Bangladesh Securities and Exchange Commission (BSEC) has ordered Vanguard Asset Management Limited to return Tk20.59 crore to Vanguard AML Rupali Bank Balanced Fund under its management after finding investments made in violation of securities laws.
The move marks one of the regulator’s latest enforcement actions targeting fund management irregularities.
The asset manager got 30 days for it, and failure to comply with the order will result in further fines, the regulator said on Wednesday.
The decisions were taken at the regulator’s 1,012th commission meeting held Monday at the BSEC headquarters, chaired by BSEC Chairman Khondker Rashed Maqsood.
According to BSEC, the securities regulator found that Vanguard AML Rupali Bank Balanced Fund invested Tk1.50 crore in Bengal Poly & Paper Sack Limited in 2013 through the purchase of 6 lakh ordinary shares at Tk25 each, including a Tk15 premium over the Tk10 face value, “breaching securities regulations.”
The mutual fund incurred losses due to the illegal investment in the private company.
To protect the investors of the fund, BSEC ordered Vanguard Asset Management to return Tk5.74 crore to the fund within 30 days of the commission order.
The regulator warned that failure to comply within the deadline would result in a Tk6.75 crore penalty against the asset manager.
BSEC also found that the same mutual fund invested Tk6 crore in another non-listed company AFC Health Limited in 2017 by purchasing 48 lakh ordinary shares at Tk12.50 each, including a Tk2.50 premium above the Tk10 face value.
The investment, too, was in violation of securities laws, said the securities market watchdog.
For this, the commission ordered Vanguard to return Tk14.85 crore to the fund within the same 30-day timeframe.
If the company fails to return the money, BSEC said it would impose a Tk16 crore penalty.
The regulator considered the time value of investors’ money to determine the amounts asked to be returned by the fund manager, BSEC Director and Spokesperson Md Abul Kalam told TIMES while justifying the higher fines.
Tk1 crore invested in 2013 should grow to a much larger amount by 2025, he added.
BSEC further said any penalties imposed must be paid from the fund manager’s own resources within seven days after the expiry of the 30-day compliance period.
BSEC also decided to impose an additional Tk10,000 daily fine if the penalties remain unpaid after the deadline.
The commission blamed trustee Investment Corporation of Bangladesh (ICB) for failing to properly supervise the mutual funds and safeguard the interests of unit holders.
As part of the enforcement action, BSEC fined ICB Tk15 lakh.
The regulator also decided to refer audit firm Malek Siddiqui Wali & Co, Chartered Accountants to the Financial Reporting Council for possible action.
According to BSEC, the audit firm failed to clearly explain in its audit report why the fund suddenly maintained a 99 per cent provision against the disputed investments.
Vanguard Asset Management Managing Director and CEO Waqar Ahmad Choudhury disputed the regulatory order.
“These were not private equity investments, instead pre-IPO equity investments that were not illegal,” he told TIMES of Bangladesh.
“Similar investments in ADN Telecom generated 10 times return for our unitholders,” he said.
He added that non-listing of the two companies resulted in no return and the asset manager ensured provisions against the written-off investments.
According to him, AFC Health had secured regulatory approval to go public.
He also said Vanguard will go to court against the regulatory treatment.
