sell the licences of the remaining two.

Meanwhile, DSE's three brokerage firms– Banco Securities, Crest Securities, and Tamha Securities—were suspended for embezzling around Tk177 crore from more than 10,900 investors.

The DSE suspended the trading operation of Tamha Securities on allegations of embezzling around Tk52.79 crore of investors' money, Crest Securities for Tk36.52 crore and Banco Securities for Tk87.56 crore.

According to the DSE, in the last two years, three suspended brokerage houses paid only 8.46% of the total cash claimed by the duped general investors.

According to a senior officer of the DSE, the premier bourse sold some assets, and dividends were deposited with the DSE by three brokerages. From the fund, an average of 15% was paid to some investors on their claims. A few more payments are in process.

Consolidated customer account deficits have become a widespread problem in the brokerage industry.

According to the latest report of the BSEC, the six firms were running with a total of over Tk49 crore in deficits in their accounts.

PFI Securities have over Tk33 crore in consolidated customer account deficit, Modern Securities has over Tk5 crore, Fareast Stocks and Bonds over Tk1.2 crore, Asia Securities Tk62 lakh and Latif Securities Tk32 lakh.