Securities companie's case: SECP bench refuses to direct departments for unfreezing bank accounts

An Appellate Bench of the Securities and Exchange Commission of Pakistan has refused to issue instructions to the relevant government departments for unfreezing bank accounts and removal of names of CEO and directors of a securities company from Exit Control List (ECL).
According to an order of the SECP Appellate Bench Wednesday, the company, therefore, should pursue issues pertaining to unfreezing of bank accounts and removal of names from ECL at the appropriate forum.
The bench has reviewed the documents provided by the Appellant (company) and the Respondent (Commissioner Securities Market Division) and concurred with the Respondent that the judgment of the Sindh High Court does not bar the Commissioner Securities Market Division from taking penal action against the company vis-à-vis cancellation of licence for non-compliance.
Furthermore, SECP Appellant Bench is of the view that the argument of the Appellant's representative that he was unaware of the Review Proceedings before December 2016 has no bearing on the instant proceedings and Impugned Order which was passed after giving a fair opportunity of hearing to the Appellant's representative.
Furthermore, the bench is of the view that while it has been confirmed by PSX that all claims have been fully settled, it has no bearing on the fact that the Appellant has violated the relevant provisions of the law and has also not complied with earlier orders of the Commission dated 12/01/17 and 28/04/17.
Furthermore, the request of the Appellant's representative that a direction be given by the Appellate Bench for unfreezing the bank accounts of the Appellant and Directors and also remove names of the Appellant's representative i.e. the CEO and other Directors from ECL are issues which are outside the ambit of the instant proceedings and the Impugned Order too has not stated anything to this effect. The company, therefore, should pursue issues pertaining to unfreezing of bank accounts and removal of names from ECL at the appropriate forum.
In view of the above, the Impugned Order of the SECP is upheld, the bench added. This Order is passed in the matter of Appeal No.110 of 2017 filed under section 33 of the Securities and Exchange Commission of Pakistan (Commission) Act, 1997 (SECP Act) against the order (Impugned Order) dated 14/09/17 passed by the Respondent.
The brief facts of the case are that the Commission conducted a compliance review (Review) of regulatory requirements/framework of company (Appellant) for the period from 01/01/16 to 30/09/16. The Review revealed the non-compliances of the Appellant inter alia non-provision of information, non-maintenance of proper books of accounts and investors' complaints.
The Commission, keeping in view the gravity of the foregoing non-compliances, initiated an investigation against the Appellant on 15/02/17 under section 139 of the Securities Act, 2015 (Securities Act) read with the enabling provisions of SECP Act. The investigation report was concluded on 23705/17.
The review of the investigation report prima facie, transpired that the Appellant was non-compliant with the following provisions of the applicable laws: Non-provision of Information; non- maintenance of Proper books of Accounts; improper recording in ledgers; absence of trade identification; absence of original entry in Books of Accounts; wrong record of entries/transactions in NCSS contra account/Existence of omnibus account and difference in Net Capital Balance (NCB) audited by two different auditors.
As per record of the Commission, the Appellant had also been penalized by the Commission for the violations mentioned, Bench added. The Appellant through its Chief Executive was called upon to show cause in writing within seven days as to why penal action should not be taken under section 150 of the Securities Act for contravening various provisions of the regulatory framework.
The Commissioner Securities Market Division dissatisfied with the response of the Appellant held that Order of the Sindh High Court and subsequent proceedings initiated by the PSX are separate and had no bearing on the SCN in hand. In exercise of the powers conferred on the Respondent under section 150(1)(ii) and 150(2) of the Securities Act, the license as Securities Broker of the PSX was cancelled and a penalty of Rs5,000,000/- was imposed.
With regard to recovery of the penalties imposed, vide Orders dated 12/01/17 and 18/04/17 concerned department of the Commission was directed by the Respondent to take up the matter as per prevailing law and procedures. Furthermore, in exercise of the powers conferred on the Respondent under section 12, 31 and 55 of the Securities Act, PSX, Central Depository Company (CDC) and NCCPL were directed to proceed further as per regulatory framework and in light of the Impugned Order.
The Appellant preferred the instant Appeal with the Bench on the grounds that the non-compliance in question was not deliberate. The Respondent's representatives rebutted the arguments of the Appellant on the grounds that a company is a separate legal entity distinct from its members and the license of securities brokers was granted to the Appellant and not the shareholders of the Appellant.
The SECP Bench has heard the parties, ie, the Appellant company and the Respondent (Commissioner Securities Market Division). The Appellant's representative has argued that he was unaware of the Review Proceedings of the Appellant before December 2016 and that all claims have been settled and no action can be taken against the Appellant as the matter is sub-judice before Sindh High Court.
The Respondent's representatives have argued that the Appellant was found to be in non-compliance of the provisions of Securities Act, 2015 which resulted in cancellation of license and also the judgment of the Sindh High Court does not bar the Respondent from taking penal action, the SECP added.