As SEC Wields the Big Stick

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Goddy Egene writes that stakeholders have hailed the sacking of directors of Oando Plc for alleged financial and corporate governance breaches by the Securities and Exchange Commission

The regulatory action taken by the Securities and Exchange Commission (SEC) against Oando Plc last Friday would remain the centre of discussions among operators, shareholders and other stakeholders in the capital market for a long time. The regulator of the capital wielded the big stick last week following the conclusion of a forensic audit on Oando Plc and directed the directors of the company to resign. It also barred its chief executive officer, Mr. Wale Tinubu and his deputy, Mr. Mofe Boyo from becoming directors of any listed firms for five years.

Whatever the final outcome of SEC’s action would be, it is believed that it will go a long way in instilling corporate governance in the market. It has been espoused that adopting and operating in accordance with high standards of corporate governance is essential for a company’s sustainable long-term growth, financial performance and value creation.

Good governance practices, according to investment experts promote the development of the capital market. On the other hand, weak corporate governance practices would retard the growth of the market because it erodes confidence of investors in the capital market with potential wider implications for the Nigerian financial markets and the economy generally.

Corporate governance issues were at the heart of the market crisis in 2008. Hence, it was not surprising that the SEC has continued to penalise some companies especially for violating post listing requirements and other market infractions. However, the latest action against Oando Plc, which is a company listed on the Nigerian Stock Exchange (NSE) and Johannesburg Stock Exchange (JSE), is a major milestone in its efforts to ensure companies adhere to code of corporate governance that meet international standards.

SEC had launched an investigation into the activities of Oando following the receipt of petitions in 2017 from shareholders of the company, accusing the company of financial misappropriation and mismanagement of its operations.

SEC’s action
Last Friday, the SEC announced that it has concluded investigation of Oando Plc and directed among others immediate resignation of Tinubu Boyo and other directors of the company. The apex regulator also barred Tinubu and Boyo from being directors of public companies for a period of five years.

Thereafter, SEC, on Sunday, appointed an Interim Management Team (IMT) headed by Mr. Mutiu Sunmonu, to oversee the affairs of Oando Plc and conduct an Extra Ordinary General Meeting (EGM) on or before July 1, 2019. According to the regulatory agency, these were part of measures to address identified violations in the company. It also directed the payment of monetary penalties by the company and by the affected individuals and directors, as well as refund of improperly disbursed remuneration by the affected board members to the company.

As required under Section 304 of the Investments and Securities Act, (ISA) 2007, the Commission said it would refer all issues with possible criminality to the appropriate criminal prosecuting authorities.

In addition, the SEC stated that other aspects of the findings would be referred to the Nigerian Stock Exchange (NSE), Federal Inland Revenue Service (FIRS), and the Corporate Affairs Commission (CAC).

SEC said: “Following the receipt of two petitions by the Commission in 2017, investigations were conducted into the activities of Oando Plc., (a company listed on the Nigerian and Johannesburg Stock Exchanges). Certain infractions of Securities and other relevant laws were observed. The commission further engaged Deloitte & Touche to conduct a forensic audit of the activities of Oando Plc.

“The general public is hereby notified of the conclusion of the investigations of Oando Plc. The findings from the report revealed serious infractions such as false disclosures, market abuses, misstatements in financial statements, internal control failures, and corporate governance lapses stemming from poor board oversight, irregular approval of directors’ remuneration, unjustified disbursements to directors and management of the company, related party transactions not conducted at arm’s length, amongst others.

“The Commission is confident that with the implementation of the above directives and introduction of some remedial measures, such unwholesome practices by public companies would be significantly reduced.
“Therefore, in line with the federal government’s resolve to build strong institutions, Boards of public companies are enjoined to properly perform their fiduciary duties as required under extant securities laws.
“The Commission, as the apex regulator of the Nigerian capital market, maintains its zero tolerance to market infractions, and reiterates its commitment to ensuring the fairness, integrity, efficiency and transparency of the securities market, thereby strengthening investor protection.”

Besides, SEC also fined Oando and its directors a total fine of N417.692 million for the various forms infractions violated. A breakdown of the fine showed that while the company is to pay the sum of N8.450 million for publishing untrue statement in its 2012 financial statements, in violation of Rule3(4) of the SEC Rules and Regulations, made pursuant to the Investment and Securities Act (ISA) 2007, it is also expected to pay N7.850 million to the commission for publishing untrue statements in its 2013 and another N42.750 million to the Commission, for non-disclosure of related party transactions in its 2012 financial statements in violation of Rule 39 (1&7) of the SEC Rules and Regulations, 2013, made pursuant to ISA 2007.

Similarly, Oando was also asked to pay another N30.625 million as penalty to SEC for non-disclosure of related party transactions in its 2014 financial statements, in violation of Rule 39(1&7) of SEC Rules and Regulations, 2013, made pursuant to the ISA 2007.
Furthermore, Akinrele Ademola, Ammuma Alli, Engr. Yusuf Njie, Ike Osakwe, Oghogho Akpata and Tanimu Yakubu, Chief Sena Anthony and Oba Adedotun Gbadebo, all Directors of Oando, were directed to immediately refund to Oando Plc, the total sum of N145,767, 316, being remuneration and other benefits paid to them above the provision of the Board Charter.
In the same vein, for certification of untrue statements of material facts in the 2013, 2014, and 2015 financial statements of Oando Plc in violation of Section 60(2(b)(ii)of the ISA 2007, Tinubu, who is the Group Chief Executive Officer and Mr. Olufemi Adeyemo, the Chief Financial Officer were ordered to pay the sum of N91.125 million each to the commission.

