On the morning of January 14, businessman Imtiaz Rahaman, chairman of Bourse Securities and the cousin of former First Citizens executive Philip Rahaman purchased 377,000 shares of the State banking group.
His mother, Alia Rita Rahaman, bought 33,000 FIRST shares.
Both Imtiaz Rahaman and his mother have the same Vistabella-registered address in their share ownership of First Citizens at the Share Register of the Trinidad and Tobago Stock Exchange (TTSE).
On that same day, five companies owned by the Rahaman family, which comprise the Rahamut Group, also bought blocks of FIRST shares:
• Rahamut’s Service Station, with a registered address of 1 Shafik Drive, Cross Crossing, San Fernando, bought 25,904 FIRST shares
• Olympic Manufacturing Ltd, with the same registered address of 1 Shafik Drive, Cross Crossing, San Fernando, bought 65,000 FIRST shares
• Caribbean Metal Industries Ltd, of the same address, bought 40,000 FIRST shares.
• Cedi Holdings Ltd, of same address, bought 48,229 FIRST shares.
• Olympic Rentals Ltd, of same address, bought FIRST 45,455 shares.
The total share acquisition, through seven trades by the Rahaman family and the Rahamut Group, in companies with interlocking directorates, on that January 14 morning was 634,588.
That was the day Philip Rahaman, former chief risk officer of the bank, disposed exactly 634,588 of the 659,588 FIRST shares he’d purchased during the company’s Initial Public Offering (IPO) on September 6.
“This was very sophisticated in its orchestration and implementation,” an industry source explained.
Rahaman, who had paid $14.5 million for the shares, sold the 634,588 shares for $26.7 million, making a profit of approximately $12.2 million.
In addition, he had also pocketed $718,950.92 in dividends from the bank in December.
Rahaman was fired from the bank last Tuesday following an internal audit by the bank on his purchase of 659,588 FIRST shares and the subsequent sale of 634,588 of those shares four months later. The bank said it had lost confidence in its chief risk officer.
He had acquired the shares from the undersubscribed employee bucket when the government divested 19.3 per cent of its stake in the bank.
Of the 48.5 million shares for which the stake amounted, 15 per cent was allocated to employees. First Citizens employees could acquire up to a maximum of 5,000 shares at a ten per cent discount of $19.80 (while the public was sold shares at $22) at a zero per cent interest loan.
The block of shares Rahaman had disposed of went principally to his relatives. Imtiaz Rahaman is the vice chairman of the Rahamut Group of Companies and chief executive officer of Ramco Industries Ltd.
Given that the public bucket was oversubscribed by nine times when the IPO was launched, the shares would not have been dumped onto the market in that bulk.
On January 14, the market spiked with the volume of FIRST shares traded. (See TTSE graph).
The TTSE recorded 646,214 trades at a price of $42.15. To date, it is highest volume of FIRST shares traded since the stock was launched.
“By the volume of shares which they have acquired, the group has become one of the largest shareholders of FIRST shares,” an industry source explained.
The transaction, the Banking and General Workers Union (BIGWU) alleges constitutes insider trading, has come under scrutiny given the position Rahaman held and how it was conducted.
It is the subject of investigations by the Securities and Exchange Commission (SEC), the TTSE and PricewaterhouseCoopers (on behalf of the Ministry of Finance).
The Central Bank’s Inspector of Financial Institutions Carl Hiralal has also written to the bank seeking answers from the Bank’s board and management on whether the transaction and Rahaman met the “fit and proper” test.
Last week, Finance Minister Larry Howai confirmed he had received a draft copy of the PWC investigation, which he said, “could be a criminal investigation at this stage”.
First Citizens chair Nyree Alfonso said yesterday she preferred to wait until the PWC report was completed and presented before she commented further on the matter. She observed that the board had taken swift action when wrongdoing was unearthed but that it would not be prudent to discuss the matter at this time.
Bourse Securities at the centre
Rahaman used Bourse Securities, at which Imtiaz is a former director and is now executive chairman, as his broker for his transaction.
The Sunday Express understands that in this transaction, Bourse was the broker for both parties—the buyers (the Rahamans and the Rahaman companies) and seller (Philip Rahaman).
Bourse Securities is headed by Subhas Ramkhelawan, an independent senator, who is also chairman of the TTSE.
The Sunday Express understands that for senior officers or directors who own shares, the sale of those shares has to be done in the open market and not by private treaty.
Rahaman’s sale price for his shares, the Sunday Express understands, was priced at $42.15, above the average $35 which FIRST shares were being traded on the market, which made it unattractive for other investors.
But it was picked up by his cousin and the family companies.
The sale was executed in the early morning as soon as the TTSE began trading that day, the Sunday Express learnt.
Contacted yesterday, on the facts unearthed in the Share Registrar, Ramkhelawan said he could not discuss matters with regard to client information.
“I cannot seek to break client confidentiality. I cannot comment on the trade or trades that took place with us,” he said.
The Sunday Express tried to contact both Imtiaz and Philip Rahaman through multiple phone calls, text messages and e-mails but was unsuccessful.
The Sunday Express also asked Ramkhelawan to request an interview with Imtiaz Rahaman on his family’s shareholding.
“I believe Bourse and (Ramkhelawan) have high standards that it adheres to, and I believe there has been nothing wrong done. I am sure this review (and those by other regulatory institutions) will do what is within their remit. I am confident when it runs its full course the answers will be clear. A lot of speculation and has not helped the process. I have confidence, confidence in financial services is important in process,” Imtiaz Rahaman had told the Express in an interview on March 18.
