Monday, December 18, 2006

Big Wigs Erasing Evidence of Their Crime?

Try hard as they may, Islamabad’s bigwigs are finding it difficult to put a lid on last year’s stock exchange scandal.

The latest news is the discovery that all the relevant financial data relating to the stock market scam that caused US 13 billion loss to small investors has been deleted not only from the records of the stock market and the brokers but also that of the Securities and Exchange Commission of Pakistan (SECP).

Apparently the data was surreptitiously deleted at the SECP shortly after Dr Tariq Hassan, its former chairman, was sacked by Shaukat Aziz in January 2006.

It’s time for a recap.

In March 2005 the share market collapsed.Quite suspiciously the KSE-100 share market index had surged from a figure of 6,218 on 31 December 2004 to a startling high of 10,303 on 15 March 2005. In a short space of two and half months the market had ballooned by 65%.

And then it crashed hitting a low of 6,939 on April 12, 2005.

The financial implosion caused a loss of some Rs. 780 billion - the losers were small middle class investors.

And yes, of course, there were mighty big winners as well. Anyone who had shorted the stock at the time of the crash reaped the windfall. And those who had used the multiplier effect of margin trading would have easily reaped well over 100% on their proffered investments. And so hundreds of billions of rupees were made.

On 18 April 2005 the SECP chairman Dr Tariq Hassan appointed an independent Task Force, headed by the ombudsman Justice Salim Akhtar, a retired judge of the Supreme Court, to investigate the allegations of market manipulation, insider trading and other market abuses which were said to have caused the stock market collapse.

Two months later on 30 June 2005 the Task Force handed over its report to Dr Tariq Hassan, the SECP chairman.

It appears that as soon as Hassan decided to proceed on the recommendations of the Task Force report he struck trouble.

According to Dr. Hassan two senior officials, namely the Prime Minister’s Adviser on Finance, Salman Shah and Minister of State Omar Ayub Khan, began obstructing his efforts to deal with the shady network of brokers. Dr Hassan even divulged that he was pressured by Shaukat Aziz to maintain friendly 'close contacts’ with the leading scamsters of the stock exchange crash.

Fed up with these shenanigans, on 4 August 2005, Dr Hassan submitted his resignation. But it was not accepted by his boss Shaukat Aziz.

Five months later when Dr Hassan had reportedly issued orders appointing forensic investigators to probe the few big brokers responsible for the crash, he was sacked. Importantly, Dr Hassan has stated on record that all the relevant data relating to the crash was in possession of the SECP at the time of his dismissal.

One might have thought that things would have ended there, but it was not to be.

In mid 2006 the National Assembly’s Standing Committee on Finance and Revenue decided to discuss the task force’s report on stock market crash.

On 7 July 2006 protesting opposition members overcame government efforts to prevent Dr Tariq Hassan from appearing before the committee. Once the sacked SECP chairman was given a chance to speak the proverbial shit finally hit the fan (see Blog: Shortcut & Co. Facing Serious Sleaze Allegations).

To protect themselves the Islamabadi bigwigs opted for a two-pronged approach to stem this sudden onslaught.

First was an attempt to frighten Tariq Hassan into silence by setting the security agencies upon him – he was followed everywhere, all his phones were bugged. Even the Commando General was brought into the act; Musharraf angrily announced that he held Tariq Hassan “personally responsible for the March 2005 crash”.

And then to placate the opposition (and also to further confuse the issue) it was announced that a US forensic team from Diligence Inc. would be flown in to independently investigate the cause behind the March 2005 crash.

Sources close to this new forensic investigation soon began warning that “The US team now knows more about Dr Hassan than (about) the powerful brokers nominated in the task force’s report on the market crash”.

And at that time even your Blogger made the following comment:
The idea, it appears, is to heap all the blame on Tariq Hassan, who now seems destined to play the role of the scapegoat for the whole debacle. Meanwhile, it will be business as usual at the Karachi Stock Exchange and the shady billionaire brokers and the badla providers will undoubtedly continue with their destructive practices.

And so it was to be.

When the US forensic investigator’s report finally came out at the end of November 2006 it was as many had anticipated: a splendid whitewash.

As Dawn reported:
The report says that the US team had not found sufficient evidence to support the withdrawal of COT that was ‘ostensibly’ responsible for the fall of market prices. It found no patterns of activity or credible evidence to support the ‘theory’ that certain influential brokers ‘systematically and manipulatively’ inflated and then deflated market prices, reaping substantial profits in the process.

