Sinha Securities siphons off investor funds, struggles to pay back

Infographic: TBS

Sinha Securities Limited, a brokerage firm, has failed to pay all deficits in its consolidated customers' accounts (CCA) within the stipulated time set by the Bangladesh Securities and Exchange Commission (BSEC).

Following this failure, Sinha Securities requested a 12-month extension and renewal of its depository participant (DP) registration certificate in a letter sent to the BSEC last week.

In December last year, the commission directed the firm to settle all deficits by 19 March 2024.

However, it failed to meet this deadline, with the deficit in its CCA amounting to Tk8.51 crore as of 7 March, according to BSEC sources.

A CCA or consolidated customers' account is a separate bank account maintained by stockbrokers to hold unused cash from their clients' beneficiary owner's (BO) accounts.

It is strictly prohibited to utilise this money for any purpose other than paying for securities purchased by the client or collecting commissions or fees owed by the client.

Any use of funds from the CCA for purposes other than these specified payments would result in a deficit in the CCA.

Officials at the Dhaka Stock Exchange (DSE) say that any shortfall in funds indicates that clients' funds have been diverted elsewhere.

During a spot inspection, a team from the DSE discovered a deficit in Sinha Securities' CCA. As a result of this deficit, the BSEC suspended the brokerage's trading activities from 14 May to 27 June 2023. Following the payment of a portion of the deficit during this period, the trade suspension on Sinha Securities was lifted.

In a letter signed by its director, Reza-Ur-Rahman, and sent to the commission, it was stated that the suspension of trading activities caused many of their customers to cease doing business with them, resulting in significant losses for the company.

"The unhealthy competition within the industry has significantly reduced profits, impacting our other ventures, including trading and agro business. The introduction of the floor price by BSEC in 2022 to control the fall in share prices has also limited our trading capacity," he said.

"As a result, we have been unable to fulfill our payment commitments on time. In the event of any further delays, we commit to making payments by selling the sponsor shares of another concern, ACME Pesticide Ltd, which will mature in November 2024," he added.

In June 2023, the BSEC renewed Sinha Securities' brokerage and dealer registration license for six months, with the condition that they clear all deficits in their CCA within six monthly installments. However, the brokerage firm missed the deadline for deficit payment.

CCA deficits have become a widespread issue in the brokerage industry, with some brokers embezzling client funds.

According to the DSE, Tamha Securities, Banco Securities, Crest Securities, and Shah Mohammad Sagir & Company embezzled hundreds of investors' funds.

Despite this, investors have not received their funds back, although the DSE disbursed Tk25 crore from the investor protection fund.