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Criminal probe into IPO looms

AG forwards share deal to DPP, CoP, SEC…
Friday, April 11, 2014
Attorney General Anand Ramlogan

Attorney General Anand Ramlogan has referred the First Citizens Bank IPO share issue to the Securities and Exchange Commission (SEC) urgently, as well as the Director of Public Prosecutions and Commissioner of Police, for them to consider if there is justification to lay criminal charges arising out of violations of the Securities Act. Ramlogan announced that following yesterday’s Cabinet meeting, saying he had completed his inquiry and made his recommendations on the issue. Action on the controversial IPO share issue, at the centre of which is dismissed FCB chief risk officer Phillip Rahaman, took place on two fronts yesterday. In tandem with Ramlogan’s announcement was announcement by Subhas Ramkhelawan, chairman of Bourse Securities, the firm which handled the share purchase, that he had resigned as Stock Exchange chairman and as an Independent Senator. 


President’s House yesterday confirmed Ramkhelawan had submitted a resignation letter that was accepted by President Anthony Carmona. At yesterday’s post-Cabinet media briefing, Ramlogan said the SEC would take action under its expanded powers under the 2012 Securities Industry Act. SEC is the body established by the Securities Act and charged by Parliament with the responsibility of ensuring fair and equitable dealings in securities, protect the integrity of the securities market against any abuses arising from market manipulation practices, insider trading and improper practices,  He also recommended that the Finance Ministry of Finance review the relevant documents entrusted to the Divestment Secretariat to strengthen the expertise and capacity as it related to overseeing IPOs to prevent future recurrence.



Legal advice sought

He said he would make available to the SEC, DPP and the CoP a copy of the legal advice obtained by his division. He cited sections of the securities law which carried penalties of millions of dollars in fines, plus jail. Ramlogan said the issue was whether purchase of the shares benefitted ownership of others apart from bank employees as stipulated for that category. He said if they were bought by Rahaman, it was “okay,” but it was another matter if non-employes got the shares via a category exclusively reserved in the bank prospectus for employees. The AG said when Government decided to divest shares and have the IPO, it was with a view to encouraging widest participation, especially by employees. He said it was clear that Rahaman, by virtue of a series of loans taken, was able to purchase shares “which raise a strong inference that the shares were perhaps held on trust or purchased on trust with the beneficial ownership for family members.”
He said: “The several features that cannot be disputed, that give rise to this suspicion and also give rise to a prima facie case which warrant further investigation by the DPP and CoP, include the fact the offer to buy was submitted on the very last day of the IPO. 

“The second is the post he held and the fact information may have come to his knowledge in that capacity, that could be gained, insider information, and relating specifically to the under-subscription for the category for employees.” Ramlogan noted loan agreements which were unsecured, the amounts in proportion to the shares purchased and repurchased thereafter. He noted that the loan amounts were $58 short of $14 million and there were no other purchases of shares save for these shares offered by Rahaman. “It was in fact, a matched transaction,” Ramlogan added. He said the issue was whether the transaction was a device to cloak what was essentially a transaction whereby people who were not bank employees and not entitled to purchase in that category, were allowed to do so indirectly.

Bourse to face scrutiny

Ramlogan said the aspect of Bourse Securities’ role would be probed by the SEC. He also said he could find no evidence of wrong doing on the FCB board’s part, as the transaction was brought to its attention after the fact and the board had taken immediate action, dismissing the officer in question. He said he would met with chairman Patrick Watson and a Canadian firm was being recruited to assist FCB to take appropriate action in the situation. On the role and position of FCB’s board, he added: “I think it is abundantly clear from the evidence submitted, while the comments by the (FCB) chairman Ms Nyree Alphonso were clearly injudicious, premature and perhaps somewhat prejudicial, she made those comments based on facts available at the time and the board played no role in the day-to -day administration and execution of the IPO, which was the responsibility of the Divestment Secretariat and the management.”

Ramlogan said there were, however, matters of concern in the handling of the matter. He said the chief risk officer of FCB failed to file a FCB declaration of commitments at other financial institutions and that form was required by the bank’s own internal policies. He said the officer did not even file the related documents with the HR department as required by bank policy. He added: “The second is FCB breached Rule 604 of the T&T Stock Exchange (TTSE)-Reports of Trading by Directors & Senior Officers (within five days) and failed to notify the TTSE of the sale of 634,588 shares in FCB by FCB’s chief risk officer on January 14,2014. “This is a matter that ought not to have happened.” Ramlogan said the bank would have to do a critical review of these shortcomings in terms of management to ensure appropriate action and strengthening control mechanisms. He said FCB could not reverse the share transaction since it suffered no loss in the issue nor could civil proceedings ensue because of that. 



Sections 91, 94, 95, 143, 101 of the Securities Act

Section 100 or 101:  Regarding insider trading, carries a fine of $5 million and imprisonment for seven years. Under Section 95 and 99 a person who contravenes these, is liable on conviction to a fine of $2 million and imprisonment for five years.


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