Remo, SECZ row rages on

Securities Exchange Commission of Zimbabwe.
In June last year, SECZ announced it had cancelled Remo’s licence for breaching Securities Exchange regulations. Remo managing director Mr Mahomed Mahmed also had his licence cancelled.

Remo had appealed to the Administrative Court against the decision by SECZ but this was upheld. In the Supreme Court papers, SECZ is cited as the respondent. Remo, Mr Mahmed, Mr Rezana Ebrahim, Remo finance director and Mr John Motsi, a company director, are the appellants. Remo is arguing that it was inappropriate for the Administrative Court to uphold the decision by SECZ since it believes they were convicted of wrong allegations.

“It is respectfully submitted that appellants were not afforded a fair hearing. In any event, it is apparent that the appellants were charged with one offence and convicted of another. The cancellation of the licences was (therefore) wholly inappropriate in the circumstances,” said Remo.

The allegations against Remo Stockbrokers arose after Interfin Securities, whose licence was also cancelled, failed to return security which the former had pledged for borrowed money from the latter.

According to Remo, the money was repaid but upon repayment, Interfin had sold the shares and was unable to return the security, notwithstanding the fact that the borrowed funds had been repaid in full. The matter was reported to the Zimbabwe Stock Exchange and Remo was found not guilty. But SECZ was not happy with the ruling by ZSE. SECZ then suspended Remo and engaged Proctor & Associates to investigate the matter.

Among the allegations was that Remo was conducting non-permissible activities – borrowing money from Interfin and lending it to several associate companies in breach of the Securities Act. The second charge was that certain borrowings and lendings were not recorded in the company’s accounts while the shares provided for as security did not appear in the nominee register. It was further alleged that Remo used shares which belonged to clients as security for its borrowings and that the company did not keep a register of all securities in which it held an interest.

Mr Mahmed was also accused of using Remo to source funds for personal benefit.  But Remo argues that some of the allegations were based on “pure speculation”.

For instance, it said while Remo did borrow from Interfin, this was permissible, as is the case with any business. It also argued that borrowed funds were used to finance Remo’s operations, contrary to allegations that the funds were lent to Remo’s associate companies. Evidence was provided, says Remo.

Setting that aside, Remo argues that while the company was alleged to be involved in “money market” activities, it was convicted of borrowing funds from Interfin, a completely different allegation.

On the allegation that the borrowed funds were not recorded in the books of accounts, Remo said the Administrative Court “erred” in concluding that the funds received from Interfin constituted client’s trust funds when the funds belonged to Remo . . .“and hence the unsoundness of the conviction”.

On the accusation that the shares provided for as security belonged to clients, Remo said the shares belonged to Eastern Alliance Development Ltd, a company owned by Mr Mahmed and Mr Ebrahim.
Remo says SECZ also failed to produce evidence supporting their allegation that Mr Mahmed used Remo to borrow funds for personal use.

“Firstly, Proctor & Associates attended the premises of (Remo) and spent a mere three to four hours conducting their investigation,” said Remo.

“The report is, with respect, cursory and because it does not contain all evidence, misleading and inaccurate.

“Proctor’s report was seriously flawed in that it did not address its mandate. It contained no recommendation as is required by the Act.

“In view of appellant’s vehement denials, and its responses against the inspectors, an impartial regulator would have immediately taken action to verify – and at least – examine appellant’s claims.

“No such action was taken. Indeed, the learned judge in the court a quo should not have, with respect, ignored that body of evidence.

“Coming then to the conduct of the respondent itself, it defies belief that a regulator could cancel appellant’s licence without ever visiting the premises themselves.

“Put into context and by way of comparison, one would ask if the Reserve Bank of Zimbabwe would cancel the licence of the second oldest bank in the country, Barclays without ever visiting its premises to gather evidence in support of such drastic action.”