Of course, any evidence pointing to a broker’s trading in the same share ahead of the release of a research report should set alarm bells ringing. But there is no such accusation in the FIA inquiry report about the “loss” of Rs290 million that the Employees Old-age Benefits Institution (EOBI) incurred after it purchased Amtex Limited shares on the alleged recommendation of AKD Securities.
All that the FIA report says about the “criminal role” of AKD Securities in the EOBI case revolves around a research report.
The report put projected earnings per share (EPS) of Amtex at Rs5.17 for 2010 while its actual EPS clocked up at Rs3.74. Moreover, its forecast for the EPS for 2011 and 2012 proved to be wide of the mark as well.
It is noteworthy that out of the nine brokerage houses named in the inquiry report, the FIA has taken action against AKD Securities only. This is particularly troubling because the FIA report also gives a breakdown of Amtex shares that EOBI traded in 2010: AKD Securities was not involved in any of these transactions as a broker, the breakdown shows. In other words, the only reason the FIA has acted against AKD Securities appears to be the research report that “overstated” the future EPS of Amtex.
Leaving aside the merit of arresting the CEO of a brokerage house on an allegedly flawed research report, let us examine if the case against AKD Securities is indeed built on solid foundations.
First, it is surprising that the FIA is blaming a single research report for the loss that EOBI accumulated over a period of five years while it remain invested in the Amtex share.
Secondly, the said research report was released on June 22, 2010, when the stock price of Amtex was Rs10.66 per share. In contrast, the investment committee of EOBI purchased Amtex shares almost two months later when its price stood at nearly Rs20.
In a dynamic stock market, an equity research report loses its relevance within a span of days. But it becomes absolutely meaningless as soon as the stock’s underlying fundamentals change. Did it occur to the FIA why the EOBI’s investment committee purchased Amtex shares on the basis of a two-month-old research report that was prepared at a share price that was almost half of the then prevailing rate?
More importantly, how exactly did the FIA determine that EOBI bought Amtex shares on the basis of the publicly available research report by AKD Securities? After all, EOBI maintained no brokerage account with the house, as reflected by the breakdown of the traded shares given in the FIA report.
The said research report did not give any “target price” for Amtex either. Instead, it stated the projected EPS of Rs5.17 for 2010, a figure that was merely taken out of the Information Memorandum published in February 2010 on the basis of information solely provided by the company itself ahead of its initial public offering (IPO).
In fact, two separate research reports released by BMA Capital and Invest and Finance Securities – which are major brokerages in their own right – also put out the same projected EPS for 2010 in accordance with the same Information Memorandum. This leaves one wondering why the fuss is over the research report of AKD Securities only.
The FIA director has said he will furnish further facts before court.
Neither the FIA nor the Securities and Exchange Commission of Pakistan responded to repeated requests for a comment.
Read : AKD Securities: Interior Minister finds faults with FIA investigation
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