Only a slap on the wrist for hundreds of crore taka Sea Pearl share scam!

Sea Pearl Beach Resorts and Spa's share price skyrocketed more than threefold in just two months in 2022. Behind this unusual price rise was a network of insiders, including the five-star resort's managing director, who engaged in coordinated trades that netted them a staggering Tk300 crore, according to a Dhaka Stock Exchange (DSE) probe.

The investigation revealed that while Tk24.44 crore in profits were realised, the bulk of the gains — over Tk282 crore — remained on paper, with the manipulators opting not to sell their shares during the review period.

An unrealised gain is a theoretical profit that exists on paper, resulting from an investment that has not yet been sold for cash.

The DSE report pointed to 13 placement shareholders at the resort involved in a flurry of trading activity, including repeated buying and selling among themselves. This increased the stock price by Tk93 between 31 July and 25 September 2022.

Among the key players was Sea Pearl's Managing Director Md Aminul Haque who was identified as a primary beneficiary of the stock manipulation scheme orchestrated by what the DSE described as "a strong ally or potential allies" in clear violation of securities regulations.

DSE placed its report in February 2023 to the Bangladesh Securities and Exchange Commission (BSEC), then chaired by Prof Shibli Rubayat Ul Islam, which responded by merely issuing warning notices to the share manipulators, according to BSEC spokesperson Farhana Faruqui.

Contrastingly, in a similar case of share manipulation and violation of section 17 of the Securities and Exchange Ordinance, the BSEC imposed fines amounting to crores of takas on Abul Khayer and his associates, as per BSEC documents.

Making gains by creating "a false and misleading appearance of active share trading," as happened in Sea Pearl's share transaction during the period, is a punishable offence by Section 17 of securities laws and carries a maximum five-year jail with Tk5 lakh or more in penalty.

However, the Sea Pearl price manipulators escaped punishment due to the commission's leniency, which allowed the resort's share price to climb to Tk320 on 9 March 2023. 

As of 26 September this year, the share price has since fallen to Tk46.5. Consequently, many investors who purchased shares at Tk200 or Tk300 based on rumours now face significant losses.

When contacted over the phone, Md Aminul Haque, the managing director of Sea Pearl, did not answer.

Sea Pearl's Company Secretary Md Azaharul Mamun told TBS, "All those accused of share manipulation are placement shareholders of the company. The BSEC issued only a warning after scrutinising DSE's probe findings."

In response to a question regarding the significant gains through manipulation as reported by the DSE, he said, "The DSE made a mistake."

Mere warnings issued, but no action taken — Why

According to BSEC sources, the DSE report identified 13 individuals and institutions (placement holders of Sea Pearl) for law violations and share transaction manipulation. In response, BSEC's Enforcement and Investigation Department summoned all of them for a hearing. 

Four individuals were issued warnings during the hearing, while two others were cleared without any warning. 

The Enforcement and Investigation Department then brought the cases of seven individuals accused of share manipulation and legal violations to the commission meeting for further action.  

However, at the commission meeting on 8 August 2023, it was decided to issue only warning letters to those seven individuals, Farhana Faruqui told TBS.

When questioned about the reasoning behind the mere punishments, she said, "The previous commission made the decision and only members of that commission can clarify the criteria used for those decisions."

TBS contacted members of the previous commission led by then-chairman Shibli Rubayat Ul Islam. Three of the four former commissioners—Mizanur Rahman, Shaikh Shamsuddin Ahmed, and Rumana Islam, all professors at DU—refused to comment on a past matter. 

Another former commissioner, Abdul Halim, stated that he cannot recall the decision made in August of last year. 

Additionally, former BSEC chairman Shibli Rubayat Ul Islam did not respond to multiple phone calls from TBS.

Market insiders said that issuing merely a warning, despite clear evidence of law violations, is not an appropriate response.

A senior official from a brokerage firm, speaking anonymously, told TBS, "Foul play may be present in the market, and it is the commission's responsibility to take appropriate legal action to deter future misconduct."

"The previous commission disrupted order in the capital market by punishing some individuals while pardoning others in cases of share manipulation. This has fostered an environment that encourages foul play and market manipulation," he added.

Findings from the DSE investigation

The DSE's investigation report revealed that between 31 July and 25 September 2022, Sea Pearl's share price surged by 212.73%, rising from Tk44 to Tk137.60 each.

This price increase amounted to Tk93.60 per share.

The report mentioned that potential allies (referring to Md Aminul Haque and others) bought 79.43 lakh shares and sold 75.05 lakh shares of Sea Pearl through 19 BO accounts, with no trading activity recorded in five BO accounts.

Collectively, these 19 accounts accounted for 20.49% of the total trade volume, generating a capital gain of Tk24.44 crore during the investigation period.

Additionally, the report highlighted that this group of clients held a significant unrealised gain of Tk282.09 crore.

The DSE also noted that Md Aminul Haque and his associates engaged in trading Sea Pearl shares among themselves on multiple occasions during the investigation period.

The report indicated that a total of 17.75 lakh shares were executed in both public and block markets across several dates, with clients acting as both buyers and sellers.

For instance, on 1 August 2022, Hedayetul Islam purchased 82,815 shares from seller Md Kalam Hossain, while Md Abul Hasem Raihan bought 91,340 shares from seller Mahmudul Ahsan.

How manipulations occurred

According to the DSE report, the investigation team observed certain commonalities among a group of clients, such as shared addresses and email IDs, suggesting their association.

Although Sea Pearl's Managing Director Md Aminul Haque did not trade shares through his own BO account, he and his family members participated in trading shares through BO accounts in violation of law.

The report highlights the family connections among these individuals. For instance, the nominee for the BO account of Md Abul Hasem Raihan, a placement shareholder of the company, is Md Aminul Haque.

Three BO accounts belong to Hedayetul Haque, another company shareholder. One nominee for his account is Samiul Haque Shafa, the son of Md Aminul Haque, while another nominee is Kawser Ahmed Rony, who acts as a nominee director on Sea Pearl's board on behalf of Shamim Enterprise.

Mahmudul Ahsan Bhuiyan, another placement holder, was involved in share manipulation through four BO accounts. He is the son-in-law of Md Aminul Haque and his wife Lucy Akhtary Mahal, the chairman of the Sea Pearl board. 

The nominee for two of his BO accounts is Mahjabin Haque Masha, the daughter of Md Aminul Haque and Lucy Akhtary Mahal. Md Aminul Haque is the nominee for another BO account, while Mahmudul Ahsan's cousin, Md Rohul Amin, serves as the nominee for a different account.

Muhammad Ahasun Uddin, a placement holder for Sea Pearl, engaged in buying and selling shares through two BO accounts, with Mahjabin Haque Masha as the nominee for one and Md Aminul Haque as the nominee for the other.

Another placement holder Kawser Ahmed Rony's BO account also lists Md Aminul Haque as the nominee.

Md Kalam Hossain, a placement shareholder of Sea Pearl, has Mahjabin Haque Masha, the daughter of Md Aminul Haque, nominated for his BO account. 

Kalam is also the contact person for BO accounts belonging to Venus Builders Ltd and UDC Construction Ltd. Both companies are placement holders of Sea Pearl.

Bengal Vacation Club Ltd is also a placement holder of Sea Pearl. Md Aminul Haque, his wife Lucy Akhtary Mahal and brother Ekramul Haque are sponsor directors of Sea Pearl and all of them are directors of Bengal Vacation.  

Additionally, Md Aminul Haque serves as the nominee for the BO accounts of three other placement shareholders — Md Ashraf Hossain, Tafiqul Hasan, and Imtiaz Ahmed.