SEC in the Eye of the Storm

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Goddy Egene writes that the Securities and Exchange Commission has been in the news lately for good and bad reasons

The Securities and Exchange Commission (SEC), which is the apex regulator for the nation’s capital, has been making efforts to ensure the return of investors to the market after the 2008/2009 meltdown.

One of the major steps towards repositioning and thus attracting improved patronage was the launch of the 10-year Capital Market Master plan. The commission has remained steadfast in the implementation of the programme, which entails the introduction of certain policies aimed at addressing some issues which were seen to have contributed to the low growth of the market.

For instance, SEC has continued to promote the Electronic-Dividend Mandate Management System(EDMMS), the Direct Cash Settlement (DCS) and the Multiple Subscription service option for investors.

SEC also introduced the National Investors Protection Fund (NIPF), risk-based supervision and the Complaints Management Framework that opens communication channels for investors to lodge complaints and get prompt responses.
The importance of the EDMMS is to eradicate or reduce to the barest minimum the incidence of unclaimed dividend while the DCS is meant to check practice by some market operators defraud their clients.

Also, the capital market regulatory institution initiated a collaborative relationship with the Nigerian Educational Research and Development Council (NERDC) on the development of a curriculum for basic and secondary schools on Capital Market studies as part of the futuristic approach in Nigeria’s capital market development.

All the above were highlighted as some of the achievement the commission recorded within one year that Ms. Mary Uduk, has been acting as the director general (DG) of SEC. She was exactly one-year-old as acting DG of the commission in April and commission under her watch got kudos from the capital market community and stakeholders in April and significant part of May.

However, since May 31, when commission announced the conclusion of the forensic audit and gave its ruling, the regulator has remained in the news but not for very palatable reasons. As expected it has been mixed grill as some stakeholders are supporting the regulator, while others are condemning its actions.

Sanctioning Oando
On May 31, SEC announced that it had concluded investigation of Oando Plc and directed among others immediate resignation of the Group Chief Executive Officer of the company, Mr. Wale Tinubu and his deputy, Mr. Omamofe Boyo and other directors of the company. The commission equally barred Tinubu and Boyo from being directors of public companies for a period of five years.

SEC, on Sunday, May 2, followed with the constitution of 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.

The commission said these were part of measures to address identified violations in the company. SEC 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.

SEC had 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.”

SEC equally fined Oando and its directors a total sum 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.

Oando Faults decision
Oando faulted the sanctions by SEC, saying the alleged infractions and penalties were unsubstantiated, ultra vires, invalid and calculated to prejudice the business of the company.

Oando said it was not 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.

The company 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 went to court to secure 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.

In its response SEC said it gave Oando fair hearing, saying the company and its board and management were given various opportunities to defend themselves during the investigation by commission and during the forensic audit.

Suspending Oando’s AGM
Again, while the last was yet to be heard about the return or not of Gwarzo, SEC announced the suspension of the annual general meeting (AGM) of Oando scheduled for Tuesday, June 11, 2019.

SEC said the suspension of the AGM was in furtherance to the Ex-parte Order of the Federal High Court, Ikoyi Lagos in Suit No: FHC/L/Cs/910/19 In Mr. Jubril Adewale Tinubu & Anor V Securities & Exchange Commission & Anor.

According to the commission, the action was taken to allow the parties maintain status quo, explaining that it will update the public on the outcome of the ongoing litigation.
But reacting to the suspension of the AGM, Chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie said the regulator should have allowed the AGM to go on.

“I think SEC has not done the right thing because the AGM has been approved before now, suspending it will lead to loss for the company, which has also booked for the venue and paid for other things necessary for the meeting to take place. What I think SEC should have done is come and observe,” he said.

Okezie explained that since the release of the forensic audit result, the shareholders have not had the opportunity to hear from the directors, noting that the AGM would afforded them the opportunity to get more information from the board of the company.

Speaking in the same vein, the Chairman, Ibadan Zone Shareholders Association of Nigeria, Mr.Eric Akinduro said suspending the AGM was unfortunate.
“There should be a human face to some of these things. There is a court order saying the status quo should be maintained and I believe the AGM is one of the things referred to by the court order. Suspending an AGM 24 hours to the meeting is not good for the shareholders and even the market. Some of the shareholders have travelled from other states to Lagos for this AGM,” he said.

However, the President, Constance Shareholders Association of Nigeria, Mallam Shehu Mikail said SEC did the right thing.
“To me, SEC has done the right thing because there are so many issues in the company right now and we do not know how the meeting will look like. So the proper thing is to suspend the meeting. If SEC goes ahead to hold the AGM, it means it is disrespecting the market regulator,” he said.

SEC Board underway
Market stakeholders have said the absence of a governing board for SEC for over four years contributed to some of the decisions by the commission, which considered negative in some quarters. But there is a glimmer of hope that the board would soon be constituted and a lawyer, Mr. Olufemi Jinadu has been penciled down to be the chairman.

Operators and investors have decried the absence of SEC board and had called on the federal government not to delay further. For instance, Chairman, Association of Securities Dealing of Houses of Nigeria (ASHON), Chief Patrick Ezeagu, who had said the federal government should not delay any longer to get a board for SEC.

“We have been calling for a board for SEC without response from the government. SEC, which is regulating a market of several trillions of naira should have a board to enable a smooth running. It is disheartening to know that most of the laudable projects espoused in the master plan are being affected by lack of a board, which is statutorily mandated to take some major decisions in that direction. Apart from not having a board, the DG and the commissioners are all in acting capacities. This does not send good signals to investors out there. Appointing a board for the commission and confirming the officers would significantly boost investor confidence, thereby restoring some level of stability to the market,” Ezeagu said.

Also speaking on why SEC needs a board urgently, a senior market operator and lawyer said the commission could not be an arbiter over corporate governance of listed companies whereas it does not have a board.

According to him, “can you give what you do not have it. You cannot be superintending over what you do not have.”
He added that SEC is signatory ‘A’ member of International Organisation of Securities Commissions (IOSCO), explaining that being a signatory A member requires that commission should have an institution in place and the head of that institution is the board.

“In terms of market dynamics, information is key and the timeliness of information is pivotal. For information, which is key and timely you must have a board that quickly take decisions because as it is today, the Ministry of Finance serves as a board. For any decision to be taken, the ministry, which is already saddled with the running of the economy, and over burdened with such, what time will it have to attend to the commission. Though the ministry supervises the commission, what capacity with specific reference to capital market that the ministry to be able to give a guided advice to the commission,” he added.

The operator noted that time between the last board and now, it is it totally abnormal, abysmal and unacceptable in international governance.
“So the international community will not take your decisions seriously because there is a possibility of policy summersault as a result of political interests. So professional things should be left for professionals and political things be left for politicians. The SEC is a professional institution and it is knowledge based institution.

“So it behooves government to see it as a prime institution in policy making and essence of driving a developmental economy. One of the major reasons why the economy has been jerking has been because the capital is not in the mainstream. The government has not been able to appreciate the importance of the capital market in the development of the economy, especially a nascent economy like Nigeria where one of the greatest deficit we have is long term capital,” he declared.