ISLAMABAD: The two high profile cases of alleged share manipulation by their sponsors investigated by the Securities and Exchange Commission of Pakistan (SECP) have not been taken to the courts for prosecution for more than two years apparently owing to conflict of interest.

The investigations by SECP in 2009 and 2010 established that share manipulations had caused billions of rupees worth of losses to over a dozen banks and financial institutions besides common investors but were not proceeded against in courts.

Instead, as the informed sources said, the legal division that wanted to pursue the case was abolished last month that has now been challenged in the Supreme Court of Pakistan.

In the first case, the SECP investigated alleged manipulation in the shares of Chenab Limited, a listed company whose share price was artificially increased through market manipulation by its owners in connivance with AKD brokerage house, according to SECPinvestigation.

Chenab had issued redeemable preference shares which were convertible into ordinary shares of the company. These securities were taken up by nearly all leading banks, including JS Bank that later reported the manipulations. When the time came to redeem or convertthe debentures into ordinary shares, the price of the shares in the market had declined to a level that conversion would have resulted in the sponsors losing majority shares in the company to the banks.

The sponsors therefore decided to manipulate the market and artificially increase the share price so that less number of shares had to be issued to the banks. The loss caused to all the banks involved, including the National Bank of Pakistan, is estimated by SECP to behundreds of millions of rupees.

The manipulation was carried out with help of AKD group but JS being a broker himself smelt the rat and SECP was tipped off last year.

Apparently a number of banks including JS Bank sent written complaints in the matter to SECP. The Securities Market Division on investigating the matter, referred it to the Legal Division of SECP under a former SECP Commissioner Tariq Asaf Husain, which advised that a criminal case be filed against the culprits including AKD Securities.

“The escalation in market price of the Chenab Limited shares does not appear to be genuine and indicates the potential of price manipulation since it was started just before the date of conversion of the cumulative preference shares.”

CSL (Chen One Stores Limited) generated substantial turnover by creating false and misleading appearance of the active trading in the scrip of Chenab (a parent company) with the connivance of” of two related investors, the SECP report said.

In the other case, the SECP has failed to take action in a major market manipulation case. The share price of Azgard Nine Ltd was artificially jacked up by the sponsors of the company in connivance with the Jahangir Siddiqui group of companies and brokerage house.

This issue, as well as two others in which personal interest of the ex-chairman SECP Salman A. Shaikh was alleged in writing to the prime minister by former commissioner Tariq Asaf Husain. He had also recommended prosecution against the alleged involved persons but no action was taken either by the ministry of finance or the prime minister.

Informed sources said the present SECP Chairman, instead of pursuing the two cases, dismembered the Legal Division and several heads rolled; the services of the Head of Legal, Ashraf Tiwana, who had requested that legal action be taken in the matter, were terminated. The head of Securities Market Division was also transferred to a non-operational department.

The Securities Market Division of SECP, whose job is to identify and investigate frauds in the market, is functioning without an ExecutiveDirector or Commissioner, and is headed by the chairman himself.

Whereas, the Legal Division whose function was to provide independent advice, as well as file and pursue the criminal cases such as Azgard Nine and Chenab Ltd, was disbanded. Instead each department has now been given a junior lawyer who works under many layers of bureaucracy to provide the so called independent legal advice, the sources said.

Interestingly, the former Commissioner Legal who was entitled to a second term in office, did not get one, as he persisted on taking a stand to ensure that action is taken, where the law has been violated and the public at large has been made to suffer. Chairman SECPMuhammad Ali when contacted told Dawn that the case against Chenab Limited was being aggressively pursued. “We are seeking legal opinion and corporate lawyers would file the complaint after the legal opinion is available”.

He said that full fledged work was also going on in the matter of Azgard Nine and criminal lawyers were looking into the issue. He said he joined the SECP only in January this year and progress on not only in these two cases but many others has taken off since then.

Asked about the abolition of SECP’s legal division, Mr Ali declined to comment in detail except to say that he had not asked anybody not to proceed ahead with the cases. Responding to another question, he said he had always headed brokerage houses that were competing with AKD group and added that as owner of Fortune Securities he had not done any trading since 2006.