Sri Lanka court orders two bond dealers remain in custody over alleged scam

Court Decision

A Sri Lankan court on Monday ordered two executives from dealer Perpetual Treasuries Ltd, arrested over an alleged government bond scam, to remain in custody until Feb. 16.

Police arrested Perpetual’s owner Arjun Aloysius and CEO Kasun Palisena on Sunday on suspicion of involvement in the alleged scam.

Perpetual bought more than half the debt on sale in a government bond auction in 2015 and a presidential inquiry reported last month that Perpetual Treasuries had profited through illegal means.

Aloysius, Palisena and Perpetual Treasuries have all denied any wrongdoing.

Aloysius is the son-in-law of Arjuna Mahendran, who was central bank governor at the time of the auction.

Kalinga Indratissa, the attorney for both Aloysius and Palisena, said the court had ordered that they stay in custody until Feb. 16 after police filed charges on misappropriation of property, criminal breach of trust, offences under the public property act and the registered stockbrokers ordinance.

The arrests came after President Maithripala Sirisena said last month that a presidential commission investigating the 2015 bond sales had recommended legal action against the finance minister and central bank governor at the time, as well as the owner and officials of Perpetual Treasuries.

Mahendran and Ravi Karunanayakehas, who was finance minister at the time, have also denied any wrongdoing.

Sri Lanka’s central bank said last month it had suspended four officers and taken disciplinary action against several others following alleged irregularities in the 2015 government bond auction and that it had initiated several legislative changes aimed at preventing irregularities arising in connection with future bond issues.

Opposition lawmakers have alleged the bond auction cost the state more than $1 billion because of rising borrowing costs but Palisena, in a letter to parliamentarians last week, said state institutions had not lost out in the bond sale. ($1 = 154.2000 Sri Lankan rupees)