The restoration of Chief Justice of Pakistan has raised a glimpse of hope for thousands of investors – local & overseas who lost more than $ 13 billion(Rs.780 billions) in stock market crash of March 2005.

Two separate inquiries done by “Security & exchange commission of Pakistan (SECP)” into this matter revealed names of eighty eight (88) stock brokers of Karachi Stock Exchange (KSE) responsible for the sudden crash of stock market but strong political pressure pushed everything under the carpet and not even a single broker was punished.

Meanwhile we, the lost investors, saw all the proceedings under shock and awe and disbelief.


It all started in the beginning of 2005 when a group of stockbrokers manipulated the shares of various companies through rumors , loopholes in KSE trading regulations for future Trading(A Financial Instrument), and illegal practice of “Wash Trade” ; thus artificially inflated the prices of various stocks to unbelievable levels. These Stock brokers then sold these stocks to investors at maximum prices by supporting it with bogus financial research. Since the prices of these stocks were based on rumors and illegal practices and not on the financial performance of the company and when these rumors were proved wrong the stock prices started a free fall in March 2005.

Within fifteen days (March 14,2005 to March 28, 2005) most of the stocks lost their values by fifty(50) percent. As a result more than hundred thousands investors lost their life long savings. I myself lost more than three million rupees in this financial scam created by the top brokers of Karachi Stock Market.

When I approached my stock brokerage company, for recovery of my money they kept me at bay and behaved rudely and abusively. When I told them I will register a case against them, I received death threats from them against me and my children. Being a single mom I had no choice but to go out of country for some time.

On a mega financial scam of $13 billion –unprecedented in the history of Pakistan , SECP- - the apex regulator of Karachi stock exchange carried two inquiries against the stock brokers and clearly pinpointed various culprit stock brokers involved in the entire scandal. Major brokers like Aqeel Karim Dehdi, Arif Habib Securities, Javed Omar Vohra, Jahangir Siddiqui & Company, Zafar Moti, Elixer Securities, Khadim Ali Shah Bokhari & Company, and several others are clearly found guilty of criminal breaching of “SECP regulations of stock market” and bringing it to a sudden crash. Both the reports prominently found:


KEY COMPONENTS OF KSE MARCH 2005 CRISIS


1. First, certain brokers conspired to use manipulative trading practices to drive scrip prices up. Through wash trades and misleading statements, they created artificial euphoria and overly optimistic sentiments – drawing additional investors into the market and driving scrip prices even higher.

2. These brokers liberally supplied increasing volumes of COT(Carry Over Transaction or Badla financing was a financing mechanism providing investors and market participants in the Pakistani securities markets with funding to leverage their investments. COT enabled investors to“carry over” their positions in the market without taking delivery, thus deferring settlement.)For the heightened demand in trading, which further escalated prices and permitted smaller investors to take on highly leveraged positions. These brokers later systematically restricted COT availability, sending share-hungry weak investors to the Futures counter.

3. As scrip prices rose, the brokers locked in those (inflated) prices by selling heavily in the March Futures contracts and further complicated the scenario by selling shares they did not actually own, fully intending to defer the acquisition of those shares to a later date to benefit from anticipated price declines.

4. At a later stage, these same brokers then adversely influenced the market’s liquidity through additional COT restrictions which had the effect of stalling the market and sending scrip prices downward. Brokers then purchased the requisite shares in the Ready Market, at highly discounted prices, to satisfy delivery of setoff shares in settlement of their March Futures sales contracts and reaping hefty profits in the process.

5. Finally, in order to prevent massive defaults by buyers stuck with open Futures contracts, these same brokers persuaded regulators to create special trading periods and to extend the normal settlement period by three days to allow the brokers to provide additional COT funding to Futures contract holders.

The Report further concluded

Most of the brokers were involved in Wash Trade

(A wash trade is an illegal stock trading practice whereby an investor simultaneously buys and sells shares in a company through two different brokers. Such a trade enhances the activity in the stock, giving the impression of active trading without any change in beneficial ownership, a clear violation of Section 17 of the Securities and Exchange Ordinance, 1969)

The analysis of stock market data helped identify a number of potential cases of market abuse where players had undertaken “wash trades”; either for the same client or a series of common clients across brokers to “pump” the market. Analysis shows that the brokers and their clients largely dealt with each other in groups or sub groups at both broker and client level.

Large volumes were also traded between clients of the same brokerages and there were numerous instances of the same client or house account of a broker being both buyer and seller, in violation of rules, raising concerns about the sanctity of these transactions.

B-Gross violations of Clause 3(b) of the Regulations Governing Futures Contracts (exceeding the Rs 50 million reporting threshold)

The Report found significant manipulations by brokers related to violations of Clause 3(b) of the Regulations Governing Futures Contracts (exceeding the Rs 50 million threshold) and Section 17(a) of the Securities and Exchange Ordinance. Clause 3(b), during the relevant timeframe of this review, prohibited a broker from having a net sale position in futures contracts of a particular scrip in excess of Rs 50 million without providing evidence that it held the shares sold above the threshold.

2,491 instances across 88 brokers were identified with net sales positions in March 2005 futures contracts alone that exceeded the Rs 50 million threshold for a particular scrip.

Collectively, these net sale positions total in the billions of rupees. Many of the cases, if substantiated as being non-compliant with Clause 3(b), could represent serious violations.


But the irony of the fate for small investors continues; none of these brokers have been brought to justice as no serious action has been taken against these brokers. Infact SECP played a godfather role for the brokers of Karachi stock market and no effort has been made to recover $13 billion these fat crocodile- the brokers KSE have swallowed.

These brokers are so strong that they have direct access to the sitting prime minister Shaukat Aziz. Previous chairman of SECP Mr Tariq Hassan and current chairman SECP Mr. Razi ur Rehman failed miserably to catch even a single broker involved in this organized crime. The Public Accounts Committee ( PAC ) ordered SECP on April 4, 2005 to take severe action against the brokers involved but no action was taken.


The National Assembly Standing Committee on Finance did what it does best- PLAYING HIDE & SEEK – on public uproar it carried half-heated sessions to look into Karachi Stock Market Crash of 2005 and no serious effort was made to question and grill the brokers involved.

Thousands of investors are now looking for your active action against these culprit stock brokers and the shameless cheating attitude of SECP officials to catch these brokers. Over the past twenty nine month we are kept in a limbo by the SECP by turning lenient to these brokers who deserve unprecedented punishment for their unprecedented financial scam.

Chief Justice of Pakistan is therefore requested to take strong Suo Motu Action against

(a)- all those brokers mentioned in the SECP inquiries and who are still running scot-free after depriving the investors of their precious hard earned savings and investments

(b)- Award Maximum Penalties & Punishment to the alleged criminals of this organized crime

(c)- Confiscate all their properties and assets for disbursement to the distressed investors of the scam .

(d)- Cancel their brokerage licenses for violating the regulations and auction them to the deserving candidates

(e)- Take strong action against SECP and its officials specially Chairman Razi-Ur-Rehman & Ex-Chairman- Tariq Hassan for failing to control this financial catastrophe.


I celebrated our 60th independence with a firm belief that the independent judiciary under your command will be able to bring justice for us, the victims of biggest organized crime in the history of Pakistan.

Thank You

Faithfully

Zoya Hayat Khan