ISLAMABAD – More than 16 years after Bagasra Securities collapsed, thousands of days of waiting have yet to bring the case to a full close. Now, with Rs48.9 million still owed to over 300 investors, the long-running case has taken a fresh turn as Securities and Exchange Commission of Pakistan (SECP) moves the case to the FIA for further investigation and recovery efforts.
The regulatory action comes after SECP inquiry found that shares belonging to customers of the now-defunct brokerage had allegedly been transferred and pledged without their consent. The securities, worth more than Rs176.2 million, were reportedly pledged between 2007 and 2010 to raise financing and meet trading-margin requirements.
SECP approved the reference under Section 41B of the SECP Act, 1997, with the stated objective of facilitating further action and pursuing recovery of the amounts still owed to investors.
SECP inquiry verified claims involving 333 investors, with their combined investment claims assessed at approximately Rs145.5 million. Of that amount, investors have so far received Rs96.57 million, leaving ar0und Rs48.9 million still outstanding.
SECP’s inquiry, launched in March 2010 after investor complaints and completed in October 2013, examined how customer securities were handled by Bagasra Securities. According to the inquiry findings, investors’ shares were allegedly transferred and pledged without their authorization. The securities were reportedly used to obtain loans and satisfy margin requirements.
The inquiry further found that the funds raised through these arrangements were allegedly used in a manner that benefited certain selected clients while exposing other investors to losses. After brokerage’s eventual default, the pledged shares were sold by banks and the stock exchange, leaving affected investors facing financial losses.
An SECP order dated April 3, 2007 records proceedings against brokerage over alleged violation of Regulation 3(b) of the Regulations Governing Futures Contracts. The order states that the company, then a member of the Karachi Stock Exchange and registered with the SECP, had exceeded the prescribed futures sale-position limit on March 3, 2005 without depositing the required shares or providing the required evidence of their availability.
The company’s financial difficulties subsequently deepened. In 2008, Bagasra Securities was declared defaulter after failing to settle a final loss of approximately Rs51.4 million. Its KSE membership card was subsequently sold.
Recovery efforts over the years have resulted in substantial payments to affected investors, although the process remains incomplete. PSX records concerning defaulter and expelled brokers put the settlement level for Bagasra-related claims at approximately 66.37%.
With the SECP now approving the reference, the case enters another phase. Federal Investigators will probe allegations and determine whether further legal proceedings are warranted on the basis of the evidence and applicable law. The immediate focus, according to the SECP’s stated purpose for the reference, is also to advance recovery of the outstanding investor dues.
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