'The investment was against the interest of the investors and the capital market'
An investigation committee of the Bangladesh Securities and Exchange Commission found six counts of rules violations in LR Global Bangladesh’s investment into online news portal BDNews24.com.
LR Global purchased each share of bdnews24.com, whose face value is Tk 100, for Tk 12,500.
“The paid premium is abnormally high,” said the probe report by the committee formed on August 20 last year to investigate certain affairs of LR Global following the recommendation of the Anti-Corruption Commission.
Dhaka Tribune has a copy of the report, which was submitted to the BSEC chairman on November 3 last year.
From the documents submitted by LR Global, the three-member probe body inferred that all parameters of the investment are negative.
“The investment was against the interest of the investors and the capital market.”
Of the Tk 50 crore invested, Tk 1 crore came from LR Global, with the remaining Tk 49 crore channelled from the six mutual funds it manages, which violates article 56 of the Securities and Exchange Commission (Mutual Fund) Rules, 2001.
Moreover, the investment of Tk 49 crore is not in line with article 55 of the Securities and Exchange Commission (Mutual Fund) Rules, 2001, which allows channelling money from mutual funds to listed securities, initial public offerings, pre-IPO placement shares and securities that are transferable in the money market
Shares of bdnews24.com are none of the above.
The 31,021 investors of the six funds will not get any return from the investment in bdnews24.com for years, the report said.
“LR Global cannot make such kind of investment. Mutual fund’s money is basically the money of investors. This is not LR Global’s money.”
Investors do not have the opportunity to participate in the decision-making process, but it is the responsibility of the asset manager to see the interest of the investors and invest their money properly.
“That’s why he gets a fee from the fund year after year.”
This is not in line with article 33(7) of the Securities and Exchange Commission (Mutual Fund) Rules, 2001.
The valuation report submitted by LR Global also did not meet the standards.
“We observed that the report was prepared based on mere irrational qualitative assumptions.”
In the valuation report, it was shown that the offer price of each share of bdnews24.com was Tk 37,100 against the face value of Tk 100.
“It seems to us that there is no quantitative analysis that justifies this offer price.”
Besides, BRAC-EPL denied submitting any final valuation report of bdnews24.com to LR Global to the probe body.
The submission of a false valuation report by LR Global is a violation of section 18 of Securities and Exchange Ordinance 1969, the report said.
Subsequently, the probe body recommended exemplary legal action against Reaz Islam, the chief executive officer of LR Global Bangladesh; Ronald Micky Gomes, the chief financial officer of the asset management company; Monowar Hossain, head of legal and compliance of LR Global, and members of the investment committee of LR Global.
The investment in bdnews24 must also be brought back and LR Global should bear all expenses.
It also called for liquidation of the funds managed by LR Global as per article 51 of the Securities and Exchange Commission (Mutual Fund) Rules, 2001 for the interest of unitholders.
“The mutual funds’ money is not safe to keep under the management of LR Global, and the asset management firm may be changed as per article 31 of the Securities and Exchange Commission (Mutual Fund) Rules, 2001,” the report added.
Despite several attempts, neither Islam nor Toufique Imrose Khalidi, editor of bdnews24.com, could be reached for comment.
However, Hossain, the legal and compliance head of LR Global, could be reached.
He said Islam recently spoke with the higher officials of BSEC in this regard.
“We have not received any investigation report related letter from the BSEC. If the commission seeks any clarification, we will clarify,” he said, adding that LR Global is yet to get a letter from the BSEC over withdrawing the funds from bdnews24.com.
BSEC Chairman Shibli Rubayet Ul Islam confirmed the securities regulator’s intent to get LR Global to bring back the sum it invested in bdnews24 within a month on March 16.
“LR Global never made any investment into any non-approved private equities or anything that is not permissible. All our investments are compliant with Rule 55 (1) of the Mutual Fund Rules, Rule 55(2) 3rd paragraph.”
As per Rules 55, 56 and 57 read along with the 5th schedule in relation to the investment objectives and investment restrictions, there is no bar on mutual funds for investing in private equity as long as the mutual funds strictly comply with the restrictions provided in the 5th schedule of the Rules, he said.
As such, LR Global strongly denies breaching any security rules by making private equity investments that represent only 10 per cent of its assets and well within its stated investment guidelines, Hossain added.
The probe committee recommended that six mutual funds under the management of LR Global Bangladesh should be either liquidated or transferred to the custody of a different asset manager as the fund’s money is not safe to keep under the management of LR Global.