NAB tells Senate panel: SECP lapses resulted in 'loot and plunder'

National Accountability Bureau (NAB) has categorically declared that the huge lapses on the part of the regulator ie Securities and Exchange Commission of Pakistan (SECP) resulted in loot and plunder of public funds through a well-planned white-collar fraud by the owners of the Natover Lease and Refinance Limited and its sister concerns.
The NAB officials told the Sub-Committee of the Senate Standing Committee on Finance which met at parliament house with Senator Haroon Khan in the chair. The committee met for the third time to discuss non-return of deposited amount and payment of monthly profit by a leasing company namely Natover Lease and Refinancing Company Limited to its' depositors.
In its investigative report submitted before the committee, NAB officials informed that the outcome of the inquiry proceedings, interpretation and analysis of various financial data of the involvement of various stakeholders and more particularly the role of regulators (SECP) have revealed manifold vigilance lapses and shortfalls, resulting thereby in looting public funds at large through a well-planned white collar fraud by the owners of the companies.
Explaining lapses on the part of the SECP, NAB officials said that clearance of identical name of the sister concern company, ie Natover International (Pvt) Limited, or vice versa, through same promoters, with almost similar objectives and registered office, appears to be the first lapse on the part of SECP, which eventually inclined the dishonest management to play foul games resulting in gigantic misappropriation of funds worth millions of rupees.
In accordance with the Balloters Transfer Agents and Underwriters Rules, 2001 no individual could become an underwriter, whereas on contrary the Natover Lease & Refinance Limited (NLRL) categorically communicates in a case (for example) with the SECP vide letter dated July 3, 2001 underwriting arrangements through Syed Dilawar Abbas of Syed Wajid Ali Shah, resident of Islamabad without undergoing any due diligence with regard to his capacity to arrange and make available the company funds equivalent to the amount agreed to be underwritten (clause 1.3 of his agreement refers). SECP's lapse in this regard is confirmed as neither any confirmation to the arrangement requested nor any rejection there-against was reportedly issued.
The NAB officials said that the Rule 9 of NBFC (Establishment and Regulation) Rules, 2003 requires that NBFC shall obtain sufficient insurance coverage on its own or for its clients benefit against any loss that may be incurred as a result of employees fraud or gross negligence, provided that the Commission may from time to time specify the nature and extent of insurance coverage to be obtained by the NBFC. This very important requirement both on the part of the company and SECP remains unattended, leading to loss exposure to the general public on gross negligence of SECP.
In its report, NAB further stated that the administrator appointed under the NBFC (Establishment and Regulation) Rules, 2003, defines administrator as a person appointed by the Commission to manage the affairs of a close-end fund or venture capital upon cancellation of such license granted to the NBFC by the Commission to operate as investment advisor or to manage the venture capital fund, subject to such terms and conditions as may be deemed appropriate by the Commission. The administrator appointed on February 15, 2008 was in gross contradiction to the prime requirement of prior cancellation of the license.
Administrator has been appointed in February, 2008 while the CEO left the country in March, 2008 clearly reflects gross carelessness on the part of SECP to have ensured that the CEOs name is put on ECL. This also gives an impression as if the CEO might have left in connivance with the Administrator brought for control of the management of the company. Similarly, Rashid Nadeem Shaikh left the country in March, 2008. SECP and/ or the Administrator appointed by SECP could have put him on ECL, knowing his collusion with his father Nadeem Shaikh, NAB officials said.
During the financial year 2007-2008, an inspection into the financial state of affairs of Natover Lease & Refinance Limited (NLPL) was initiated by SECP somewhere in July, 2007, which was completed on 21st August, 2007 and as an outcome it was declared that the company requires rehabilitation for which fresh injection of funds and finding some serious buyer(s) was observed inevitable. The company through a newly elected BOD persuaded MoUs with at least two prospective buyers seeking consent and approval from SECP with vigorous follow up. Instead, SECP superseded the BOD and appointed Administrator without cancellation of the license which is viewed to be serious irregularity under the law. Likewise, the entire process of seeking and analysing EOIs from the prospective buyers with no decision up until filing a criminal case against the Directors of the company as well as auditors, NAB added.
During the committee meeting, it was informed that the NAB has conducted an extensive widespread exercise by carrying money trails of huge financial transactions of Natover Lease and Refinance Limited and its sister concerns to find out the amounts siphoned out from the systems and determines beneficiaries. They also requested the Sub-Committee to give another period of fours months to the bureau for completion of investigation in the case Natover Lease and Refinance Limited which deprived public/depositors from investment of Rs 950 million. The sub-committee has turned down the request of the NAB for granting another four months period for completion of investigation and allowed one month period to submit the progress report by April 8, 2012. All auditors of the involved companies should be made part of the inquiry as they can facilitate NAB in completion of the inquiry, Senator Haroon said.
