Sri Lanka starts forensic audits into securities scams, EPF

 ECONOMYNEXT  – Sri Lanka’s central bank has begun multiple forensic audits into alleged securities scams in selling bonds and managing a 2.2 trillion rupee Employment Provident Fund (EPF) of private workers, a top official said.

"There are six forensic audits that we are conducting," Governor Indrajit Coomaraswamy told reporters in Colombo.

"Five of them had started in April," he said.

"Some of them will take about two to three months and the longest will take about six to seven months."

"So, we are hopeful that before the end of this year all of them will be completed."

BDO India and KPMG are conducting the forensic audits.

"When these are completed we would have to see what actions need to be taken," Coomaraswamy said.

In 2015 and 2016, bond auctions, which were conducted by the central bank on behalf of the Treasury were rigged to issue much more bonds than were originally offered, but insiders knew that larger volumes would be taken.

However other market participants also figured out later or information leaked that that higher volumes would be taken and they also bid, creating more competition later.

Increasingly larger volumes were then accepted at auctions to push the yields up, critics say.





The biggest buyer was Perpetual Treasuries, run by Arjun Aloysius, son-in-law of then Central Bank Governor Arjuna Mahendran.

The  EPF which is managed by the central bank, stayed out of some of the auctions, helping keep the yields higher.

The EPF then bought the bond at higher prices (lower yields) from Perpetual Treasuries and others after the auctions.

The Perpetual group had bought stocks at peak valuations on or around 2011, earning the EPF the doubtful accolade of ‘buyer of last resort.’

The same securities dealers who bought stocks at high prices were in office during the bond purchases.

Coomarasamy, a respected former public servant who has served in the Commonwealth Office, has put in place new procedures, which are said to be better.

He also stopped the practice of misleading market participants by announcing smaller volumes and taking higher volumes.

Announcing larger volumes and taking smaller volumes may also mislead market participants by creating opportunities for insiders, if it was a deliberately intended before hand.

Probes were also called for sales of bonds prior to 2015, when large volumes of bonds were sold outside of auctions, against generating opportunity for negotiation and discretion. (Colombo/Jun08/2019)








Sri Lanka forensic audits into EPF misconduct to end in a few month

ECONOMYNEXT- Sri Lanka’s forensic audits into the so-called bondscams of 2015 and 2016 and pump and dump trades in 2011 which hit the central bank managed Employees Provident Fund will be complete in a few months, an official said.

Coomaraswamy said most of the forensic audits are into the so-called bond scams.

In 2015 and 2016, Perpetual Treasuries, owned by then Governor Arjuna Mahendran’s son-in-law Arjuna Aloysius, dumped bonds to the EPF for capital gains.

Two of the inquiries are into the operations of the EPF, which will cover older pump and dump allegations, the governor said.

The EPF came under fire for being a ‘buyer of last resort’ around 2011 in particular at peak valuations amid charges of corruption by dealers.

"When these are completed we would have to see what actions need to be taken," Coomaraswamy said.

Under Coomaraswamy, governance has been revamped to address earlier concerns of the EPF being a victim of pump and dump scams for both stocks and bonds.(Colombo/Jun07/2019)



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