KARACHI (October 06 2007): The Securities and Exchange Commission of Pakistan (SECP) has imposed a fine of rupees five million on Zafar Moti Capital Securities Limited (ZMCS) and Zafar Siddiq Moti, Chief Executive of ZMCS for operating an illegal outlet.

Moreover, ZMCS was further directed to pay/settle all claims of the complainants, failing which the broker's registration will be suspended for one year, and in case settlement of any claim remains pending by the end of suspension period, the registration may be cancelled.

The exchange, being the front line regulator, was also directed to monitor and supervise the entire process of settlement of claims of the complainants and ensure that the process is completed within the stipulated time and thereafter submit a report to the commission with necessary confirmations from the complainants, evidencing settlement of their respective claims.

The SECP, in its order, said that ZMCS wilfully contravened Section 18 of the 1969 Ordinance and was liable to be penalised under Section 22 of the 1969 Ordinance. This order will dispose of the proceeding through show-cause notice no. SMD-SOUTH/IU-KHI(619)/ 2007 dated August 20 2007 under Section 18 & 22 of the Securities & Exchange Ordinance, 1969 and Rules 8 read with Rule 12 of the broker and agents Registration Rules 2001 for contravention of the requirement of the code of conduct laid down in the third schedule to the Securities and Exchange Commission of Pakistan.

Brief facts of the case are that the Commission received various complaints from investors (hereinafter referred to as "Complainants"), alleging that Tariq Saeed of T.M. Finance Services was dealing in securities for the clients/investors in an illegal and unlawful manner, through ZMCS.

The Complainants submitted documentary evidence in support of their allegations which included copies of printed receipts/vouchers, trade sheets, CDC statements and account opening forms issued by T.M. Financial Services, depicting that Tariq Saeed of T.M. Financial Services was dealing in securities for the clients/investors in an illegal and unlawful manner.

Additionally, according to the independent information received from the Central Depository Company of Pakistan Ltd ("CDC"), it was established that Tariq Saeed was maintaining sub-accounts with a number of brokers, including ZMCS. Further, Tariq Saeed was not registered as a broker/agent of any broker, including ZMCS with the Commission under the 1969 Ordinance and the Rules.

"Section 5A of the 1969 Ordinance provides that no person shall act as a broker or an agent to deal in the business of effecting transactions in securities unless he is registered with the Commission in such a manner, on payment of such fees and charges and on such conditions as may be prescribed.

"As Tariq Saeed was not registered and/or authorised person, his activities pertaining to dealing in securities and effecting transactions in relation thereto on behalf of clients/investors were illegal and in complete disregard of the applicable securities laws and rules.

"Pursuant to the above, since Tariq Saeed was dealing in securities illegally and without due authorisation in clear violation of Section 5A of the 1969 Ordinance read with the Rules and since Tariq Saeed was holding shares/amount of genuine investors/clients in various CDC accounts and trading accounts opened/maintained with a number of brokers, including ZMCS, as such, under Section 20 of the 1969 Ordinance, read with Section 20(6)(g) of the Securities and Exchange Commission of Pakistan Act, 1997, it was deemed appropriate in the public interest to temporarily freeze the accounts of Tariq Saeed and prohibit transferring of shares/funds out of these CDC accounts and respective trading accounts.

"Accordingly, the Commission passed on Interim Order dated June 29, 2007 in the context of a show-cause/prohibitory order dated June 29, 2007 ("TS Show Cause"), prohibiting movement of securities from Tariq Saeed's respective CDC accounts and payment of funds from his respective trading accounts, including such accounts maintained by ZMCS, till further orders under Section 20 of the 1969 Ordinance.

"Subsequently, on examination of the information provided by the complainants as well as the evidence collected and further confirmed by independent sources such as the State Bank of Pakistan ("SBP"), the Exchange and the CDC, it became prima facie evident that Tariq Saeed was running a set-up/branch office of ZMCS, without being registered as an agent, of ZMCS, with the Commission, which was in the knowledge of ZMCS and Zafar Siddiq Moti.

"The following evidences were found in this regard:

"-Trading Work Station (TWS) registered with ZMCS was installed on the premises of T.M. Financial Services located at Room 209, 2nd Floor, Fortune Centre, Block 6, PECHS, Karachi, as confirmed by the information provided by the Exchange, from 28th May 2004 to 2nd April, 2007.

"-Copies of bank cheques issued by the complainant in favour of ZMCS were directly deposited in ZMCS's account.

"-Copies of CDC cheques provided by the Complainants, which were directly written in the name of ZMCS.

"-Copies of cheques that were issued by ZMCS to the complainant on account of trading activities with T.M. Financial Services.

"-Copy of request by one of the complainant namely, Younus Warind, wherein he requested that his securities maintained with ZMCS be transferred into Bagasra Securities (Pvt) Ltd.

"Based on the evidences gathered during the proceedings against Tariq Saeed and the statements made by Siddiq Moti in the hearing of July 10, 2007, ZMCS and Zafar Siddiq Moti were issued August 20 SCN, Zafar Siddiq Moti and ZMCS submitted their written submission through a letter dated August 24, 2007. The hearing of August 20 SCN was held on August 28, 2007, which was attended by Zafar Siddiq Moti, CEO of ZMCS and Javed Ibrahim, a representative of ZMCS, and made submissions in relation to the matter.

During the course of the hearing on August 28, 2007, Zafar Siddiq Moti, was once again asked the three queries to which he had earlier replied in the negative at the hearing held on July 10, 2007. Zafar Siddiq Moti reiterated his earlier stance and responded in the negative to each of the three questions.

"The evidence clearly reveals that ZMCS and Zafar Siddiq Moti were in full knowledge of the facts surrounding the illegal activities being conducted through T.M. Financial Services/ Tariq Saeed. The false and incorrect statements made by ZMCS and Zafar Siddiq Moti to the Commission are hence a clear violation of Section 18 of the 1969 Ordinance.

"It is further clear that Tariq Saeed was running a business set up under the name of T.M. Financial Services without being registered by ZMCS as its agent which is a contravention of Section 5A of the 1969 Ordinance read with the Rules. The Commission reserves its right to take separate action against ZMCS on this issue.

Copyright Business Recorder, 2007