Last Friday proved to be disappointing and shameful for investment fraternity in Pakistan when Pakistan’s apex corporate regulator, Securities and Exchange Commission of Pakistan (SECP), finalized its nine months long investigation into, what could be called, as Pakistan’s first insider trading case.

According to the available documents – SECP revoked the license of Dawood Capital Management and imposed a penalty of Rs 2 Crore on its CEO Tara Uzra Dawood.

According to an interview to Saturday Post, Tara Uzra proudly explained Dawood Capital Management as Pakistan’s first listed asset management company and the only investment advisory to specialize in the money management of women, children and charities.

Tara Uzra Dawood, who is a graduate of Cornell University and Harvard Law School, who is also writing as a freelance writer for The Toronto Star, Dawn, The Friday Times and Libas International, was found guilty of having defrauded investors in the mutual funds managed by Dawood Capital by taking leverage of her position as CEO and her knowledge of an impending write-down in the value of the mutual funds.

SECP’s investigations revealed that Dawood Capital Management had invested in corporate bonds issued by several companies including Pace Pakistan, Maple Leaf Cement Factory, Pak Elektron, and Telecard, that had defaulted on their obligations to bondholders.

In a meeting of the company’s audit committee held on February 21, 2012, Dawood Capital’s auditors advised that the company take a write-down on the value of the investments in the bonds issued by those companies.

The board of directors meeting held on the same day approved that course of action, though it was decided that the precise amount of the write-downs would be determined and approved at the next board meeting, to be held on April 28, 2012.

At that next board meeting, it was decided that the value of the Dawood Income Fund needed to be written down by 7.36%, the Dawood Islamic Fund by 16.8%, and the First Dawood Mutual Fund by about 9%. The new, lower values would take into effect on April 30.

But, just before the meeting, between April 6 and April 26, Tara Dawood, her brother Ayaz, her mother Hamida, sold their stake worth around Rs 1.55 Crore to avoid possible losses and taking advantage of her position and knowledge as the CEO of Dawood Capital Management.

Other affiliated companies of Dawood Group managed to get rid of Rs 11 Crore of units in soon to be devalued fund.

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