The Securities and Exchange Commission of Pakistan (SECP) has filed a criminal complaint against alleged manipulation of share price of Azgard Nine Limited (ANL) formerly incorporated as Indigo Denim Mills Limited subsequently changed to Lesler - Nafees Denim Mills Ltd between the period April 2nd 2007 to July 13, 2007 in 73 trading sessions. And, later in 96 trading session between November 29, 2007 and April 22nd, 2008.
The complaint (No: 242 of 2013) under Section 17 read with sections 24 and 25 of SECP Ordinance 1969, filed in the High Court of Sessions Judge Karachi South (Criminal Jurisdiction), alleges that there were unusual hikes in both the trading volume and price of ANL shares. The Karachi Stock Exchange data, it is alleged, reveals an abnormal average daily trading volume of 3.5 million shares reaching a peak of 10.8 million on April 20, 2007 - an increase of 65 percent - as compared to its average volume of 1.2 million shares for preceding 12 months. During this period price of ANL share increased by 132 percent from Rs 22.85 per share to Rs 52.50 per share.
Consequently, on November 11, 2007, SECP started investigation in the trading of ANL shares under Section 21 of the Ordinance read with Section 29(2) of the 1997 Act. While the investigation was under way, alleges SECP, another surge in average trading volume and price was observed. The trading volume increased to an average of 5.8 million and on January 18, 2008 it reached a highly unusual 16.8 million shares and ANL scrip price rose from Rs 36.60 to Rs 96.40 - an astonishing increase of 168 percent or Rs 60.55. The average trading volume and price of the ANL shares dropped sharply during subsequent months.
MANIPULATION: The examination of sharing data, says SECP, shows that a group of persons created a false and misleading appearance of active trading in ANL shares; effected transactions in the ANL scrip which involved no change in its beneficial ownership; entered into orders for purchase and sale of ANL scrip which ultimately cancelled out each other with no change in beneficial ownership of the ANL scrip thus effecting an appearance of active trading therein and raised its price for various purposes including its purchase by others.
These trading techniques employed through two brokerage firms and financing techniques employed and central depository movements and paper trail of bank accounts provided by State Bank of Pakistan shows a very well planned and well constituted scheme violative of Section 17 of the Ordinance and is punishable under Section 24 of the Ordinance. Five companies and 16 individuals have been named in the complaint. The section cited with complaints reads:
17. Prohibition of fraudulent acts, etc: No person shall, for the purpose of inducing, dissuading, effecting, preventing or in any manner influencing or turning to his advantage, the sale or purchase of any security, directly or indirectly,
24. Penalty: (1) Whoever contravenes the provisions of section 17 shall be punishable with imprisonment for a term which may extend to three years, or with fine which may extend to [five hundred] thousand rupees, or with both.
(2) Where the person guilty of an offence referred to in sub-section (1) is a company or other body corporate, every director, manager or other officer responsible for the conduct of its affairs shall, unless he proves that the offence was committed without his knowledge or that he exercised all diligence to prevent its commission, be deemed to be guilty of the offence.
25. Cognisance of offence:No court shall take cognisance of any offence punishable under this ordinance except on a report in writing of the facts constituting the offence by an officer authorised in this behalf by the [Commission]; and no court inferior to that of a court of Session shall try any such offence.