Bangladesh probe blames regulator for share debacle

DHAKA (Reuters) - A state-appointed committee probing a recent series of sharp falls in Bangladesh share prices handed its report to the finance minister on Thursday, holding the regulator primarily responsible for the debacle.

“Many are to blame ... share issuers, issue managers, brokers, dealers and businessmen for the debacle,” Committee Chairman Khandaker Ibrahim Khaled, a former deputy governor of the central bank, told Reuters.

“But the freefall could be avoided if the stock market regulator acted professionally,” he said.

A series of market crashes in January triggered violent protests by mostly small investors, many of whom said the losses they sustained had turned them into paupers.

The protests that led to street battles with police halted trading at the country’s Dhaka and Chittagong stock exchanges for several days. The government later ordered the probe.

Khaled said the committee had asked for a comprehensive restructuring of the Securities and Exchange Commission (SEC), the stock market regulator, to safeguard the interests of small investors in future.

“We have recommended the government to completely overhaul the SEC as our findings say if the regulator performed its duties with due responsibility such a debacle could not happen,” he said.

He submitted a 300-page report to Finance Minister Abul Maal Abdul Muhith.

“In our months-long investigation we did not find any political involvement in the ... trouble during December and January,” Khaled said.

The committee found many irregularities, such as that “two investors opened several accounts (each) and transacted 25 percent of their total trade between themselves, impacting share prices on the market.”

Share prices had doubled in only six days before crashing.

Khaled, also a noted economist, said unnamed businessmen might have taken illegal advantage of people in power through relations with them. He said up to 50 billion taka ($687 million) might have been laundered out of the country during the share scam.

Share prices nearly doubled in 2010, attracting new investors into the market. The number of retail investors increased to around 3.5 million from around 500,000 in 2007.

However the benchmark Dhaka stock index has lost more than 29 percent since hitting a high of 8,918.51 on Dec. 5.

Finance Minister Muhith said that the big investors were very powerful and influential.

“The government will investigate further to go into deep and after confirmation about those big investors we will announce the names of them for the public,” Muhith told reporters.

Reporting by Serajul Islam Quadir; Editing by Anis Ahmed and David Holmes