Staff Correspondent

The Securities and Exchange Commission (SEC) has fined AB Bank Tk 10 crore for violating securities laws, an official said Sunday. After months of investigation, the capital market regulator revealed that Arab Bangladesh Bank's merchant banking wing had disbursed "margin loans" of more than Tk 500 crore against its paid-up capital of Tk 57 crore, far exceeding the permitted limit. The penalty is the highest the market regulator has imposed on a company since 2001.

Mark BD Shoes & Engineering was fined the same amount for irregularities during its 2001 initial public offering. The SEC refused to explain the period of time when AB Bank had disbursed the loans, but said the amount had accumulated over the years. According to the securities law, a merchant bank can issue loans no more than five times its paid-up capital.

The loans were distributed among the bank's employees and their relatives to buy shares, which influenced the market, the SEC alleged. SEC executive director Farhad Ahmed told reporters that a committee was formed on July 30 last year to probe the irregularities of AB Bank's merchant banking unit. "On Sep 12, 2007 the committee submitted its report and the SEC found that the bank had violated securities laws," he added.

The SEC set the bank a 15-day deadline to pay Tk 10 crore. "We have to take the matter to court if it fails to pay the fine," Farhad said. "Signing loans for relatives is nepotism and influencing the market with the loans violates the SEC (Merchant Banker and Portfolio Manager) Ordinance, 1996," he said. And issuing margin loans more than five times paid-up capital violates the Securities and Exchange Ordinance, 1969, the SEC executive director explained.

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