Lessons to Learn from N10bn Share Scam


Goddy Egene writes that while efforts are being made to resolve the latest infraction in the capital market involving billions of naira, there are lessons to be learnt by all stakeholders

The Nigerian capital market is currently going through a rough patch just like the nation’s economy. It is usually assumed that the stock market’s performance reflects the mood of a nation’s economy. The Nigerian stock market has recorded a decline for three consecutive years (2014, 2015 and 2016) and the economy is already in recession.  The tepid performance is caused by several factors   that have driven investor confidence to its lowest ebb.

 The factors include: investors’ drift to fixed income securities, exit of foreign investors due to foreign exchange (forex) challenges and poor corporate results engendered by difficult operating environment. While market regulators are working hard to restore investor confidence, those efforts are under threat following a major share scam involving a leading stockbroker, Mr. Victor Ogiemwonyi, who is the Managing Director of Partnership Securities Limited (PSL).

The scandal  estimated at N10 billion, relate to misappropriation and diversion of funds realised from sale of clients’ shares involving PSL and other companies in the Partnership family-Partnership Investment Company Plc; Life Care Partners Limited and SBDC Microfinance Bank Limited.


The allegations

Ogiemwonyi was alleged to have misappropriated funds of  PSL’s clients valued over N10 billion. However, the client, who first raised the alarm is Mr. Arnold Ekpe, a former Chief Executive Officer of Ecobank Transnational Incorporated (ETI). According to Ekpe, the PSL boss sold his ETI shares valued at N1.2 billion without remitting the proceeds into his account. Ogiemwonyi was also alleged to have misappropriated $80,000 belonging to Ekpe.

Explaining the allegation,  Ekpe’s lawyers, Sofunde Osakwe Ogundipe & Belgore, said  his client  gave PSL an exclusive mandate to dispose of the ETI  shares  at N16 per share within three months spanning July to September, 2016.

The lawyers noted that in compliance with the Central Securities Clearing System (CSCS) Plc  rule for such transactions, Ekpe filled in a number of forms including the CSCS account creation form, client’s bank details, and the investor’s bank account update form for direct  cash settlement.

They added that considering that the fact that Ekpe has filled the necessary forms as required under the CSCS rules, the proceeds of the sales ought to be paid into his account  in compliance with Rule 16:3 of the Direct Cash Settlement (DCS).

According to the lawyers, instead of paying the money into Ekpe’s account, Ogiemwonyi sold the shares and paid the proceeds into his account. They accused the Nigerian Stock Exchange (NSE), CSCS and Securities and Exchange Commission(SEC) of complicity and connivance  hence the stockbroker succeeded in paying getting away with the proceeds.


Ogiemwonyi’s response

Responding to the allegations, Ogiemwonyi, in a letter dated October 17, 2016 and titled “Admission of Outstanding Indebtedness of N1,237,245,095 and $80,000 to Mr. Arnold Ekpe,” acknowledged that Ekpe gave him a mandate to sell the shares and also accepted owing him N1.237 billion.

According to the letter signed by Ogiemwonyi, “Further to our mandate to sell your 96,077,872 shares of ETI at a fixed price of N126 per share, we confirm that the shares were sold by us for a total sum of N,537,245,952 out of which N300,000,000 has been paid to you. We confirm that outstanding proceeds from the sale have been mis-appropriated by us and we undertake to meet the obligation of N1,237,245,095 and $80,000.”



Other complaints

Apart from Ekpe, a group of other investors, who are also clients of PSL, alleged that the company defrauded them through one of its subsidiary, PICO by floating a product called Partnership Securities Deposit Account (PSDA).

 The PSDA allows investors to deposit their portfolio (shares) with PICO for trading activities and the company pays the investors interest for the use of their shares while the value of the shares in terms of dividends and units are maintained. The investors embraced the product and deposited their shares with PICO. Unfortunately, the investors accused PICO of neither paying the promised interests nor return their shares to them.

Narrating their ordeal, Mr. Sola Alabi, Mr. Godwin Anono, Chief Samuel Solasi said they have over N230 million trapped in company through PSDA.

For instance, Alabi said: “Mr. Ogiemwonyi called  me to say that since I have some shares that are not being traded over the years that it would be good for me if his company could manage those shares  and  generate 10 per cent returns  and that this would be paid to me twice a year. When I look at the proposal, it was reasonable and the man involved is a (former) prominent Council member of the NSE, I trusted him.  I did not enter the deal with an unregistered operator and it was not that he offered me a fantastic return, but a reasonable return.  The deal was such that I can back out at anytime I wish. When in 2014 the returns were not forthcoming, Ogiemwonyi started giving one excuse or the other; that the returns are being reinvested, it was then I realised that he was playing me, hence, I demanded for my shares which could not be returned to me.”

