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Ring Shine Textiles' Indonesian owners had sketched out a plan to launder money before floating an IPO in 2019 and approached a local businessman to execute the plan.
The businessman, Abdul Kader Faruk made a deal with the then managing director of Ring Shine Textiles (RSTL) Sung Wey Min that he would help the Tk 100-million enterprise collect a fund of Tk 1.5 billion in the process of stock market listing but in exchange for control over 40 per cent of the company's post-IPO shares.
They signed a memorandum of understanding on this.
An investigation team of the Bangladesh Securities and Exchange Commission (BSEC) dug up what it called an "unlawful contract" between the parties and laid out how the financial fraud took place in a report submitted in April 2021.
The Commission also deployed a special auditor - Hoda Vasi Chowdhury and Co - in January 2021 to look into the matter. The audit firm reconfirmed the financial scam after examining Ring Shine's financial statements for the period of June 2019 and June 2020. It handed its report to the market regulator in October 2021.
The correspondent of The Financial Express has seen both the documents.
Ring Shine inflated paid-up capital
Until FY17, Ring Shine's paid-up capital was a mere Tk 100 million.
The stock market watchdog would never allow a company of that size to collect Tk 1.5 billion from the general public. In a case where the company owners had invested Tk 100 million in the business, they were not worthy of public money 15 times their own investment.
So, Mr Sung Wey Min reached out to Mr Faruk, chairman of Far Group, to make the impossible possible.
Mr Faruk deployed four local auditors to manipulate the company's balance sheets and two issue managers -- AFC Capital Management and CAPN Advisory Limited -- for the listing purpose.
In May 2018, Ring Shine issued 275.1 million new shares at the price of Tk 10 each and showed all the shares as sold to nine foreign
directors, two investors from two other companies and 73 other local people.
So, apparently the company collected Tk 2.75 billion from selling the shares. But the BSEC investigation team and the special auditor found that no cash had been received from those identified as new investors.
The then Ring Shine MD, Mr Min deposited the company's revenue earnings in a Dutch Bangle account and disclosed the sum as share money deposits.
How the laundering happened
The company's directors sold out the pre-IPO shares, which they had received for free, after the listing of Ring Shine on the stock exchanges. Many of them fled Bangladesh with the money.
The money was transferred to many individual accounts outside the country from the company's account on the pretext of asset and machine purchase.
The investigation team did not find assets or equipments, which were shown in the company's financial documents.
According to the investigation team, Ring Shine Textiles laundered $122.28 million between 1998 and 2022.
Mr Faruk's involvement
Mr Faruk siphoned money from funds raised through pre-IPO and post-IPO shares of Ring Shine.
He opened a bank account with the company's name, which he solely operated.
The mastermind then took out Tk 115 million out of pre-IPO share sales and Tk 392 million from IPO fund.
A former DSE director, on condition of anonymity, told the FE that a delegation of the Dhaka Stock Exchange had called the BSEC office and requested the then BSEC chairman - Dr M Khairul Hossain -- not to approve Ring Shine's IPO.
In presence of the then full commission, the DSE delegates said the share money deposits shown in the financial statements had been fabricated.
They also said the market price of Ring Shine shares would fall below the face value because of window-dressing of the balance sheets.
The stock was priced at Tk 5.20 per share on Thursday.
No punishment yet
Even after the submission of two reports confirming the financial crime, no action has been taken against those who were involved in it.
An official of the Bangladesh Financial Intelligence Unit (BFIU) of the central bank said they had frozen the bank accounts of the company's directors in April 2020 for the first time following a request from the securities regulator.
The accounts were frozen six more times, every time for 30 days.
In January 2021, the securities regulator restructured the board of Ring Shine Textiles by appointing seven independent directors.
Industry sources said the owners of Ring Shine have recently made a plea to the Prime Minister's Office (PMO) to salvage the company out of the misery.
Ring Shine has been showing losses for the last three years.
Mohammad Rezaul Karim, spokesperson and executive director of the BSEC said, "After the investigation, the Commission called the parties. There was a hearing. The SEC is in the process of giving them punishment."
Financial Reporting Council (FRC) is supposed to punish auditors for any wrongdoing. But it is not empowered yet legally.
Dr. Md. Hamid Ullah Bhuiyan, chairman of the FRC, said, "We do not have our rules approved yet; the file is in the ministry. We did the correction asked by the legislative. After [the issuance of] gazette, we will be able to punish or fine."
The correspondent contacted R N Spinning Mills Limited company secretary, requesting for the contact number of Mr Faruk who is one of the owners of the company.
Company secretary A Raquibul Islam refused to give the number of Mr. Faruk.