AG reports FCB share sale to police, DPP
By Andre Bagoo Friday, April 11 2014
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Over to the police: Attorney General Anand Ramlogan announces a police probe of the purchase of FCB shares by a bank official at the post Cabinet pres...
ATTORNEY General Anand Ramlogan has recommended that the First Citizens Bank (FCB) initial public offering transaction involving a bank official be referred to the Police Service, the Office of the Director of Public Prosecutions (DPP) and to the Securities Exchange Commission (SEC) for investigation.
Ramlogan disclosed recommendations drawn up after a review of the transaction — which saw former FCB Chief Risk Officer Phillip Rahaman purchase $12 million in shares, later resold — at the post-Cabinet press-briefing held at the Office of the Prime Minister, St Clair. FCB fired Rahaman when questions arose about the share transaction.
The Attorney General did not make any findings of fact or come to any conclusions over whether any offences had been made out, but stated the matter should be reviewed by the appropriate authorities in his view.
Ramlogan said the matter should be referred to the Office of the DPP and the police “for them to consider whether there is justification to lay several criminal charges arising out of violations of the Securities Act”.
He also recommended the matter be referred to the SEC, “as a matter of urgency” as it is the body established by Parliament with the responsibility “to ensure fair and equitable dealings in securities to protect the integrity of the securities market against any abuses arising from market manipulation, insider trading and any improper practices”. He said it would be up to the SEC to take “appropriate action under its expanded powers pursuant to the amendment piloted in 2012”.
Another recommendation was for the Ministry of Finance to review the relevant documents entrusted to the divestment secretariat to strengthen its expertise and capacity to oversee IPOs.
He highlighted several offences under the Securities Act which may be relevant to the lines of inquiry to be adopted, but did not come to any conclusion that these offences had been made out. The relevant offences, he said, were Sections 91, 94, 95, and 99 which ban false, misleading, artificial or deceptive trading practices. These offences attract stiff penalties, ranging from a fine of $2 million and five years in prison and $5 million and seven years in prison.
With respect to the role and position of the board of FCB, Ramlogan said it was clear the board did not take part in the day-to-day running of the bank and was not involved in the administration of the IPO.
“I think it is abundantly clear from the evidence and the documents submitted that whilst the comments made by the chairman (Nyree Alfonso) were clearly injudicious, premature and perhaps somewhat prejudicial, she made those comments based on the facts that were available at the material time and the board really played no role in the day-to-day administration and execution of the IPO which was the responsibility of the divestment secretariat and the executive management,” Ramlogan said.
Alfonso is reported to have suggested the share transaction was above board when questions first arose about it.
Asked if any action would be taken in relation to the board, Ramlogan twice stated the issue did not arise.
“The issue does not arise, we can find no evidence of misconduct,” Ramlogan said. “The board is not involved in the administration of the IPO.”
Ramlogan stated, however, there were concerns over controls and called on FCB to conduct its own review of its internal processes and control mechanisms.
He disclosed apparent policy breaches which took place at FCB.
“The first is that the Chief Risk Officer Mr Rahaman failed to file a declaration of commitments at other financial institutions and that form was required by the bank’s own internal policies,” the Attorney General said. “He did not, in fact, file the related documents with the human resources department as required by their policies.”
Ramlogan further stated, “the second matter is that the bank breached Rule 604 of the Trinidad and Tobago Stock Exchange — Reports of Trading by Directors and Senior Officers by failing to notify the Trinidad and Tobago Stock Exchange of the sale of 634,588 shares in FCB by the Chief Risk Officer on January 14, 2014”.
“This is a matter that ought not to have happened and therefore the bank will have to undertake a review of these shortcomings in terms of the management of the bank with a view to ensuring there is appropriate action and strengthening of its procedures.”
Ramlogan said Rahaman, as a bank employee, had a right to purchase the shares. He said the issue was rather whether those shares were purchased really for the benefit of non-employees.
“It is clear from all that has transpired that Mr Rahaman, by virtue of a series of loans which were taken, was able to purchase shares which raise a strong inference that the shares were perhaps held on trust and purchased on trust with the beneficial ownership for certain family members,” Ramlogan said. He did not come to a view on this matter. Ramlogan gave details of the transaction saying it bore several features.
“The first would be the fact that the offer to purchase was submitted on the very last day of the IPO; the second is the position he held and the fact that information may have come to his knowledge in that capacity that could be deemed insider information and relating specifically to the under subscription in the category called employees,” Ramlogan said.
He noted further, “the five one-page loan agreements which were unsecured; the amounts which were in proportion to the shares purchased and the re-purchase which occurred thereafter – in fact, the loan amounts were $58 short of $14 million – and of course, the fact that there were no other purchases of shares save and except for these shares offered up by Mr Rahaman”. However, Ramlogan also stated, “It was in fact a matched transaction.”
Ramlogan stated, “based on those features that pertain to this transaction, the issue would be whether it was in fact a device to cloak what was essentially a transaction whereby persons who are not employees of the bank and were therefore not entitled to purchase shares in that category were allowed to do so indirectly.”
On the role of Bourse Securities, if any, Ramlogan said that would be a matter for investigation by the SEC.
“Not enough information is known to make any finding one way or the other because there are salient facts that have to be ascertained including whether a commission was paid and what was the precise role played by Bourse Securities so that matter will of course be investigated, but on the information and the documents that were provided to me, it would not have been possible to make a finding and indeed it would not be my function to make a finding but rather to highlight and see whether there were potential violations and refer the matter to the appropriate authorities.” Bourse handled the purchase of the shares for Rahaman.