Alabi and other investors, therefore requested that Ogiemwonyi be made to refund their money.



SEC’s Findings


Following complaints to SEC, it conducted an investigation into operations of PSL. In an official memo   dated November 18, 2016, with reference: SEC/ENF/INVTG/CMOF4284/16, on “Findings of the Special Examination Conducted on Partnership Investment Company Plc (PICP), and PSL between 7 and 11 November 2016,” confirmed alleged shady activities of the companies.

The findings partly revealed: “That the firms’ operations did not maintain separate accounts for all clients’ funds as there was clear evidence of comingling of funds. A review of PSL’s trading Account No … with Access Bank showed direct withdrawals of funds, which were used for purposes other than trading on behalf of the firm’s clients; “That in the December 31, 2015 audited financial statements of the firms filed with commission, the total deposit from customers was stated as N1,607,844,000. However, a review of the group’s asset management activity report as at December 31, 2015 revealed a liability of N10,494,961,104.95. The firms therefore understated the liability of total deposit from customers by 84.7 per cent; and “That a client of PSL, Ekpe, gave the firm a mandate to sell 96,077,872 units of Ecobank ETI at the price not less than N16 per share and also filled in a direct settlement mandate that the proceeds be remitted directly into his account. The shares were however sold at a cumulative average price of N13.49 per share. The proceeds of sale, the sum of N1,237,245,095 was thereafter misappropriated by the firm.”


NSE’s response

The NSE denied any complicity and connivance in the share scandal, saying it has zero tolerance for market infractions.

According to the Exchange, following receipt of the complaint dated 16 October 2016 by Ekpe against PSL, it immediately took certain actions.

For instance, the Exchange sent a notice of suspension to PSL on 17 October 2016 and the firm was suspended from trading on all floors of the exchange, effective 18 October 2016.

“The exchange on 17 October 2016 urged the CSCS to request the settlement bank to place N42,499,761.20, being the proceeds from the sale of ETI shares for Mr. Ekpe made by PSL on 14 October, but due to settle on 18 October 2016, into a special CSCS bank account in order to prevent the proceeds from settling into the account of PSL. The sum of N43,301,792.70 being the proceeds of sale less statutory charges was paid to Ekpe’s Union Bank Plc. account on November 3, 2016.

“The Exchange on 19 October 2016 formally informed the SEC of the complaint and requested a joint examination of PSL and its associated companies. This formal notification was a follow-up on an earlier oral notification to relevant personnel of the commission shortly after receipt of the complaint on 17 October 2016.

“The Exchange thereafter held a meeting with Mr. Ekpe, his solicitors McPherson Barristers & Solicitors (McPherson) and PSL on Monday 24 October 2016 to address the issue and take necessary steps towards recovery of the sums misappropriated and sanctioning of PSL upon conclusion of investigation.

“Pursuant to the Memorandum of Understanding between the exchange and the Economic and Financial Crimes Commission (EFCC), on 31 October 2016, the Exchange filed a petition before the EFCC in respect of the complaint on the fraudulent misappropriation of the sum of N 1,237,245,000 and US$80,000.00 belonging to Ekpe.

“The exchange also sought the assistance and collaboration of the Central Bank of Nigeria (CBN) through the ‘Other Financial Institutions Supervision Department’ (OFISD) to conduct a joint examination of SBDC Microfinance Bank (SBDC), an associate company of PSL, for the purpose of tracing and recovering the funds. This assistance is currently ongoing.

“The exchange and SEC conducted a joint examination on PSL (7 – 11 November 2016) to determine the extent of the financial exposure, protect clients’ assets, and settle investor’s complaints. The final report of the NSE and SEC joint examination is yet to be released.

“The exchange has been cooperating with SEC and other relevant regulators and agencies on the matter. An all parties meeting were convened by the SEC on 20 December 2016 between Ekpe, his solicitors, and the management of the exchange and CSCS.”

Regarding the complaints by other clients, the NSE said some of the transactions were outside its control, as they were not done on  its floor.

