Former Chairman of NSB Pradeep Kariyawasam found guilty on NSB-TFC Deal of 2012

The Colombo Chief Magistrate’s Court on yesterday convicted Sri Lanka’s largest state owned savings giant, the National Savings Bank’s (NSBs) former Chairman and the husband of former Chief Justice Shirani Bandaranaike – Pradeep Kariyawasam for illegally allowing the purchase of overvalued shares of once the largest finance company in the country – The Finance Company PLC (TFC) by the National Savings Bank in 2012.

Accordingly Pradeep Kriyawasam was given a 5-year suspended sentence and a fine of Rs. 300,000 by the Magistrate. He was found guilty over the incident of purchasing shares of The Finance Company using NSB funds while being fully aware of the loss entailed to the government due to the decision. The court has made this order after considering the fact that the convicted had no previous offences and the loss resulted in, from the transaction, had been reduced after immediate action was taken to reverse the deal.

That time the deal that took place on 27th April 2012 between NSB and TFC was titled to be a transaction carried out by people with conflict of interest in both boards of NSB and TFC and the relevant stock brokerage that carried out the transaction.

That time the reports pointed out that the transaction happened when Sri Lanka’s state owned public deposit rich National Savings Bank bought a 13.02% stake of former Ceylinco owned oldest finance golden house of the island – The Finance Company PLC (TFC) on 27 April 2012 upon a decision mainly made by that time Chairman of NSB Pradeep Kariyawasam just few minutes before the closing time of Colombo Stock Exchange (CSE) trading. After the transaction that time a filing Taprobane Securities (That time owned by Taprobane Holdings lead Sri Lanka’s former Money Broker and Bond marketer Ajith Devasurendra) said that National Savings Bank had bought 7,863,362 ordinary voting shares of TFC at an average price of Rs.49.74 per share. On 27th April 2012, TFC was the largest contributor to the day’s turnover with Rs.394.09 million and a total of 7,982,705 shares traded via 58 trades. Several crossings were done whilst TFC stocks changed hands in parcels of 2,904,983 and 4,237,400 shares at Rs.50 per share and 701,761 shares at Rs.45 per share whilst the sellers were believed to be then Taprobane Securities CEO and another high-net worth individual and a former Chairman of failed Tea Company Fern Tea who sold 50,000 shares at Rs.45 per share.

However that time it was later reported that after the deal NSB directors had been compelled to cancel the payment of the transaction cost that amounted to over Rs.390 million with the instructions of the top government authorities due to the highly illegal nature of which NSB Chairman carried out the transaction.

It was reported by media that time however, not knowing the circumstances Sampath Bank PLC the Central Depository System (CDS) settlement custodian of Taprobane Securities that time had then paid the total sum to main sellers including then CEO of Taprobane Securities and others. However reports also highlighted that NSB was authorized by the state authorities to not to proceed the settlement of the transaction after losing the payment of over Rs.390 million.

After several days upon transaction, after coming in to a proper procedure that time in a letter titled ‘Transfer of The Finance Company PLC shares purchased by the National Savings Bank through the Colombo Stock Exchange, Sri Lanka’s stock market regulator – Securities and Exchange Commission (SEC) stated the following.

Taprobane Securities (Pvt) Ltd (TSL) and the National Savings Bank (NSB) by letters dated 11th May 2012 made an application to the Securities and Exchange Commission of Sri Lanka (SEC) seeking prior approval under Section 28 (1) of the SEC Act to transfer The Finance Company PLC (TFC) shares purchased by NSB on 27th April 2012 on the Colombo Stock Exchange (CSE) to persons identified by TSL outside the Trading Floor of the CSE. TSL in their application undertook to pay Sampath Bank PLC the consideration due on this transaction including the interest due thereon in settlement of the monies due to Sampath Bank for the settlement services rendered by Sampath Bank on the share purchases done by NSB of TFC on the Trading Floor of the CSE on 27th April 2012. NSB in their application also agreed to transfer TFC shares purchased on 27th April 2012 in its entirety to the persons identified by TSL outside the Trading Floor of the CSE. The NSB agreed to allow TSL to pay Sampath Bank the consideration sum due on this share transfer in satisfaction of the amounts due to Sampath Bank for the settlement services rendered on the share purchases transacted by them on the CSE on 27th April 2012. Sampath Bank too intimated to SEC that the bank will discharge NSB and all parties connected with the impugned transaction, if TSL as undertaken by its letter pays Sampath Bank all sums due to them including interest/levies due thereon. In terms of Section 28 (1), the SEC has the discretionary power to approve transfers outside the trading procedure of the CSE. In this backdrop the SEC has granted approval to allow NSB to transfer TFC shares purchased on 27th April 2012 in its entirety to the persons identified by TSL outside the Trading Floor of the CSE. This approval has been granted under exceptional circumstances for the smooth functioning and the system stability of the payment and settlement cycle of the Capital Market of Sri Lanka. It is stressed that the SEC will not consider this instance of granting approval to conduct a trade of this nature off the Floor of the CSE as creating a precedence. The SEC is separately investigating the above mentioned transaction and the parties involved in it. Firm action will be taken against all those who are found to have violated the SEC Act. The SEC is currently studying this entire issue and expects to take a series of appropriate measures, rule and procedure changes to prevent such incidents in the future. The SEC will also intensify its efforts in implementing the Central Counter Party (CCP) for the CSE which will be the final solution to address settlement failure risk.

The NSB-TFC Deal of 2012 further made SEC and CSE to come up with several new rules to the market opening up a new chapter in market regulations in Sri Lankan history including regulations for Crossings and share transactions of stock brokers and their officials and immediate relatives’ as well new settlement rules.

 

– Reporting by Devendra Francis



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