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Disappearance of data gives twist to KSE saga

December 15, 2006

ISLAMABAD, Dec 14: The Karachi Stock Exchange crash episode took a new twist on Thursday when the National Assembly’s standing committee on finance was informed that data pertaining to the booking of shares were deleted not only from the records of the stock market and the brokers but also that of the Securities and Exchange Commission of Pakistan, leaving no proof for the forensic experts to ascertain anything substantial.

The data were deleted soon after Dr Tariq Hassan was removed from the chairmanship of the SECP in January this year and some six months before

the arrival of the US investigators who launched a forensic probe into the March 2005 crash of the Karachi Stock Exchange. Dr Hassan informed the committee that the SECP had all the relevant data that were required when he was the chairman.

But incumbent SECP chairman Razi-ur-Rehman said that when he took over the charge there was no data available with the SECP, brokers or the KSE regarding the “order books”, which could lead to identification of individuals who raised the market “bit by bit” through fake transactions and later caused its crash.

On a request made by Dr Hassan and some of its members, the committee directed the SECP to launch an investigation into the data disappearance and to present a complete report to the committee at its next meeting.

SECP officials were unable to satisfy members Kashmala Tariq and Ghulam Murtaza, who said that according to the SECP rules such data should be preserved at least for five years. The committee also directed the SECP to analyse within 15 days the data of ‘Futures Contracts’ of the top five brokers out of 88 accused of violating the SECP rules by the US investigators.

The SECP was directed to go ahead with bringing criminal charges against the brokers once the data analysis was completed. The brokers are the Arif Habib Securities Ltd, AKD Securities Ltd, Jehangir Siddiqui Capital Markets Ltd, Taurus Securities and the BMA Securities.

“We can describe the findings of the forensic report in computer parlance as GIGO (Garbage In, Garbage Out),” said Dr Hassan, adding that the US firm Diligence “fall short of its objective” of conducting a forensic probe.

“It (Diligence) should not have been paid even a penny. The forensic report is nothing but a report on our report,” said Dr Mohammad Zubair, a member of a taskforce led by Justice Saleem Akhtar which investigated the KSE crash and later recommended a forensic probe.

Dr Zubair challenged the very conclusions of Diligence and said they were neither provided any data nor they went to the stock market and the brokers to check records of transactions in their computers.

“There is one big black hole. This (forensic report) is the cover up. You will never get the truth now. But, you can (still) find who covered up the truth,” said Dr Zubair. He said Diligence had not worked within the Terms of Reference set for it by the taskforce. The firm had come up with conclusions that negated the taskforce’s report, instead of finding forensic evidences against brokers and those involved in the crash to present them in the court of law.

He said the US firm even did not investigate why some government officials and high-ups issued media statements in which they eulogised the KSE performance and created a fake euphoria. He said the firm even did not try to know whether these people had invested in the stock market and that they did so for personal gains. This was one of the points of the ToRs.

Dr Zubair said the firm had not only cleared the brokers from manipulation in the Badla financing and Wash Trade but had also put a dust on their involvement in the Futures Contracts.

Dr Hassan accepted that SECP had appointed Diligence, a company with less reputation, after he found that “the hands of Pakistani brokers were too long and that they had deals with not only the top four auditing firms of Pakistan but of the world”.

He clarified that the SECP had recommended Diligence not because of the reputation of the company but because of a single individual, Mr Tsui, who had international reputation and credibility. He said though Mr Tsui was willing to head the Diligence team in Pakistan but unfortunately he was not a part of the team that probed the KSE crash.

Dr Hassan said it was evident that mainly due to the absence or lack of reliable data, the forensic investigators had not either carried out or been able to carry out their assignment as diligently as one would have expected them to do.

Contradictions also emerged over payments to Diligence between statements of the former and incumbent SECP chairmen. Dr Hassan said the commission had appointed Diligence on $99,000 for conducting the probe and that the ToRs had been set by the taskforce. While Razi-ur-Rehman said he had to pay $300 per hour (about $1 million so far) to the company and that the ToRs had been prepared after the appointment of the firm.