Documents available suggest that a group of affected investors have taken up the matter with members of the SECP's policy board to seek help against their misfortunes perpetrated by market manipulators before they approach the Supreme Court for compensation.According to an appeal submitted to Finance Secretary Salman Siddique, who is also chairman of the SECP policy board, the small investors have accused SECP of not only failing to take effective deterrent actions to prevent such 'daylight robberies', but also of not compensating their losses as the brokers multiplied their fortunes in the absence of any punitive action as was required under law.The market crash of 2005 which evaporated over $13 billion of market capitalisation in a matter of days was investigated and its causes ascertained by a task force led by Justice (retd) Saleem Akhtar. On its recommendations, the SECP hired services of US forensic investigators who had identified the main culprits and remedial measures to prevent such incidents in future. The investors have complained that the SECP held a number of brokers responsible for the debacle and market manipulation, but applied irrelevant clauses of laws which practically left all main culprits untouched. As a result, they said, the market collapsed for a second time in 2008 and yet the guilty people remained off the hook. In 2008, more than 4,500 investors applied for the compensation although the total number of affected investors was estimated at more than 50,000. They said the SECP proceeded against 56 brokers for violation of stock market laws governing futures contract - an offence specifically punishable under Section 22 of the SECP ordinance with a penalty of Rs50 million. "The SECP established the commission of offence but exonerated the offenders on a novel ground that the accused brokers thought they had not committed any offence, although the SECP held that they actually did commit the offence."
Likewise, the SECP proceeded against eight brokers for price manipulation that under Section 17 of the SECP ordinance is an offence punishable with three-year imprisonment and a fine. The SECP charged them for the offence but under wrong provisions of law imposed a negligible penalty of Rs25,000 to Rs100,000. They said the SECP introduced even more dangerous leverage products and speculative futures contracts, leading to their misuse and the resultant market crash of 2008. The investors say that the SECP is itself involved in the flooring of share prices in August 2008 in consultation with brokers although the flooring was a malpractice and criminal offence under Section 17(e) and punishable under Section 24 with imprisonment and fine. They said that when the Competition Commission of Pakistan took a suo motu notice of the market floor, the SECP asked the stock markets to lift the floor. The CCP fined the three stock markets but did not touch the SECP. The group of small investors also complained that the "SECP kept hundreds of complaints unnecessarily pending for months, affording the five defaulting brokers time and information to dispose of their properties and run away from the country". The five defaulters confessed before the SECP that they had pledged their clients' shares without authorisation for their personal gains.
Instead of prosecuting these defaulters with imprisonment and fines as was required under the relevant laws, they were charged under wrong clauses to reduce their punishment. This, they said, was because of close friendship between some of the brokers and the SECP high-ups. The complainants claim that the confidential information about putting defaulters' names on the exit control list was leaked to the brokers who left the country before their names were put on the ECL. And yet, the SECP did not move the Sindh High Court, as is required under the law, to wind up their brokerage houses. The investors have pleaded before the SECP policy board to intervene and ensure them the return of their investments as the brokers used to charge the investors who ran short of funds even for a single day. They have contended that Karachi Stock Exchange is bound under Article VII of its own memorandum of association to return full investments to clients from Investors' Protection Fund and from its own property and income or else they would take up the case with the Supreme
