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SECP issues show-cause to CSIBL and directors on charges of fraud and misconduct

KARACHI (September 16 2006): The Securities and Exchange Commission of Pakistan (SECP) has issued a show-cause notice to the Crescent Standard Investment Bank Ltd (CSIBL) its chairman and directors why the bank's licence should not be cancelled on the basis of SECP's inspection reports about “fraud, misfeasance and misconduct”.

The details of the CSIBL affair are contained in the 29-page SECP show-cause notice sent to the chairman and directors of the CSIBL, a non-banking finance company, on August 29, 2006. The notice has been signed by the SECP chairman, Raziur Rehman Khan.

The SECP notice highlights the use of bank assets to illegally benefit Anjum Saleem and Altaf Saleem. The details run as under: “It has come to the knowledge of the commission that the bank has paid Rs 50 million each on behalf of Altaf Saleem, sponsor of Crescent Group and Anjum Saleem, sponsor and chief executive of the bank.

This matter was taken up with the bank. The commission had undertaken a targeted inspection from June 27 to June 30, 2006 in this regard. This inspection resulted in a report (the third inspection report), wherein it was found as follows:

“CSIBL by pledging its own equity portfolio, assisted Altaf Saleem and Anjum Saleem to obtain running finance facilities of Rs 100 million in February 2005. The amount was received by the CSIBL in April 2005.

However, till December 31, 2005, the said funds received from Altaf Saleem and Anjum Saleem were not appearing in their names and to camouflage the factual position the amount of Rs 100 million was recorded as receipts from the Crescent group companies, namely, Safe Way Fund Ltd, and Asian Capital Management Ltd.

“The examination of relevant records/books of accounts pertaining to the payment of Rs 100 million by the CSIBL to Habib Bank Ltd, KSE branch, Karachi on April 27, 2006 revealed that during the month of February 2005, two running finance facilities of Rs 50 million each were offered by Habib Bank Ltd, KSE branch, Karachi to Altaf Saleem and Anjum Saleem.

The said facilities were granted for the period of one year expiring on January 31, 2006 and the purpose of the facilities was trading in stocks. The offer letters to this effect were issued by the chief manager, Habib Bank Ltd, KSE branch, Karachi to Altaf Saleem and Anjum Saleem on February 9, 2005 and February 28, 2005, respectively.

The facility of Rs 50 million each was granted by the Habib Bank Ltd, to Altaf Saleem and Anjum Saleem against a pledge of following equity portfolio of the CSIBL. PICIC, SNGPL, PIA, Pakistan PTA, General Tyres, and SSGC. Anjum Saleem availed the running facility of Rs 50 million from Habib Bank Ltd, KSE branch, Karachi by drawing cheque dated April 8, 2005 for payment to the CSIBL.

The payment was, however, recorded as amount received from the Asian Stock Fund Ltd, by the CSIBL. As the maturity date of the running finance facility in the name of Anjum Saleem was falling on January 31, 2006, Anjum Saleem requested the Habib Bank Ltd, to roll over the running finance facility for a period of another one-year. His request was acceded to and facility of Rs 50 million was renewed up to January 31, 2007 in the name of Anjum Saleem.

During the months of May and June 2005, out of the above stated Rs 100 million received from Altaf Saleem and Anjum Saleem, major chunk of Rs 55.13 million was transferred to Crescent Jute Products Ltd, and recorded as adjustment of the outstanding liabilities of Rs 100 million of the Safe Way Fund Ltd, and the Asian Capital Management Ltd.

Up till December 31, 2005, the books of accounts of the CSIBL never depicted the factual position in respect of Rs 100 million funds received from Altaf Saleem and Anjum Saleem. However, on December 31, 2005, six-months COIs aggregating Rs 44 million, representing the remaining amount out of Rs 100 million as reduced by the payments made to the Crescent Jute Products Ltd, and other payments/credit of mark-up/profit etc, during the period April 2005 to December 2005 were issued in the name of Altaf Saleem and Anjum Saleem having maturity date as of June 30, 2006.”

“The notice states that based upon the facts highlighted in the First Inspection Report, the Second Inspection Report, the Third Inspection Report, the A.F. Ferguson & Co, Chartered Accountants' (AFF) reports and the Auditor's Report, “the commission is prima facie satisfied (subject to such explanation as may be provided later to the contrary) that:

“The bank has committed serious contravention of the provisions of the Ordinance, the Non-Banking Finance Company (NBFC) Rules, Prudential Regulations and various directions given to the bank by the commission.

“The bank is carrying on unauthorised business. “The business of the bank is being conducted in a manner oppressive to its members and depositors, and, “That the management of the bank has been guilty of fraud, misfeasance and misconduct towards the bank and its members and depositors.

This has attracted the provisions of sub-section (2) and (3) of section 282J and section 309(c) of the Ordinance, rendering the licences to be cancelled, and the bank to be wound up.

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