Oando Kicks
However, responding to the SEC ruling, Oando said: “Oando is of the view that these alleged infractions and penalties are unsubstantiated, ultra vires, invalid and calculated to prejudice the business of the Company. The company has not been given the opportunity to see, review and respond to the forensic audit report and so is unable to ascertain what findings (if any) were made in relation to the alleged infractions and defend itself accordingly before the SEC.”

Oando declared that it reserves its rights to take all legal steps to protect its business and assets whilst remaining committed to act in the best interests of all its shareholders.

Also, Oando, in a five-page letter dated June 1, 2019, demanded the withdrawal by SEC of the penalties listed in the letter within three days, from the receipt of the letter, insisting that the findings were largely unfounded and remained unsubstantiated in the absence of any representation from the oil and gas company before the regulator arrived at its sanctions.

Besides, Tinubu and Boyo on Monday secured an interim injection from Federal High Court sitting in Lagos presided over by Justice Mojisola Olatoregun r restraining SEC from removing as GCEO and DGEO respectively.

The court also restrained SEC, its servants or agents from taking any step concerning the commission’s letter dated May 31 in which it barred Tinubu and Boyo from being directors of a public company for five years. It also restrained the commission from imposing a fine of N91.13 million on Tinubu.

Stakeholders React
Commenting on the Oando saga, an investment analyst and shareholder activist, Nona Awoh said SEC’s was based on the outcome of a forensic audit by Deloitte & Touche, a firm of international external auditors, “except the company (Oando Plc) can prove otherwise.”
“Much more important, investors themselves need to learn to protect themselves, which means they must begin to ask the right questions and taking up management of public companies. I am not sure we are doing enough (as shareholders), because if we were doing enough, maybe we would have seen some of the things the SEC is talking about… Maybe we saw it, but did not take cognizance of the full impact of what they are talking about,” Awoh said.

The Chief Operating Officer, InvestData Consulting Limited, Ambrose Omordion, while applauding the SEC’s decision, said it was capable of sending strong signals to the management of other public companies as a proof that the commission is not only able to bark, but can bite too.
He expressed unhappiness with the fact that Oando Plc continues to declare a loss, meaning there have not been dividends declared, as a result of which shareholders do not receive any return on their investment.

“As if this was not enough, the value of their investment on the Nigerian Stock Exchange (NSE) has nose-dived over the period. The SEC move will bring sanity into the company, just as it would enable investors to get the true health status of Oando Plc, beyond what has so far been disclosed, even as “other companies and their directors will seat up, seeing how Oando management and its directors ended up. In fact, SEC’s decision will further boost corporate governance and transparency in quoted companies at same time investors confidence going forward,” Omordion declared.

Also speaking, Alhaji Gbadebo Olatokunbo, shareholder activist and Co-founder, Nigeria Shareholders Solidarity Association, said that as in a brief note to Investdata News, noted that as a shareholder of Oando, he had been suspecting the results of the company all along.
According to him, some people have been playing “very dangerous games with most of the reports and accounts (published), he is not therefore surprised at the SEC sanction.

“Check the performances of other companies in the same sector with that of Oando, then you will appreciate my point of view, that Oando is a great disgrace, disappointment, and embarrassment to corporate Nigeria, because no multinational company in its shoe would have performed so badly like the management and board of Oando did, to be candid it was a dent to the Nigeria corporate world,” he said.

Olatokunbo said the management and board of Oando had taken their shareholders for a ride for too long, before the SEC intervention, saying the commission’s action would serve as a deterrent to other companies in the same bad habit.

Similarly, National President, Constance Shareholders Association of Nigeria, Mallam Shehu Mikail, expressed shareholders satisfaction at the commission’s decision.
Mikali said that the ban would instill transparency and corporate governance in the nation’s capital market, stressing that the commission’s action showed that nobody was above the law in the market.
However, the National Coordinator, Pragmatic Shareholders Association of Nigeria (PSAN), Mrs. Bisi Bakare, said the action of SEC was going to cause more damages for the capital market.

“After forensic Audit on Oando Plc, they ought to have allowed Oando Board access to the outcome of the audit. All investors/ shareholders of Oando Plc should condemn SEC actions by not allowing the board to defend the outcome of the forensic audit before their announcement on Friday. This will further deepen the trust of foreign investors and investing public on Nigerian regulatory authorities,” she said.
Analysts at CSL Stockbrokers Limited, a Lagos-based financial advisory and research company, welcomed the action by SEC.

They expressed confidence in the newly appointed IMT.

“We believe his vast experience in the upstream oil and gas sector bodes well for Oando despite rumours of a close relationship between himself and the ousted Wale Tinubu. The interim management is charged with the responsibility of convening an extra-ordinary general meeting on or before July 1 2019 to vote new directors who would subsequently select a new management for OANDO.

“We view this development as positive for the equities market. In our opinion, the SEC’s hard stance on Oando provides confidence for the investment community that corporate malpractice offenders would be brought to book while ensuring public investments are safeguarded.
“Though we expect a series of legal battles to ensue as Wale Tinubu has promised to contest his removal, we believe he has a very slim chance of winning any suit filed by him, considering the depth and rigor of the forensic audit,” they stated.

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