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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Sri Lanka’s EPF bought shares with no approval, no analysis: forensic report

Sri Lanka’s EPF bought shares with no approval, no analysis: forensic report

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jaya


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Sri Lanka’s EPF bought shares with no approval, no analysis: forensic report
Monday January 27, 2020 07:25:18

ECONOMYNEXT – Sri Lanka’s Employees Provident Fund, a state-managed retirement fund of private workers had bought stocks without analysis, without approval of an investment committee, and there were no deal tickets to show who bought them in some cases, a forensic report has said.

The EPF is managed by the central bank which in turn is government by a Monetary Board, headed by the governor.

Large volumes of stock had been bought from firms connected to the Perpetual group and related firms linked to Arjun Aloysius.

A forensic report conducted by KPMG, auditors, said some investments had been made without approval from an investment committee or the monetary board, without analysis and there were irregularities in adding companies to the investment lists.

In some case there were deal tickets or settlement sheets were not signed.

The EPF had bought 737 million rupees of stock in Brown and Company Plc for which document showed investment committee approval from SHM Rishan, who was involved in PC House, a listed company which was removed from the stock exchange for non-compliance.

“..The deal ticket for the transaction was unsigned hence the dealer executing the trade could not be identified,” the report said.

The EPF had made losses of 1.1 billion rupees on a portfolio of 6.6 million shares of Browns.

The EPF had invested in banks against the investment and trading guideline apparently on the
instruction of the then governor Nivard Cabraal. They were later ratified by the investment committee and the monetary board.

No approvals were available for investments of 463 million rupees in non-bank financial institututions.
Companies linked to the family of ex-Governor Arjuna Mahendran’s son-in-law had also sold stocks to the EPF at high prices, which made losses.

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On March 04 and March 11, the EPF had bought 965 million rupees of stock in Ceylon Grain Elevators. The deals were not in the investment committees weekly plans but were ratified later. The EPF had bought a total of 1,051 million worth of Grain Elevators.

About 95 percent of the stock was bought from Perpetual Capital Private Limited. The EPF had lost 651 million rupees by the review period. An EPF Superintend had said it was a management decision and the Governor explained that prospects were good for poultry.

The EPF had bought stock in Carsons Cumberbatch for 2.5 billion rupees in October 2010, a major counterparty was an entity called Thurston Investments.

Media reports had said that the Thurston Investments was linked to the grandfather of Arjun Aloysius, However the forensic aditors said there were no know your customer details of the counterparty to confirm whether it was the same company.

In the case of the 801 rupees spent on buying shares in Galadari Hotels Lanka Plc, at the highest price in the market, deal tickets or settlement sheets were not available. No evidence was also found on financial investments.

It was subsequently ratified by the Investment Committee.

In the case of Laugfs Gas, the middle office had calculated the value at 40 rupees a share, and purchases of up to 48 rupees was given for 33 million shares, breaching a shareholding limit set for the fund, though no approval was given.

Employees had stated that having consulted with the Governor it was agreed that the price was fair. It was subsequently ratified by the Investment Committee.

There was no impairment loss on the stock at the review date.

EPF had also bought shares of SriLankan Airlines. There was a letter from the Ministry of Finance addressed to the Bank of Ceylon but not the EPF. Sri Lanka Employees had said the investment could have been made in the ‘national interest’ with instructions from the top-most level.

EPF had also bought SriLankan Catering preference share where from Governor Cabraal had been involved in decision-making. Employees said it may have been due to instructions from the government.
The EPF had also bought stock at Canwill Holdings Private Limited.

Under the investment policy statement, EPF investment committee and fund management staff were expected to give statements of economic interest of themselves and family members. The requirement was removed in 2011 and put back in 2018.

The statements however were in sealed envelopes and there was no review mechanism. They were to be opened only in the case of a court order.

The report said controls on conflicts of interest of EPF employees appeared to be ineffective and there was no monitoring mechanism to track employee trading despite them being potentially privy to EPF trades.

The auditors said comments were asked from former Governors Cabraal and Arjuna Mahendran, but there was no response.

However ex-Governor Cabraal has said the forensic audits were biased and inaccurate.

Sri Lanka forensic audits on bond sales biased and inaccurate, part of cover-up: Cabraal

(Colombo/Jan26/2020)

https://economynext.com/sri-lankas-epf-bought-shares-with-no-approval-no-analysis-forensic-report-42295/

Teller

Teller
Moderator
Moderator
MUST READ– Sri Lanka’s Employees Provident Fund, a state-managed retirement fund of private workers had bought stocks without analysis, without approval of an investment committee, and there were no deal tickets to show who bought them in some cases, a forensic report has said.

The EPF is managed by the central bank which in turn is government by a Monetary Board, headed by the governor.

Large volumes of stock had been bought from firms connected to the Perpetual group and related firms linked to Arjun Aloysius.

