Brokerage houses have gone bust before, but the Ace Securities fiasco still seems something out of a space ship in comparison to earlier defaults. After all, who has ever heard of a broker going bust in a bull market? How does that even happen?
To understand how the default occurred, it is pertinent to review the exact nature of the broker’s fraudulent practices. Sources privy to the investigation have shared details about how Ace Securities defrauded its clients.
These documents reveal that the brokerage firm purchased shares on behalf of its clients and recorded these entries duly in its ledgers. However the same shares were subsequently sold off, without clients’ knowledge.
In order to keep up this charade, the brokerage house shared fake contact information on behalf of clients with CDC so that they would not be contacted directly regarding the sale of their assets.
“The clients were receiving SMS, fabricated ledgers and securities balance reports showing positions as per their portfolios from the back office of ASPL and were not aware of the fact that their shares/funds had actually been used by the brokerage house”, the investigation has revealed.
Raheel Latif is one of the defrauded clients suing the brokerage house. Talking to BR Research he said that the malpractices have been going on for years and complaints to regulators yielded no progress until recently.
So how did the façade last so long? Few years back, stock prices were relatively low and volumes thin. So in the odd case that a client wanted to liquidate his shareholding and redeem cash, the brokerage could always swindle some other client to come up with the cash.
However the stock market has rallied to never before seen levels in more recent times and share prices have mushroomed. Clients’ attempts to sell shares and prevalent market rates cost the brokerage a pretty penny.
And since the money had already been swindled away, the owners of Ace Securities Private Limited packed their bags (with other people’s cash!) and fled the country. They have chosen to attempt to evade law enforcers and the people they have defrauded instead of paying their dues.
And that is how this broker went bust in a bull market.
The whole tale is not told yet. Law enforcers and the front line regulator are vowing that this time things will be different. This time the perpetrators will be caught. In fact it has even been claimed that Munir Ladha and others involved in the Eastern Capital Securities fraud case will also be brought back to the country and to justice.
Time will tell just how seriously the regulator takes its own aims. But for now, the actions of a few have once again sullied the integrity of stock brokers. Better oversight from the regulator or a prompter response on clients’ complaints could have played out differently.
The clients themselves should also have exercised more caution; verifying their CDC accounts independently and insisting on keeping long-term shareholdings in personal CDC accounts instead of sub-accounts through the broker.
Comments
Comments are closed.