Illegal trade of Kapco shares: SECP moves court against KSE member, three others

The Securities and Exchange Commission of Pakistan (SECP) has filed a case in the District and Sessions Court, Karachi, against a member of Karachi Stock Exchange and three of its clients, accusing them of illegal trading in the shares of Kot Addu Power Company Limited (Kapco).
The case was filed on the basis of a SECP inquiry report, in which it said that unusual trading activity was observed in the scrip of the Kapco during January 24 to May 25, 2007.
From the analysis of trading information, it transpired that Muhammad Hussain Adhi, a member of Karachi Stock Exchange (KSE) allegedly orchestered a scheme of market manipulation in the scrip with the connivance of some of its clients, namely Noman Younus, Muhammad Kashif and Muhammad Irfan (the group), during the period under review.
As part of the scheme, 197 million Kapco shares worth Rs 11 billion were bought by the group, out of which 173 million shares worth Rs 9.9 billion were sold during January 24 to May 25, 2007. The trading volumes were executed with a view to generating artificial trading in Kapco for the purpose of inducing others to purchase the Kapco shares.
The group was heavily involved in execution wash/circular trades wherein there was no change in beneficial ownership. Trading among the group constituted 45 percent of the total market turnover during the period under review. A considerable volume of 70.8 million shares were executed between Noman Younus and Muhammad Hussain Adhi that constitute 40 percent of the total buying of Noman Younus. The group earned a gross profit of Rs 108.6 million in the entire process.
Based on the review of the trading information and records, its is prima facie evident that there has been a potential violation of Section 17(e) of the Securities and Exchange Ordinance 1969, Section 4(1) of the Listed Companies (substantial acquisitions of voting shares and take-overs) Ordinance 2002 and Rule 12 of the Brokers, Agents Registration Rules 2001 and Section 222(c) of the Companies Ordinance 1984 and the directive of the SECP F13/SMD/SECP/2005 dated September 23, 2005.