Lately the international financial scene has been hit by the news of the implication of a Pakistani banker, one Hafiz Muhemmed Zubair Naseem, in insider trading in US markets and profiting immensely from his scheme. He has been charged with 25 counts of securities fraud and one count of conspiracy for revealing details of deals on which Credit Suisse advised. And guess what?? He was not alone.
The SEC has charged Hafiz Naseem, an investment banker with Credit Suisse, with illegally divulging non – public information to a person believed to be a banker in Pakistan concerning the leveraged buyout of TXU Corp. by an investor group led by Kohlberg Kravis Roberts & Co. and Texas Pacific Group. Naseem misappropriated the information from his employer, Credit Suisse, which served as a financial advisor to TXU in connection with the buyout. The SEC has filed a complaint with the US District Court for the Northern District of Illinois alleging insider trading in TXU Call Options ahead of the TXU buyout. The Comission further charged Naseem of breach of duty in telephoning his colleague in Pakistan, another prominent banker, and divulging to him material but non – public information regarding the buyout. Naseem has also been alleged to have been tipped others concerning atleast eight additional merger deals worked upon by Credit Suisse since he joined in March 2006.
Well, the icing on the cake is yet to come. Dawn reports that the other banker in Pakistan indicated above is Ejaz Rahim, former Group Head of the Investment Banking Group at Faysal Bank. Ejaz Rahim has further confirmed that he is under investigation by the SEC. Both Naseem and Rahim have earlier worked together at American Express in Lahore (and both have been accused of illegal banking practices over there as well). Although Ejaz Rahim denies any wrongdoing on his part, he accepts making $5 million on a leveraged deal of 6,700 Call Options just three days before the buyout was announced; but he maintains that the deal was purely based on market analysis data provided to him by a London based energy sector analyst. At that time, the Call Options gave Rahim the right to buy TXU stock at prices between $57.50 and $60 by March 2007, through a brokerage account at UBS in London. And when the TXU deal was announced on Feb. 26, its stock shot up $7.91 from the day before, to $67.93. This way, Rahim was able to net $5 million, the SEC maintains.
The SEC does not only stop here on the TXU deal, but further adds that other investors similarly benefitted. From January 29th to February 20th, Seema and Sunil Seghal, who are believed to be British citizens, bought several hundred TXU call option contracts, which expired in March and April 2007. Together, they made more $271,600 in profits. In late February, Francisco Javier Garcia, believed to be a resident of Switzerland, bought similar TXU securities through Fimat Banque Frankfurt based on inside information; he reaped trading profits of more than $150,500. The SEC has sued them all.
Dawn further reports that these two are just a peek into the dark world of insider trading. A number of additional Pakistani bankers, whose names haven’t been released as yet because of they being “big guns”, are also involved and are now worried about their skin as the powerful SEC pursues the case further. Dawn comments:
The banking fraternity is up in arms as this has dealt quite a blow to the reputation of the industry in the international banking arena. It is feared that the recent influx of investment by foreign banks will suffer a setback because of the fraud.
No doubt it’s got to reflect badly particularly on Pakistani bankers, who are famous for their skills and acumen, and on the Pakistani banking industry in general. However, one more unintended fallout of this saga has been that western audiences have come in motion to implicate the religion of Islam in all this.
Blogs have been discussing this and accusing Eastern societies and the religion of Islam in particular for being responsible. It couldn’t have gotten worse than this. Well, all such Islamophobic and rascist remarks and sentiments aside, as they are the by – product of the larger ill – will that runs across the globe at this moment in time, one thing is certain that internationally, Pakistani reputation hasn’t been helped at all by this incident.
However, as further impact of this incident takes hold, we can expect to get more details and certainly more names. Pakistani authorities should also step ahead and take action. But, to think that any strong action will be taken here in Pakistan is naive at best as insider trading is supposed to be the rule of the game to make big bucks. And it’s not just here in Pakistan. Every market must be having big fish ready to plunge into this illegality to make the big buck, and it’s true for US markets also. However, this time the powerful SEC got wind of this activity and now it will not spare a dime in processing all the relevant insider trading regulations to take offenders to task.
Pakistan, though, is another story. They never catch the big fish over here and history is replete with examples of the big culprits being let free. So for those additional Pakistani bankers who now fear that the SEC will get them, the SEC will sure do its best to get them but they can rest assured that they wouldn’t be safer anywhere else than in Pakistan.