A forensic report conducted by KPMG, auditors, said some investments had been made without approval from an investment committee or the monetary board, without analysis and there were irregularities in adding companies to the investment lists.

In some case there were deal tickets or settlement sheets were not signed.

The EPF had bought 737 million rupees of stock in Brown and Company Plc for which document showed investment committee approval from SHM Rishan, who was involved in PC House, a listed company which was removed from the stock exchange for non-compliance.

“..The deal ticket for the transaction was unsigned hence the dealer executing the trade could not be identified,” the report said.

The EPF had made losses of 1.1 billion rupees on a portfolio of 6.6 million shares of Browns.

The EPF had invested in banks against the investment and trading guideline apparently on the
instruction of the then governor Nivard Cabraal. They were later ratified by the investment committee and the monetary board.

No approvals were available for investments of 463 million rupees in non-bank financial institututions.
Companies linked to the family of ex-Governor Arjuna Mahendran’s son-in-law had also sold stocks to the EPF at high prices, which made losses.

On March 04 and March 11, the EPF had bought 965 million rupees of stock in Ceylon Grain Elevators. The deals were not in the investment committees weekly plans but were ratified later. The EPF had bought a total of 1,051 million worth of Grain Elevators.

About 95 percent of the stock was bought from Perpetual Capital Private Limited. The EPF had lost 651 million rupees by the review period. An EPF Superintend had said it was a management decision and the Governor explained that prospects were good for poultry.

The EPF had bought stock in Carsons Cumberbatch for 2.5 billion rupees in October 2010, a major counterparty was an entity called Thurston Investments.

Media reports had said that the Thurston Investments was linked to the grandfather of Arjun Aloysius, However the forensic aditors said there were no know your customer details of the counterparty to confirm whether it was the same company.

In the case of the 801 rupees spent on buying shares in Galadari Hotels Lanka Plc, at the highest price in the market, deal tickets or settlement sheets were not available. No evidence was also found on financial investments.

It was subsequently ratified by the Investment Committee.

In the case of Laugfs Gas, the middle office had calculated the value at 40 rupees a share, and purchases of up to 48 rupees was given for 33 million shares, breaching a shareholding limit set for the fund, though no approval was given.

Employees had stated that having consulted with the Governor it was agreed that the price was fair. It was subsequently ratified by the Investment Committee.

There was no impairment loss on the stock at the review date.

EPF had also bought shares of SriLankan Airlines. There was a letter from the Ministry of Finance addressed to the Bank of Ceylon but not the EPF. Sri Lanka Employees had said the investment could have been made in the ‘national interest’ with instructions from the top-most level.

EPF had also bought SriLankan Catering preference share where from Governor Cabraal had been involved in decision-making. Employees said it may have been due to instructions from the government.
The EPF had also bought stock at Canwill Holdings Private Limited.

Under the investment policy statement, EPF investment committee and fund management staff were expected to give statements of economic interest of themselves and family members. The requirement was removed in 2011 and put back in 2018.

The statements however were in sealed envelopes and there was no review mechanism. They were to be opened only in the case of a court order.

The report said controls on conflicts of interest of EPF employees appeared to be ineffective and there was no monitoring mechanism to track employee trading despite them being potentially privy to EPF trades.

The auditors said comments were asked from former Governors Cabraal and Arjuna Mahendran, but there was no response.

However ex-Governor Cabraal has said the forensic audits were biased and inaccurate.


_________________




Teller said is said..

Teller

Teller
Moderator
Moderator
Who will come to invest in CSE if these type of frauds happen. Refer the auditors recommendations to avoid such scenarios in future


_________________




Teller said is said..

venura


Manager - Equity Analytics
Manager - Equity Analytics
@Teller
Will there be any impact to the mkt from the new Virus?

Teller

Teller
Moderator
Moderator
As per current situation for me virus is nothing impact to cse, i believe cse faces different issues at the moment. Specially we lost the trust based on forensic report.


_________________




Teller said is said..

KavinduTM

KavinduTM
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@venura wrote:@Teller
Will there be any impact to the mkt from the new Virus?

Almost all major share markets in the world were down by more than -1%.

https://www.investing.com/indices/major-indices

Teller

Teller
Moderator
Moderator
Sri lanka only 1 patient was recorded. Geographically we are safe , no need to have much fear. Market down due to negative sentiment


_________________




Teller said is said..

KavinduTM

KavinduTM
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
@Teller wrote:Sri lanka only 1 patient  was recorded. Geographically we are safe , no need to have much fear.  Market down due to negative sentiment

Yes but single patient is enough. which means srilankans are not safe. hope china will find some cure or a solution fast.

Currently this is a challenge for the whole world. Almost found that virus in 15 countries now  Crying or Very sad

Hope everything will be fine  Sad

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