First Citizen’s Internal Audit
The volume of share purchases of Rahaman came under scrutiny during an audit conducted by the bank on the IPO Share Allocation for source of funds declarations.
The Sunday Express obtained a copy of the audit.
Rahaman had applied for his shares, about 17.4 per cent of the shares allocated to employees in July 31, 2013.
The audit, which was dated March 24 and and compiled by the bank’s chief internal auditor Anthony St Clair, noted that 1,073 employees subscribed for shares.
St Clair noted that with 70 employees subscribed for more than the allotted 5,000 shares with 39 of the 70 between 5,000 and 10,000 shares and another 19 between 10,001 and 20,000 shares.
There are now 11 employees (including CEO Larry Nath), as well as Rahaman, with over 20,000 shares.
“Based on our understanding of the allocation policy, all requirements were adhered with, it should be noted that there were no stipulations for a maximum allocation per individual,” St Clair said.
Under the heading “Policy Breaches” of the audit, Rahaman’s source of funding came into question.
“There were only two staff members who obtained debt financing from other financial institutions being Mr Larry Nath and Mr Hassan Rahaman. It was confirmed that Mr Nath made the relevant declarations as per the staff policy.”
It added: “To date, there was no evidence to support whether the required declaration as it relates to external financing has been made by Mr Rahaman. Checks on his employee file as well as with his direct report, Mr Nath, has not unearthed the required declaration to support the Bank Debt referred to in his source of funds declaration to support his subscription of shares.”
Who Funded Rahaman?
On January 15, Rahaman was questioned on his purchase and sale by chief executive Nath on the purchase and sale of shares.
In an e-mailed response, which was included in the audit, Rahaman explained:
“To confirm our discussions, the TT$14.5 million in funds raised was via a combination of personal/family funds and third party bank debt. These documents can be provided for your review, if required. Prior to acquiring the shares, however, the quantum that I was hoping to bid on was mentioned to Jason Julien for information purposes, as well as yourself.
“In addition, the sale of the majority of the shares at this point is threefold:
1. To reduce my portfolio concentration to this one stock.
2. To settle the outstanding debt incurred in the acquisition of the First Citizens shares.
3. To position myself to take advantage of two other investments that may provide a higher rate of return over the next few months, both of which are in the public domain.”
Nath, in forwarding the e-mail to the company’s auditors noted:
1. No declaration was submitted by Mr Rahaman with regard to his external borrowings.
2. No loan documentation, documentary evidence of external indebtness, quantum, breakdown, debt service obligation etc was provided despite the indication to provide the same. I was of the view that this e-mail was not sufficient and more information was required and I took up Mr Rahaman’s offer as below. He indicated that he did not see the need to lift this veil of privacy.
3. The mixture of funds below is similar to the verbal account given by Mr Rahaman and is the extent of the indication submitted regarding the source of funds.
4. Mr Rahaman did not provide prior notice (orally or written) regarding the quantum of shares purchased, I subsequently contacted Mr Julien, GM at First Citizens Investment Services, who confirmed that no such prior notice was provided to him as well.”
Julien declined comment to the Sunday Express on the matter.
But an industry source noted last week: “The question now is who funded him. Did he receive funds to buy the shares and then conveniently dispose of them to benefit certain parties? Those things need to be looked at.”
Finance Minister Larry Howai has said the SEC had hired a team of forensic investigators from Canada to investigate the matter.
While e-mail shows that the bank was aware of Rahaman’s sale on January 14, the bank did not meet its legal compliance with the TTSE Rule 604 that stipulates that shares traded by directors and senior officers be submitted to the institution within five days. The share sale was on January 14, the First Citizens Annual Report published on February 17 on the TTSE, and it was only on March 12 that First Citizens informed the TTSE that a senior officer sold 634,588 FIRST shares.
Rahaman is a registered broker of government bonds at the SEC.
He has been registered since March 18, 2011 under his legal name Hassan Philip Rahaman.
The Sunday Express understands that under the SEC regulations, he was expected to inform them of his share transaction.
The Sunday Express has learnt that the SEC is looking into Section 136 of the Securities and Exchange Act 2012 as it relates to Rahaman.
The act states: “A person who is connected to a reporting issuer (any of whose securities are listed on a registered securities market) within five business days of the day that he becomes connected to the reporting issuer, file a report in the prescribed form with the commission disclosing any direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer by him.”
The act also states that anyone who has “direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer by him and his associates changes from that shown or required to be shown in the report or in the latest report filed by him, shall within five business days from the day on which the change takes place, file a report of direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer by him and his associates as of the day on which the change took place and the change or changes that occurred, giving such details of each transaction as may be prescribed”.
Section 138 of the act states: “Any person who contravenes any section in this Part, or who, in purporting to comply with any section of this Part, makes a statement or files a report which he knows to be false, or recklessly makes a statement or files a report which is false, or fails to supply any particulars which he is required to supply, commits an offence and is liable on conviction on indictment to a fine of five hundred thousand dollars and to imprisonment for two years.”
Last week, chairman of the SEC Patrick Watson said that the transaction was a complex one and the first of its nature under his watch at the institution.
“While I would like the investigation to go fast, we have to ensure we get it right. It will take some time and we are looking at all sorts of things which are not in the public domain,” he said.