Specifically the PSDA securities investment, which it said “is a portfolio management investment scheme offered by PICO at guaranteed interest rates. “PSDA is not a product traded on the floor of the exchange or regulated by the exchange. Moreover, the exchange has no regulatory oversight over PICO (because it is not a dealing member of the NSE) and portfolio/fund management transactions.”

While condemning PSL for not remitting the proceeds for the sale of Ekpe’s shares to him, the exchange also blamed Ekpe for failing to formally complain “when he received trade alerts notifying him of the sale of his shares and the proceeds of sale were not credited to his account.

According to the exchange, Ekpe rather  resorted to addressing the issue privately with Ogiemwonyi, who is his long-time friend and only complained on 16 October 2016, several months after the first trade occurred on 30 June 2016.

“Had the exchange been notified on time, the loss could have been mitigated,” the exchange said.



SEC assures investors

Responding to news that investors in the capital market were recently defrauded by PSL, which is a licensed member of NSE, SEC said as the apex regulatory authority of the Nigerian capital market,  it  would do everything within the confines of the Investments and Securities Act (ISA) 2007 and the Rules and Regulations made pursuant to the Act, to ensure the protection of investors and their investments in the market.

“The Commission has established a robust framework for investigating complaints received from investors. The Commission also has an excellent enforcement mechanism and continues to maintain zero tolerance to any form of infraction in the market. Furthermore, the Commission adopts a risk-based monitoring and supervision of operators and institutions in the market to forestall potential systemic collapses. The Commission imposes stiff sanctions on erring operators to serve as a deterrent within the limits permitted by law, while infractions with elements of criminality are referred to the Law enforcement agencies for prosecution as provided under Section 304 of the ISA 2007. In furtherance of this, the commission has developed a thriving partnership with the Nigerian Police Force (NPF) and the Economic and Financial Crimes Commission (EFCC) to prosecute these matters,” it said.

SEC added that trading platforms and other Self-regulatory Organisations in the Nigerian capital market have viable rules/risk management strategies and have also adopted corporate governance standards that conform to global best practice. The commission continues to collaborate with these platforms to ensure the eradication of all forms of market manipulations.

“With respect to the activities of Partnership Investment Company Limited (PICL) and Partnership Securities Limited (PSL) in the Nigerian capital market, the commission wishes to state that it has had all parties meeting with some of the parties concerned and further investigations are ongoing. The matter is also currently before the Economic and Financial Crimes Commission (EFCC),” SEC said.



Unanswered questions and lessons to learn

While efforts are on to resolve the matter and restore investor confidence, analysts and market watchers said there are certain questions waiting for answers.   For instance, they asked why Ekpe wasted so much time before he lodged his complaints considering the huge amount involved in the transaction.  Why did  he not report to the NSE immediately after he discovered  that the proceeds of the sale were not credited to his account, contrary to the mandate he gave to PSL  and after receiving over 80 alerts from the CSCS that his shares were being sold.

On the part of   Alabi, Anono and others, when they did not receive the interests promised them by PICO since 2014, analyst are seeking answers as why they did not formally report to the relevant authorities. Why did they have to wait until   Ekpe’s case before making their complaints public.

According to analysts, there are lessons to learn from the saga.

“As an investor, you should try to separate business from friendship no matter what. I think the friendship and relationship between Ekpe and Ogiemwonyi, which we understand has been long-standing, contributed to the saga. If friendship has been put aside, this should not have happened because the amount involved is too huge to be ignored. Maybe there is something both of them are not telling the public,” a market operator told THISDAY on Monday.

The operator said investors should always monitor what their brokers, investment advisers and portfolio managers are doing with their investments.

“They should not 100 per cent trust their brokers and go to sleep. They should from time to time cross check what is happening to their investments and demand regular update from their brokers and if they notice any issue, they should report to the relevant authorities immediately,” the operator said.

Another analyst said stockbrokers should always live according to the dictum in the market that: “Our word is our bond.”

They should also live within their means and not taking uncalculated risks by investing clients’ money outside their mandates.

“Stockbrokers should also ensure they separate business and friendship and try very hard not to breach the trust of their clients,” the analyst added.

For the regulators, he advised:  “They should step up their monitoring and enforcement activities.

“The regulators must ensure that operators play within their registered functions and ensure the monitoring of their operations through their regular quarterly returns. Any firm or operator found going outside its registered functions (through new products not registered by capital market regulators) or floating subsidiaries to operate outside the market should be given the appropriate checks. This is why it is very important for all the regulators to collaborate and make sure that operators do not take advantage of weakness in the system to defraud investors,” an analyst said.