Sunday, December 17, 2017

Family tree tangle


Mark Fraser

“There has been nothing wrong done.” On March 17 this was the opinion of Bourse Securities chairman Imtiaz Rahaman on his cousin’s First Citizens share dealings that Bourse handled. It was odd that the Bourse chairman had no input into the operations of the brokerage but he offered this opinion. Was this a reliable and informed assessment or a self-serving opinion in light of unchallenged media reports regarding Imtiaz Rahaman’s intimate involvement in the bank’s share dealings? Are these unchallenged allegations truthful or part of the “speculation, misinformation, mischief and misreporting”, Bourse’s managing director and recently resigned senator Subhas Ramkhelawan plans to deal with? Maybe Imtiaz Rahaman’s opinion is correct and nothing wrong was done, but stepping aside as Bourse chairman should be part of the journey to the truth. 

Unchallenged newspaper reports bind the cousins Imtiaz and Philip Rahaman in this investment from the outset, ending with Imtiaz and related parties acquiring legal ownership of 96 per cent of Philip’s 659,588 shares. Bourse also reportedly enters the picture early, working with the buyer turned seller, and lenders turned buyers. One nagging practical question on this purchase and sale sequence is this. If Imtiaz and his connected parties wished to purchase 634,588 bank shares on the open market, in the first three weeks of First Citizens’ listing on the Stock Exchange Bourse may have snagged 634,588 shares at a $4.5 million price savings. 

On September 19 for example, 579,000 shares were sold at a price of $37.59 each. Between September 19 and 25, 2.35 million shares were sold and, on September 30, 800,904 shares were sold at $35.01 each. Unless there was a timing issue and money was not a factor, there is no commercial basis for the purchase of 634,588 shares at a 20 per cent premium to market price using borrowed funds. The question whether this sequence of transactions was scripted from the purchase decision inevitably challenges the bona-fides of all involved and armed with the details. The key question is whether these transactions were opportunistic or scripted.

Throughout, whatever hat Imtiaz wore he could not be distanced from his alleged knowledge of and involvement in the share dealings. Public interest and speculation are unavoidable, especially with Bourse using the shield of client confidentiality as it is entitled to, reserving its disclosure for the Securities and Exchange Commission (SEC). But misinformation, mischief, and misreporting must be corrected, failing which it falls to further speculation and belief.

If reports are correct, when interviewed in March, Imtiaz knew the details. Philip’s share purchase was underwritten by a $13 million loan either Imtiaz or a sibling provided. Philip’s share purchase was 300 times the First Citizens employee average and 96 per cent of his shares were sold within a month of the expiration of the 90-day no-sell period. In March the share dealings were already subject to the bank’s audits, an investigation by the Minister of Finance, investigations by regulators, and intense scrutiny by the public. 

With his different hats Imtiaz would know if Bourse represented Philip on the purchase and sale transactions, the purchasers of Philip’s shares, and provided funding for the initial purchase and Imtiaz’s purchase of 377,000 of Philip’s shares. And, since as a person in public life Ramkhelawan had a level of accountability that included his private business dealings, Imtiaz’s assurance that “there has been nothing wrong done” was important, but was it reliable or self-serving? Imtiaz’s and Philip’s private confidentiality shields with Bourse are delaying full but necessary disclosure to the public. If these media reports of Imtiaz’s knowledge and involvement are correct, the tenor of Ramkhelawan’s move to clear Bourse’s good name will be judged by Imtiaz’s continuation as chairman.  

As an employee share purchase, Philip’s share purchase appears on-side. But after the First Citizens board first presented its findings in March to Minister of Finance Larry Howai, the minister confessed that, “the scope originally defined by the Ministry had just dealt with the first part of the process.” A press release a week later confirmed that, “the ministry determined that there was a need for full investigation of the matter”. An audit of the IPO process and a forensic audit of specific transactions were underway. The Bourse chairman did not budge.

This is not a purely private commercial transaction. It involves the divestment of assets previously held by Corporation Sole on behalf of the citizens of this country, with divestment rules sanctioned by Cabinet and driven by public policy considerations. It is a series of transactions undertaken in a highly regulated environment, each step underpinned by law. It involves a private brokerage firm, itself highly regulated, and managed at all material times by a person then in public life. 

If it is found that the transactions were not opportunistic but structured and scripted, questions of fronting, manipulating, and concealment arise. On January 14 Philip allegedly disclosed to his CEO that his sale of 96 per cent of his shares was to reduce his portfolio concentration to the First Citizens stock and settle debt incurred in the purchase. Did Philip own the beneficial interest and assume real risk in their acquisition? Did he opportunistically sell 96 per cent of his First Citizens shares to cash out and pocket a real $12 million profit, or was this part of a series of scripted transactions involving Philip, his cousin Imtiaz as both a relative and as client of the brokerage he chairs, and Bourse itself, the three common threads flowing through the transactions? 

The main actors may remain silent for now. But First Citizens will hold its annual general meeting on May 12 at the Lord Kitchener Auditorium at NAPA. With minority investors’ and employee concerns all around, the meeting could be contentious. This could turn out to be mas in May, especially if the current First Citizens board is still in place and Bourse continues with its chairman without correcting “speculation, misinformation, mischief and misreporting.”