KARACHI, Nov 21: Eighteen minutes before the close of trading at the Karachi Stock Exchange on Tuesday — at 12:42 pm — a fax message, purporting to have originated from Hub Power Company Limited, is received addressed to the General Manager, KSE, announcing... “We are pleased to inform you that the Lenders have approved the Company’s request for payment of final dividend. Kindly inform the members of your exchange accordingly”.

Two minutes later the information is passed on to the members through the members information system (MIS). Later in the afternoon, the KSE also circulated the announcement with other company notices for the day. All in absolute order. But something remained undetected: The announcement was a fraud.

On Wednesday, a press release from Hubco, signed by the company secretary, Arshad A. Hashmi is received at the stock exchange, stating that the company “denies newspaper reports regarding consent of the Lenders to the payment of dividend” as recommended by the Board in November 2001. “The chief executive of Hubco is presently overseas discussing the above matter with Lenders”, the press statement says. This message is received by the Exchange at 2:39 pm and is promptly put on air two minutes later. Trading closes during Ramazan at 1:00 pm.

KSE issues a press release in the evening on Wednesday, stating that the representatives of Hubco who met the KSE Board confirmed that the November 20 fax was ‘not genuine’.

“It was resolved that both the stock exchange and the company will look into this matter to determine the originator of this false information and take remedial measures”, the KSE press release concluded.

“Remedial measures” are doubtless, necessary, for in the last 15 minutes of trading on Tuesday and for all of the session from 9:45 am on Wednesday, investors who took positions in Hubco, did so on the (mis)information that lenders’ approval of final dividend had been received. Needless to say that money must have been made by those who perpetrated this corporate fraud, at the cost of great many unsuspecting investors.

On Tuesday, the IPP stock lost 60 paisa, but it recovered 10 paisa on Wednesday; last closing at Rs19.45. The scrip almost always accounts for as much as half of all shares traded at the market.

Investigation by the corporate regulator — which appears inevitable — would possibly focus on trading pattern by big players. It is difficult to readily pin the blame. The KSE had no way of knowing that a fax message originating on a company letter head and supposedly signed by its chief executive, Vince Harris, could all be phony.

The bourse receives scores of announcements by corporates all day long. Bound by the universal demand for prompt sharing of information with all investors, the Exchange obligated to relay the announcement on its information system within minutes of its receipt. Cross checking with concerned companies would cause delay and may even be outside the realm of possibility.

Hubco may be put to the grind for having delayed its denial of the news until the market closed the next day. But the company may absolutely be justified, if it responds that under no law could it be forced to either confirm or deny all that appears in print?

All of that is bound to leave investors in a quandary: it would be difficult for them to sift the real from the fake. For example, if a representative were not to appear before the KSE board on Wednesday, how were they to know if the second and not the first announcement from Hubco, were false?