The truth be told is that Diligence Inc were quite unable to get any ‘evidence’ to implicate anyone. There was little or no data left for them to examine. Probably not wishing to offend their generous paymasters the investigators took the hint and did not make any fuss about it.

As we now know that soon after Tariq Hassan was sacked in January 2006 all the data relating to the period under investigation conveniently evaporated into thin air

This was publicly confirmed last week when newspapers such as Dawn splashed the following news on the front page :

Disappearance of data gives twist to KSE saga
National Assembly’s standing committee on finance was informed that data pertaining to the booking of shares were deleted not only from the records of the stock market and the brokers but also that of the Securities and Exchange Commission of Pakistan, leaving no proof for the forensic experts to ascertain anything substantial.

One of the members of last year’s investigative Task Force told Dawn:
“There is one big black hole. This (forensic report) is the cover up. You will never get the truth now. But, you can (still) find who covered up the truth”

Will we ever find the culprits who rigged the market, made their mega-billions by bankrupting thousands of small investors and then arranged for all the evidence of their crimes to vanish?

Readers, your guess is as good as mine!

In the meantime here is a list of leading 13 of the 88 brokers who have been named, in the forensic report as having profited from the ‘situation’:

Atlas Investments
AKD Securities
BMA Securities
Arif Habib
Orix Investment Bank
Taurus Securities
Abdul Jabbar Khanani
Escort Investments
Jehangir Siddiqui
Akbar Ali Cassim and Sons
Motiwala Securities
Elixir Investments

Thursday, December 14, 2006

Our Robber Baron Economy

Unlike many members of Pakistan’s so-called elite, your Blogger has not been particularly impressed by the ‘Economic Miracle’ that has been allegedly wrought in Pakistan.

Yes, many of the rich have become much richer – some astronomically so. Most noticeably, however, these new fortunes have not been created by the creation of new industry or by enhancing trade, which could have benefited the country’s overall economy. Instead these billions have been created simply by either manipulating the stock market or speculating in urban property or by grubbily indulging in both.

Recently I was told by a holidaying senior ex-pat banker that a Karachi stock broker who used to wheel around Chundrigar Road on a Honda motorbike some fifteen years ago is now purportedly worth a cool $ 2 billion (please note that I’m talking about dollars and not rupees).

Apart from these unscrupulous stock brokers, we have also had to contend with avaricious holders of black money who have prodigiously speculated on the urban property market. A property, for example, that had declined to Rs. 8 million just prior to 9/11 is currently worth more than Rs. 40 million.

While these rogues wallow in their extraordinary wealth spare a thought for 99% or so Pakistanis who have not profited from this fabulous economic windfall.

Expert opinion holds that there are some 50% of Pakistanis who still happen to live below the poverty line. One has to ignore concocted Ministry of Finance statistics which repeatedly ‘show’ reductions in poverty levels- Dr. Asad Saeed, a highly regarded economist, asserts that the current regime has beaten all its predecessors when it comes to the deliberate fiddling of economic data.


It was therefore heartening to come across someone else also raging about the wrongness of it all. According to The News Akbar Zaidi, a leading local economist, made the following noteworthy remarks while addressing a local gathering :

"The stock exchange should have no place in a developing country like Pakistan. It is not an institution to promote industrialization. In fact, it is more or less a gambling den where the savings of the middle class people are regularly siphoned off."

"No investment had been made in education, health, water and power sectors which could pull the country and its people out of abject misery while more than $20 billion had been received in foreign remittances”

"[The] large fiscal space gained due to 9/11 episode could have been used in enhancing trade and industry activity and creating employment but this money was used by the military regime for plots and stock exchange and to enrich the unscrupulous upper class, which ultimately increased the income gap in Pakistan.… [Now] property values had been pushed out of reach of even the upper middle class."

We need to hear more voices like these.

The Balochistan Folly (continued)

It becomes increasingly obvious that the simmering rebellion in Balochistan is just not going to go away - no matter what Musharraf & Co have to say on the subject.

Musharraf’s trip to Balochistan this month was met with a complete shutter-down strike in all the Baloch areas of the troubled province and led to a large spate of pre-emptive arrests of political activists.

A statement that he has ‘no regrets’ about killing Akbar Bugti (made in an interview with India’s NDTV network) hardly helped cool down matters.By making this statement Musharrah completely contradicted his previously stated position that that the Baloch Nawab had been killed unintentionally.