Officials of the NAB persistently requested the sub-committee to give a period of at least four months for analysis of banking transactions involved in this case. It is almost impossible to complete the investigation involving such a number of banking transactions within one month period, they maintained. However, committee directed the NAB to submit progress report within one month period to know the modus operandi used by the involved persons to run away with huge money of depositors
Chairman of the sub-committee also asked the NAB to quiz the main culprit of the case ie Nadeem H Shaikh and explore possibility of pre-bargain deal, if possible. When Shaikh would know that he would sentence to 20 years imprisonment, he would definitely share the modus operandi used to deprive public from their life saving. However, NAB officials responded that the pre-bargain deals are not possible at this stage of investigation against the said company. The NAB has summoned Shaikh for investigation and if his reluctant to do so, the NAB could arrest him. His name is already on the Exit Control List.
A chartered accountant firm has also been engaged by National Accountability Bureau (NAB) to assist the institution in the aforesaid inquiry proceedings with particular reference to interpret financial data/ the already audited accounts, transactions of funds flow by and amongst NLRL and associated undertakings and their respective core directors/ officials and more particularly in assisting to determine money trail of selected transactions etc, NAB officials said.
In its presentation to the sub-committee, NA officials informed that highlighted inquiry proceedings and such other investigative analysis as made so far, as well as the resultant outcome in relation to the inquiry against the Directors/Officials/ Auditors of Natover Lease and Refinance Limited and its sister concerns namely Natover International (Pvt) Limited (NIPL) and Orion Investments (Pvt) Limited (OIPL), under the relevant provisions of the National Accountability Bureau Ordinance, 1999.
Being the most significant targeted plan, the National Accountability Bureau (NAB) believes in an extensive widespread exercise by carrying money trails of huge financial transactions to find out the amounts siphoned out from the systems and determine beneficiaries by adopting two fold strategies (i) establishing money trails from the accounting record of NLRL/NIPL/OIPL and (ii) probing of the bank statements with evidences obtained from banks on conventional procedures.
Money trails through Accounting Record of the Companies: the books of accounts of NLRL shows that funds had been mainly collected from the general public through its braches network, representing NIPL using three illegal financial instruments called (i) PFNs (ii) PSDRs and (iii) RSDRs. The total quantum of collection under these instruments and their respective branch wise outstanding has been determined by the bureau.
Money trails through probing of Bank statements/ evidences: There were various bank accounts remained operative for the financial transactions resulting from PFNs, PSDRS and RSDRs. Reportedly, separate bank accounts were maintained by each branch of NLRL for collections on behalf of NIPL. The amounts so received used to be transferred generally to three main bank accounts of NIPL being maintained at Karachi and Islamabad where onward the withdrawals have been targeted to find out the exact beneficiaries as to where it has gone. A summarised position of bank accounts in the name of NIPL as maintained at various branches including Karachi and Islamabad has also been provided by the NAB to the sub-committee. The NAB has also informed that the bureau is taking targeted actions for early completion of the investigation. Firstly, immediate attachment of property of Mrs Nadeem H Shaikh, on which necessary action has already been taken.
Secondly, immediate attachment of the assets of Orion Investment (Pvt) Limited OIPL, including detachment of 31 million preference shares (78%) of the NIPL reportedly lying with OIPL. Necessary action shall be made as soon as access to record is made.
The NAB would ensure that the culprits are brought to book with recovery of property not currently in notice, with a view to pass on the benefit to the victims.
Details of the case revealed that consequent upon receipt of a formal complaint from one, Asghar Khan son of Almas Khan, resident of Peshawar and eight others, representing general public at large, the National Accountability Bureau (NAB) initiated inquiry proceedings in accordance with the procedures outlined under the National Accountability Bureau Ordinance, 1999.
The investigation officer of Bureau has not so far been provided with the engagement letters and the working papers' files by the external auditors of NLRL and NIPL, despite categorical requests.
The declared version of the financial statements of NLRL/NIPL has been surprisingly found to be in disagreement in respect of transactions relevant to its sister concern, ie NIPL, despite the fact that the comparable figures represents that of the audited financial statements of both the companies. On contrary, however the information subsequently shared with the NAB by CFO, reflects that the amount represents money received from general public through branches network of NLRL and that too on a very higher side compared to the aforementioned liability reflected in the books of NIPL.