In another financial felony in Bangladesh, UFS Asset Management has embezzled Tk 158 crore in investors' funds, according to a probe of the stock market regulator.

People keep their funds with asset management companies, which make investments based on their research with a view to generating a profit and sharing it with investors in the form of dividends.

But the Bangladesh Securities and Exchange Commission (BSEC) has found that UFS Asset Management swindled around Tk 158 crore from its four open-ended mutual funds.

Mutual funds pool money from investors to channel them into securities such as stocks and bonds. Open-ended mutual funds are not listed with the stock market but one can buy and sell them at a fund manager's office.

In June, the stock market regulator formed an inspection team to probe irregularities at UFS's five mutual funds.

The committee found that the asset manager swindled funds from its four mutual funds: UFS-IBBL Shariah Unit Fund, UFS-Popular Life Unit Fund, UFS-Bank Asia Unit Fund, and UFS-Padma Life Islamic Unit Fund.

Of the missing sum, Tk 125 crore was embezzled from the cash and fixed deposits of the mutual funds and the rest from its interest income and by overcharging management fees, it said.

"UFS management deliberately pulled out funds by manipulating the financial statements of the mutual funds. It falsely stated cash and cash equivalent assets, investment in FDRs and mudaraba term deposits and interest income."

The asset management company violated securities rules by submitting erroneous information and making fake FDRs (fixed deposit receipts) and mudaraba term deposits, the report said.

The firm was also found to be doctoring the calculation of net asset values and the sale and purchase prices of mutual fund units by showing fake assets, not uploading financial statements on its website and not submitting financial statements to the BSEC.

The fund manager confessed to a mismatch of Tk 107.93 crore during an inspection on August 21 and pledged to return 50 per cent of the missing amount by September 30, 2022, and the rest by October 30, 2022.

"The fund has not been returned yet," said a senior official of the BSEC, preferring anonymity.

UFS, however, did not make any commitment to return the missing interest income and overcharged management fees.

According to the report, state-run Investment Corporation of Bangladesh (ICB), the trustee and custodian of the funds, informed the BSEC that the fund manager was non-cooperative.

It is evident that UFS recklessly liquidated the listed securities of the four funds and laundered the liquidated amount, it said.

The report, however, said that ICB had never informed the BSEC about the fraudulent activities of UFS.

Since the inception of the mutual funds between 2016 and 2018, ICB received Tk 1.84 crore as the trustee fee, overcharging the funds by Tk 0.59 crore, the probe report said.

Rahman Mostafa Alam & Co and Ahmed Zaker & Co Chartered Accounts have been the auditors of the funds since 2021.

"The auditors did not follow mutual fund-related regulations and international accounting standards," said the probe report.

It is evident that the auditors falsely gave opinions as "true and fair view" regarding the financial matters in the audited reports, it said.

A comparison between the bank statements and the audited financial statements highlighted inconsistencies. So, it is clear that the two auditors falsely published the audited financial statements, it added.

"The fund manager submitted bank statements, vouchers and all other documents but they were fake and fabricated. We did not realise that it has embezzled money," said M Zabed Ali Mridha, a partner of Ahmed Zaker & Co. Chartered Accounts.

"UFS also did not allow us to check its bank accounts, saying its managing director had been infected with Covid-19 and was out of the country. We did not give the audit objection as we had thought that the documents were original."

"On top of that, ICB was asking us to carry out the audit quickly."

Mridha, however, says it is the responsibility of the custodian to verify the documents since an external auditor gets only a few days to carry out the task.

ICB Managing Director Abul Hossain, however, told The Daily Star: "We normally depend on the auditor's report, but the auditor did not raise any objection."

Still, ICB has formed a probe committee to see whether there were any irregularities and officials were negligent in performing their duties.

"If any irregularities are found on the part of ICB, we will take action," Hossain added.

Minhaz Mannan Emon, a former director of the Dhaka Stock Exchange, said the incident would spook investors' confidence in the stock market.

"When an asset manager eats up peoples' funds, the auditors don't detect it and the custodian remains silent, then how can people trust the auditors, trustees and custodians?"

Both the custodian and the auditor have the responsibility to detect malpractices and fund embezzlements, he said.

Speaking to The Daily Star, BSEC Spokesperson Mohammad Rezaul Karim said: "The regulator will take legal measures after carrying out all procedures."

"We will also look into the role of the trustee, the custodian and the auditors. If they are found to be failing to play their due responsibility, they will also face punishment."

As a temporary measure, the BSEC has requested the central bank to stop the fund withdrawal scope of the four mutual funds and the directors of UFS, Karim added.

UFS Managing Director Sayed Hamza Alamgir could not be reached for comments.

Iftekharuzzaman, executive director of the Transparency International Bangladesh, said: "This bears the hallmark of deliberate and collusive fraudulence and swindling of money of innocent investors who invested in the company in good faith."

Transparency International Bangladesh (TIB) Executive Director Iftekharuzzaman. File photo.

"There is no way that such corruption and fraud can take place without the involvement of the top management and the board of the company." 

He said everyone involved should be brought to account through a robust investigation and in a manner that sends a strong signal not only to the perpetrators in this case but also to other manipulators in the ailing stock market.