And by then adding that the military had to “crush [Bugti]... as you are doing in India” (in apparent reference to battles being waged by Indian troops against insurgents in the northeast, Kashmir and elsewhere) Musharraf has managed to invite ridicule.

As a political commentator noted Musharraf ‘appears to have forgotten that Pakistan has consistently maintained that India's actions in Jammu and Kashmir constitute "massive human rights violations".’

In Quetta the General, for once, actually acknowledged the Baloch rebellion in a backhanded sort of fashion by offering an amnesty to Baloch fighters.

Somehow I doubt if his belated attempt to start a dialogue in Balochistan will get any response. Ironically, as a knowledgeable journalist once told me, Akbar Bugti was the only Baloch leader amenable to negotiating with the Establishment. After villifying and then killing him, there is no one left in Balochistan willing to talk to Islamabad. All one can say is: You reap what you sow

An addendum on Akbar Bugti:
A former Governor of Balochistan - Lt. Gen Abdul Qadir Baloch (the only Baloch general so far) – apparently disclosed that ‘the Bugti area had the highest literacy rate in Balochistan’. This mocks the official version which states that the slain Bugti chief was totally averse to educating his tribes people.


In the meantime the Balochistan issue seems to be getting some international press coverage. Today The Brooklyn Rail, a monthly magazine from New York, gives a lengthy journalistic plug for Suleiman Daud, the present Khan of Kalat.

Excerpts from: A Call to Resistance: The Khan of Kalat Gathers the Tribes
"Khan of Kalat Suleiman’s country is rich in resources that everyone wants to take and he doesn’t have the power to stop them. “We sit on a mountain of gold,” he says, “and the devil sits on us.” His people, the Baluch Nation, are being indiscriminately bombed, arrested, and kidnapped, and he’s powerless to stop it. Journalist Selig S. Harrison has called it a slow-motion genocide and Human Rights groups have called it an ethnic cleansing. “We have 700 miles of coast and oil and gas and gold,” says Khan Suleiman. “We try to do something to have rights to it, we get spanked. We resist every ten years and get spanked every ten years.” For the past few years, he has been in the middle of an unseen war that few beyond the regional press are reporting.

But then something horrible happened and it radicalized his people. In August 2006 the chief of the Bugti tribe, 79-year-old Newab Akbar Bugti, was murdered by the Pakistan Army. “Bugti was buried with three locks on the coffin,” says Khan Suleiman. “They thought his soul might come back and make trouble. So the army put locks on it. None of his tribe was around to see his body. Still they’ve got a guard on his body.” The Baluch people were outraged by the murder, and Khan Suleiman had found his moment, the catalyst he needed. He called a national jirga, a meeting of the tribes, the first in 130 years. He wanted to find out if his sardars, his chiefs, the heads of tribes that have been, on and off, at war with each other for hundreds of years, could lay down personal disputes and unify for a common cause: an autonomous Baluchistan. Khan Suleiman’s allies would be his former enemies. In the way of tribes, his enemies are also his friends. He put out his call."

"Khan Suleiman’s historic jirga was attended by 1,500, including 85 sardars and 300 tribal elders. The Baluch people have always protested the Punjabi-dominated military regime of Pakistan President General Pervez Musharraf that has been made rich off the Baluch province but gives so little back in terms of resources and tax revenues that the entire region still lacks the basic services that most consider human rights. The province is rich in natural gas yet only 6% of the Baluch have gas connections, less than half the children get an education, and only 2% of the population have clean water.

The answer to Khan Suleiman’s call for unification and resistance against this state of affairs was a resounding yes."

"There is a problem with autonomy for Baluchistan. As it was with the Native Americans, there are broken treaties involved. The current troubles in Baluchistan date back to the 1947 agreement between Britain and India that created Pakistan. Six million Baluch were forced to become part of the newly created country. But a 1948 treaty, in which the current Khan of Kalat (Khan Suleiman’s grandfather) acceded to Pakistan, delineates that accession in only four areas: defense, foreign affairs, currency and communications. Resource and autonomy rights were not given up, but there is an ambiguity to the language of the treaty that has been exploited by Islamabad."

"The Baluch Liberation Front and the Baluch Liberation Army, along with the more official Baluch National Party are increasingly made up of not just moderate to extreme tribals or politicians, but intelligentsia, merchants, laborers, out-of-work engineers, lawyers, and the new Baluch middle class. The Baluch Student Organization actively stages demonstrations, roadblocks and rallies."