Investor Sues Broker For Rs 35 Million

(By Faraz Shauketaly)

An investor in the Colombo Stock Exchange is suing Capital Trust Securities alleging unpaid settlement on his margin trading account. The investor U L M Nowfer, a businessman from Kandy, claims that Capital Trust Securities has acted ultra vires and is in breach of the tri-party Margin Trading Account entered into between Nowfer, Capital Trust Securities and the Commercial Bank of Ceylon.

For their part, Capital Trust Securities responded through Tushan Wickramasinghe claiming that Nowfer owed them funds on a non-Margin Trading Account amounting to Rs 17 Million. “We are permitted to set-off those funds against what he owes us. Mr Nowfer does not appear to understand the issues at hand.”

The troubles started when share prices on the Colombo Stock Exchange started to nosedive in the first half of 2012. Nowfer alleges that he noticed a definite trend of late settlement by his brokers, Capital Trust.

In one instance in July 2012 Nowfer caused a tranche of shares to be sold. The value of that sale amounted to Rs 797,000. He alleges in documents filed in Court that the settlement was not paid within the time period stipulated in the Margin Trading Agreement. According to those documents Capital Trust Securities only paid out after “several requests by Nowfer and Commercial Bank.”
Nowfer’s Attorneys-at-Law wrote to Capital Trust Securities asking that they comply forthwith with the terms of the Margin Trading Account, reminding them, inter alia, that Nowfer had a prima facie case against them.

Part of this compliance included the request to remit all proceeds of sales of mortgaged securities to the Margin Trading Account with Commercial Bank. They also asked that all bought and sold notes be forwarded to Commercial Bank, and finally that a sum of Rs 35 Million be also remitted as losses/damages arising from the failure of Capital Trust Securities to settle dues on time.

Nowfer is a broken man: from an all time high where financiers fell over backwards to finance his forays into the business of stock market investments. Tushan Wickramasinghe, for his part, says that Nowfer does not fully appreciate the ramifications and seems to ignore the fact that on another credit account Nowfer owes Capital Trust nearly Rs 17 Million.

Nowfer’s finances took such a severe dip that he was unable to pay a high-profile politically-connected attorney-at-law to facilitate immediate settlement. That Attorney refused to appear unless he was paid an advance of Rs 500,000.

For Nowfer, faced with financial ruin and with the market in the doldrums, raising Rs 500,000 was not even a distant possibility.

Nowfer is highly critical now of the market as it operated then, saying that prices fluctuated to all time highs; when smaller investors like himself tried to sell, their returns were insignificant compared to the ‘killings’ made by larger investors.

In another instance, Capital Trust Securities is accused of not settling dues against a sold note which had a value of Rs 6,098,000 (Rs 7 Million).

This amount, says Nowfer, is still owing.

Certainly there is nothing in the Margin Trading Agreement permitting the non-depositing of funds due to that account. Nowfer says, “This is a clear violation of the Margin Trading Agreement document. The brokers are using their own interpretations of the agreements instead of sticking to the written document.”

Initially Nowfer went round the countryside – in a manner of speaking. His quest for natural justice, to be upheld over all personal gain and benefit, consumed his life. His house, which is linked to the Commercial Bank Margin Trading Account, is at risk and he and his young family face an uncertain future.
He has lost his creditworthiness; he has become liable to pay interest on his borrowings on the purchases he made on his Margin Trading Account. In July 2012, as the markets plunged and stock nosedived in value, he wrote poignantly, if not hopefully, to Commercial Bank asking them not to force-sell his shares, as the potential loss he faced could have been up to Rs 20 Million – placing his home, which had been used as additional collateral, at risk.

On the face of it, Nowfer appears to have a strong case notwithstanding Capital Trust Securities’ own counter-claim. Nowfer maintains that Capital Trust Securities has not at any point until then (July 2012) denied its liability to deposit the sale proceeds and to forward bought notes as required under the Margin Trading Agreement.

In fact, Capital Trust Securities has deposited a sum of Rs 1,598,484.41 on June 18, 2012, and Nowfer cites this as a reason why the broker is estopped from legally denying liability on the Rs 6 Million they have not deposited to the Margin Trading Account.

Adding to the veritable mess Nowfer finds himself in, are claims he makes about the serious lack of service delivery levels by his broker. He maintains that he has been unable to serve papers on Capital Trust Securities and was eventually forced to rely on an order of the Court for him to accompany Fiscals to the brokers’ offices. On one occasion he says he felt threatened by in-house security when he called to negotiate the issuance of a cheque in his favour. The Sunday Leader was unable to confirm the veracity of these statements.

Tushan Wickramasingha, responding to our e-mailed questions, invited us to examine the many files he says are in his possession about Nowfer and the claims he is making. He denies trading on Nowfer’s account without permission, and says he is confident that an examination of the records in his offices will vindicate his company.

The Sunday Leader has agreed with Mr Wickramasingha to visit him next week in order that we examine his documents and report his version of events in a forthcoming issue. The Sunday Leader does not infer any wrongdoing on the part of any individual and or corporate mentioned in this article.