A series of revelations, that as much as Rs7bn were misappropriated by stockbrokers from their clients over the past six months, have rocked the Pakistan Stock Exchange (PSX) — which recently gained global prominence as one of the best-performing stock markets in the region.
On Thursday, while talking to Dawn.com, PSX Chairman Muneer Kamal confirmed that investors had been looted by brokers.
"It is not the first time this has happened. Similar reports have also surfaced in the past, but our standard operating procedures are now very strict and those involved [this time] will not succeed in their nefarious designs," he added.
He was quick to assure that "though some investors have faced losses, the PSX in general is safe as it is a very robust market."
He also vowed that the brokers involved "will not be spared".
Earlier in the day, the Securities and Exchange Commission of Pakistan (SECP) had announced that it was investigating the multi-billion rupee scam.
It also approached the Interior Ministry to prevent the accused brokers from fleeing abroad and also to take legal action against them.
"The SECP has taken serious note of fraud by MR Securities, a Lahore-based stockbroker," a release issued by the commission read.
The gravity of the situation forced the SECP to convene an internal emergency meeting, as the value of fraud committed in Lahore alone is estimated to be more than Rs4 billion.
Separately, the commission also convened a meeting with the PSX's board of directors to discuss the situation, it said.
SECP Chairman Zafar Hijazi said in the release that the commission will not tolerate such activities, as it was the commission's prime responsibility to protect investor interests.
He said he had asked the PSX's directors to investigate if some of its officials were negligent in discharging their regulatory responsibilities.
In response, the PSX reportedly assured the SECP that it will complete its investigation into the matter by February 13, and submit a report by February 14.
During the meeting, the SECP said it made it clear that the commission "will take decisive action if PSX fails to shoulder its responsibility as the front-line regulator.”
Hijazi also expressed his disappointment in auditors responsible for evaluating stockbrokers, who he said continue to fail in raising red flags.
Instead, irregularities in brokerage houses are being identified by investigations through joint inspection teams and SECP inspections, he noted in the release.
The scams surfaced back to back within a span of six months.
Initial reports suggest that the accused brokers had lured investors with returns of up to 20 per cent on their investments.
The affected investors only came to know they had been looted when they found that their brokers had shut shop without prior intimation.
The brokerages named so far in the scandal include MR Securities, Hilink Securities and S Securities. Brokers Wamiq and Waheed Jan have also been named for allegedly depriving investors from Karachi, Lahore and Islamabad.
The latest in the series was the sudden closure of Lahore-based MR Securities, which prompted the SECP to finally step in.
The case of Hilink Securities is pending before the National Accountability Bureau, and some arrests have also been made in connection with the case.
The office of broker Waheed Jan in Islamabad has also been raided by officials, along with the office of MR Securities in Lahore and its sub-offices in Sahiwal, Multan and Bahawalpur.
A team of SECP officials has reportedly reached Lahore to collect and analyse data recovered from the raids.
Other side of the coin
A source in the PSX told Dawn.com that incidents like these occur when investors deal with brokers and agree to remain out of regulatory oversight.
"This is an absolutely illegal practice, and brokers and investors usually pursue these lines to avoid taxation and disclosing the source of their income," the official said.
"Obviously, black money is frequently involved in such practices, so it also opens the doors for scams," the official added.