Saudi bourse’s jail action seen too little, too late

By Reuters Staff
August 24, 2009

By Souhail Karam
RIYADH, Aug 24 (Reuters) – Saudi Arabia’s move to issue a jail sentence in absentia for insider trading does little to improve transparency on the Arab world’s biggest bourse and may have come too late to prevent further abuses, analysts said on Monday.

The bourse watchdog said last week that a securities disputes committee issued a final verdict against the chairman of Bishah Agricultural Development Co, sentencing him to three months in jail and imposing a fine.

The jail term and fine, levied against the absent chairman of a firm whose stock has not traded in two years, may do little to deter more insider trading, given the lateness of the penalty.

Gulf markets have been dogged by allegations of insider trading and manipulation of stock prices, amid concerns about weak regulations and a lack of transparency.

The Saudi bourse watchdog has, on occasion, levied hefty fines on investors and executives found guilty of fraudulent dealings. But this is the first jail term, a move at least one market observer applauded.

“People will think twice now,” said Bishr Bakheet, chief executive of Bakheet Investment Group. “Prison sentences are there in the capital market laws but have never been used before. Regulators applied the process gradually.

“Whether this (jail sentence) will stop insider trading? It will not”.

Bishah was involved in dates and cereal seeds trading before the Saudi bourse watchdog suspended its stock in January 2007 in the wake of a 2006 net loss that exceeded 75 percent of its paid up capital, breaking regulatory rules.

The measure cut its market value from 400 million riyals ($106.7 million) to zero and left some 10,000 shareholders in limbo.

“The extent of the damage caused by Bishah’s board to
shareholders is worth three years in jail not three months,” said Abdulhamid al-Amri, a member of the Saudi Economic Association, a semi-official think tank.

“This action is way too belated and it was against both the weakest link in the market and the weakest violator.”

The company has not issued quarterly or annual earnings since April 2007. Its board has been caught up in legal wrangling with trade and industry ministry and bourse regulators over resuming trading in its stock.

Analysts said the bourse watchdog, the Capital Markets Authority, needed to make adherence to corporate governance regulations mandatory for listed firms, instead of voluntary.

“That’s where the real problem lies. That’s why we ended up with a case like Bishah’s,” said a trader at a local bank that had close links with the company.

Bishah Chairman Najm-Eddine Ahmad Najm-Eddine Dhafer was also fined 100,000 riyals ($26,667), banned from working for any listed firm for five years and ordered to pay back 52,690 riyals the watchdog said he made in illegal profits.

“The decision came a little bit late. Dhafer had been warned repeatedly by CMA before the decision to jail him was taken,” said Mohammed al-Doheyan, vice-chairman of UBS Saudi Arabia.

Earlier this year, the bourse watchdog fined two investors 100,000 riyals each and ordered them to reimburse much higher profits they made in fraudulent trading.

Bishah shares’ suspension came amid a campaign by regulators aimed at forcing several listed firms to focus on developing their core activities instead of relying on speculative investment in the stock market to generate revenues.

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