The Sunday Leader

Massive Fraud And Insider Trading Uncovered In Pakistan

By Abdul H. Azeez

A new report by the Securities & Exchange Commission of Pakistan (SECP) has finally brought to the limelight an insider trading scam of massive proportions carried out by one of the country’s most notorious businessmen.
The SECP has found that the Jahangir Siddiqui Group (JS Group) is guilty of illegal stock market manipulation and insider trading. Although under pressure to be suppressed, the report has been leaked to the press. Insider trading is a criminal offence and the SECP’s report contains evidence that one of the country’s largest brokerages has achieved its wealth by market manipulation and delusion of the Pakistani masses that invested in the stock market.
On 8th December 2008, the SECP completed an investigative report on a public limited company called Azgard Nine Limited (ANL) which found the company guilty of serious criminal offences. It was published only six months after the State Bank of Pakistan permitted ANL to remit 23.758 million Euros outside Pakistan in order to purchase Montebello, an Italian company. The illegal acts mentioned were carried out by various JS Group companies and funds, which collectively form the second largest shareholder of ANL, or over a third of the shares.
The basic idea was that by acquiring unusually large positions in ANL, manipulative trading of shares by the clients of JS Global Capital Limited was carried out, and the price of the shares were artificially hiked up. The artificial increases in price were executed with a view to induce the public to buy Azgard Nine shares.
Between April 2, 2007 to July 13, 2007, Jahangir Siddiqui and his collaborators bought 40% of the total market trade of ANL and then sold 33% of the total market trade to unsuspecting investors. The market increased by 132% (Rs. 22.85 to Rs. 53) in this period, netting them a handy profit.
But this was just the beginning and from November 29, 2007 to April 22, 2008, the price increased by 174% (Rs. 35 to Rs. 96), brought about by the buying of 27% and the selling of 27% of the total market by the same parties. These increases were achieved without any significant change in the fundamentals of the company or any market dynamics and simply through illegal and manipulative insider trading, according to the SECP report.
It was uncovered that the top buyers and sellers were all clients of JS Global, JS Group companies, JS Group mutual funds being managed by JS investments, sponsors/directors of Azgard Nine Limited, Live Securities and Aziz Fidahussein brokerage house and his family members. SECP traces this market manipulation directly to JS Global Capital, which was the major financier or the shares, while JS Global clients were the major financees. In addition to the 11 different JS Group companies and funds which manipulated the shares, four individuals with personal/professional relationships to Jahangir Siddiqui and eight clients/associates of the JS Group were involved in the insider trading. Furthermore, Jahangir Siddiqui’s son, Ali Jahangir Siddiqui is a common director in both Jahangir Siddiqui and Company Limited and Azgard Nine Limited, and his vested interests directly resulted in numerous illegal related party transactions.
SECP is clear on who carried out the manipulation and also on exactly how it was done, which they have found consisted of:
Pumping and dumping: Large quantities of shares bought and sold by the group to artificially inflate the price.
Price ramping: General public induced to purchase shares at increasingly higher prices by giving them an impression of increased trading activity/liquidity.
Cross trading: Large volumes of shares traded within the group.
Wash trades: Where free deliveries of shares among family members were made without any underlying transaction, or where the buyer and seller is the same client, in order to mislead the general public.
Order matching: Where orders were buying and selling orders placed with a fractional difference of time, e.g. less than one minute and with the same quantity and rate for buying and selling the shares.
Cross movement of shares in CDC accounts of the group: Where substantial quantities of shares are transferred between different group members to facilitate each other with price manipulation of ANL.
SECP establishes that the role of JS Global Capital was to act as the major player in the above mentioned violations, JS Global Capital’s illegal involvement is further evidenced as it was the major financer and financee for the illegal trading activities. It has been five months since this document was prepared and according to an article published in May 2009 in the newspaper Jang, the report had been suppressed because the SECP has faced pressure to cover up the story. As a result, SECP has not yet been able to take action to bring about justice for the many people who had their money stolen by ANL.
Jahangir Siddiqui is well known to be one of Pakistan’s most corrupt businessmen. Starting as a stock broker, he has accumulated most of his wealth by insider trading, corporate raiding and embezzlement of huge sums of money from Pakistani pension funds, charitable trusts and investments made in the stock market by average Pakistanis.
His ‘business tactics’ are quite notorious as well. He buys into companies and once he has a significant stake, he blackmails and bribes company owners and management, trying to force them to undertake illegal activities with him and join him in extracting money out of these companies and trading in the company’s shares, resulting in huge amounts of money being obtained illegally.
If the company is not corrupt, Jahangir Siddiqui would blackmail the company and put up court cases against them while bribing judges in order to create pressure. This has been happening for over 20 years and reportedly many companies in Pakistan have been corrupted by his activities.
Shares of Jahangir Siddiqui and Company Limited (JSCL) plummeted at the news, prompting analysts to say that the whole incident could have aspects on the entire financial sector.

4 Comments for “Massive Fraud And Insider Trading Uncovered In Pakistan”

  1. Tariq Khan

    We have all witnessed in the last month or so the political victimization of JS Group by the ruling elite with cases as petty as grabbing a 1000 Yds plot in Clifton. What comes next! Child molestation? Since JS doesn’t have access to deals like submarines or SGS Cotecna thus just leaving him with the smaller evil of grabbing lands and market manipulation.

    Shame on our leaders who are a disgrace to the whole nation and are out to destroy the building blocks of our nation. We should salute Mr. JS for standing up to these thugs.

  2. Izzat Rehman

    JS Group has refuted these allegations and their response can be found on the Sunday Leader at:

    http://www.thesundayleader.lk/2011/02/27/right-of-reply-7/

  3. Ali Mir

    It is a shame that Pakistan does not punish corrupt people like Jahangir Siddiqui. The country is bankrupt, and yet people like JS are remitting 23.758 million Euros per transaction outside Pakistan to buy shell companies! (Obviously sent to their personal accounts)

  4. the main point here is that Pk markets are not efficient enough to identify flaws before such disasters occur. Regulators need to work more closely with broker/ dealers and have tighter controls in place.

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