A court has ordered the issuance of bailable warrants against the directors of Callmate Telips Telecom Limited (CTTL) for indulging in wash trades/circular trade and insider trading and other manipulative practices in CTTL shares.
In his order issued on Wednesday, Third Additional Session Judge Karachi South Sultan Muhammad Awan ruled that the accused persons created false and misleading appearance of active trading in CTTL shares with a view to raising the price of CTTL shares for inducing purchase by public at large and also sold CTTL shares to make unlawful gains.
In addition, the order said, the accused persons used price sensitive insider information to indulge in trading in CTTL shares. "Prima facie offence under section 15-A and Section 17 punishable under section 15B(4) and Section 24 read with 25 is made out against the accused persons," according to the court order.
"Register the complaint, issue bailable warrants against each of the accused persons in the sum of Rs 100,000 with one surety and PR bond in the like amount each in terms of section 265-C Cr.PC. The complainant shall supply a complete set of the complaints to the accused persons in court," the court said while adjourning the proceedings to November 24.
The Securities and Exchange Commission of Pakistan is the complainant in this case. The complaint has been filed against Muhammad Ajmal Ansari, Imran Mehmood, Asim Fayyaz Qureshi, Naved Haider Bukhari, Muhammad Ashraf Khan, Irfan Mehmood, Muhammad Hisar Ansari, Mirza Usman Baig, Muhammad Hasan, Ahmed Jamil Ansari and Nadeem Ahmed Khan. It has been made under Section 15-A and Section 17 punishable under Section 15B(4) and Sections 24 and 25 of Securities and Exchange Ordinance, 1969.
The court order said that the complaint and the SECP report showed that from November 7 2006 to December 2006, SECP discovered an unusual trading pattern in the trading of CTTL shares. "It is also mentioned in the paragraph of 14 of the complaint that the changed trading pattern was ascertained by comparing the average daily turnover of CTTL shares during he subject period which increased to 4,680,000 shares against the average daily turnover of 1,713,367 shares during the preceding 12 months period," the court order said and added that the SECP as per the law held an inquiry into the affairs and dealings in CTTL shares on Karachi Stock Exchange.
Imran I. Panjwani, and Faisal Iqbal, director and deputy director of Securities Market Division, respectively, conducted the inquiry and prepared the SECP report.
According to SECP investigations, from an analysis of the trading data, (reviewed at a broker level as well as the client level), using Universal Identification Number database, it appeared that a group of persons (the Group) acting in concert and including key officials of CTTL as well as members of the Ansari family, were involved in insider trading and price manipulation of CTTL shares.
The enquiry found that on the one hand, the price of scrip was escalated by buying large quantity of scrip on upticks, whereas, on the other hand an artificial turnover was generated by buying and selling CTTL shares within the Group. The price of the scrip was manipulated by placing abnormal bids (upper locks) and offers (lower locks), during pre-open sessions. Shares were bought from various Brokerage Houses and financing was obtained through the CFS market.
By generating artificial turnover as well as manipulating prices upward and downward, profits were generated which were then used to acquire fresh CTTL shares. Furthermore, CFS was rolled over on a daily basis and paper profits extracted at the expense of the CFS market. As a result of these prohibited activities, by December 8, 2006 the Group had acquired 80.95% of the share capital of CTTL.
It was observed in the course of the investigations that a large quantity of shares and cash was being transferred from one member of the Group to another, without any apparent consideration.
One of the major shareholder of CTTL, Ahmed Jamil Ansari, transferred 11.5 million shares of CTTL from his investor account to the sub account of Irfan Mehmood maintained with Al-Hoqani Securities on November 8, 2006. Irfan Mehmood, brother of Imran Mehmood, CFO of CTTL, has also been found to be a key player in the Group and has been involved in price manipulation and other prohibited practices.
Further, the SECP investigations revealed that the CFO of CTTL, Imran Mehmood, and his family members had been involved in insider trading and other fraudulent practices. Syed Mehmood-ul-Hasan, the father of CFO of CTTL, has been identified by A.F. Ferguson & Co (the ex-auditors) in their qualified draft audit report for his involvement in suspicious property related deals entered into by the management of CTTL.
Irfan Mehmood, the brother of the CFO of CTTL, played an active frontline role in the insider trading and market manipulation carried out by the Group. Kamran Mehmood, another brother of the CFO of CTTL, has also assisted the Group in their insider trading and holds some shares of CTTL.
Some brokerage houses especially Orix Investment Bank, First National Equities Ltd, First Pakistan Securities Limited and Al-Hoqani Securities, have also played an active role in this affair.
They have been found to be assisting the Group in actively manipulating the market. These houses, despite having knowledge that major shareholders, and insiders of the company were involved in trading of CTTL shares acted on their behalf and assisted them in engaging in a series of transactions that are reported on a public display facility to give the impression of activity or price movement in the security; transactions in which there is no change in beneficial ownership of the security; ie wash sales; transactions where both buy and sell orders are entered at the same time, with the same price and quantity by different but colluding parties; increasing the bid for a security to increase its price; ie buying on uptick thus manipulating the price; buying at increasingly higher prices, and then selling in the market (often to retail customers) at the higher prices (pumping and dumping).
These houses also assisted in avoiding disclosure requirements under Sec 4 of the Listed Companies (Substantial Acquisitions of voting shares and take-overs) Ord, 2002 by splitting purchase of one member of Group into two members of Group; and arranging financing for the Group for further acquisition of the Company's shares.
According to the inquiry team, these brokerage houses were also found violating various rules and regulations namely Brokers and Agents Registration Rules, 2001, KATS Regulations, General Rules & Regulations, etc.
During the course of the investigations, Al-Hoqani Securities informed the SECP inquiry team that its client Irfan Mehmood, brother of the CFO of CTTL, the most active player of the Group, received 30.8 million shares of CTTL in his sub account without any apparent consideration, during the period December 7, 2005 to December 7, 2006.
Likewise Orix Investment Bank (OIB) at one instance, when buying for its client Asim Fayyaz Qureshi exceeded the threshold of 10% of outstanding capital of CTTL, divided the buying of 5,844,500 shares between two of its clients, Ajmal Ansari, CEO of CTTL, and Asim Fayyaz Qureshi, to avoid disclosure under Listed Companies (Substantial Acquisitions of voting shares and take-overs) Ord, 2002 and the Companies Ordinance 1984.
Based on the SECP inquiry team's review of the data and records, there existed prima facie evidence that potential violation of various laws, rules, regulations and guidelines was committed in the accused persons.
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