Huge fraud allegations against Entrust Securities and related companies

A Central Bank investigation into Entrust Securities PLC (earlier known as Ceylinco Shriram Limited) has highlighted “unsound practices and financial irregularities” involving Government Securities to the tune of Rs 12.112 billion. This even involves related companies.

A report to the Cabinet Committee on Economic Management (CCEM) by the Central Bank notes that the “liquidity shortfall has arisen due to under allocation of securities to repurchase transactions entered into with some clients and outright clients, as well as non-receipt of collateral (securities) from reverse purchase facilities provided to its related parties – i.e. Entrust Ltd. (EL) and Continental Capital (Pvt.) Ltd. (CCL).”

The Repos (repurchase agreements) are financial contracts to sell Government Securities transactions with the agreement to buy back at an agreed later date. The rate of Repo investor is agreed similar to other interest rates.

However, Entrust Securities PLC, the Central Bank has said, had carried on repo transactions to borrow money from investors without allocating government securities to some investors. It said that the investors believed that Entrust has allocated Government Securities as the company was a Primary Dealer supervised by the Central Bank.

Both Entrust Securities PLC and Entrust Limited had, the Central Bank said, had also misappropriated funds and securities from Ceylon Electricity Board Provident Funds (Rs 2,312.27 million), Ceylon Electricity Board Funds (Rs 400 million), Hewagam Korale East Multi-Purpose Co-operative Society Ltd. (Rs 538 million) and three different individuals (Rs 310 milion).

Both the Criminal Investigation Department (CID) and the Financial Crimes Investigation Division (FCID) are conducting two separate investigations into different aspects.

The Central Bank has said that “the funds raised were lent or misappropriated through Entrust Group companies, their Directors and related parties without any collateral. Some funds were misappropriated by Directors and senior officers and paid to many third parties.”

“As per transactions investigated as at March 30, 2016, the end-users or a large proportion (Rs 6.7 billion approximately) of ESP investor's f’nds are Directors of Entrust Group of Companies and their related companies,” the Central Bank has said.

The Central Bank report reveals that (Entrust Limited extended credit facilities of Rs 5.2 billion to its related companies and directors and made investment of a billion rupees in subsidiaries and Government securities using the funds from Entrust Securities PLC.”

The companies are: “Maruthi Estates (Pvt.) Ltd. Rs 1.2 billion and Continental Capital Ltd. Rs 363 million. According to the report, these two companies are controlled by Isira Dissanayake. A Director of the Company, Chanuka Upendra Ratwatte, the report added obtained Rs 100 million.