Court Refuses to Stop EFCC from Investigating Alleged N141m Share Fraud

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By Wale Igbintade

Justice Tijjani Ringim of the Federal High Court, sitting in Lagos has dismissed the suit filed by the Industrial and General Insurance Plc (IGI) seeking to stop the Economic and Financial Crimes Commission (EFCC) from investigating alleged N141 million private share allotment fraud involving the firm.

The judge held that the anti-graft agency has the powers under the law to investigate public fraud and financial crimes in the security exchange sector.

The plaintiff, IGI had filed the suit marked FHC/L/CS/889/2021 against the EFCC; Ahmed Ghali, the Lagos Zonal Head of the EFCC; Ronke Idayat Suleiman, Team B lead, Capital Market and Insurance Fraud (CMIF) unit; Osom Properties Limited; Royal Descent Limited; Frososom Nigeria Limited; Ilekhuoba Osaretin and Fando Construction Limited, praying the court to declare that 1st to 3rd defendants lack the powers to question “purely civil commercial transaction” between it and the 4th to 8th defendants.

The plaintiff also asked the court to declare that the continued invitation of the plaintiff’s officials and employees by the EFCC in connection with the investigation of the private placement offer of its shares to the 4th to 8th defendants in 2007, is beyond the powers granted the organization under the EFCC Act and therefore ultra vires.

The firm therefore, prayed the court for order of perpetual injunction, restraining the 1st to 3rd defendants and any other officer of the EFCC from further inviting, harassing, summoning or demanding from it or any of its directors any document, assets, monies and any information relating to the private placement of its shares to the 4th to 8th defendants.

It further requested for an order awarding N50 million as damages against the defendants jointly and severally for breach of its rights.

“An order, directing the defendants to jointly and severally bear the cost of this action assessed at N2 million,” the firm prayed.

But in his decision on September 16, 2021, Justice Ringim held: “To the plaintiff, such were purely civil commercial transaction. Indeed, there seems to be the private placement, the subscriptions, the allotments, the payments of dividends, the receipts of bonuses and the 4th to 8th defendants’ assumption of the status of being the shareholders of the plaintiff.

“In contrast, to the defendants, the placement of the shares and the subscriptions by the 4th to 8th defendants were conditional to the shares being listed on the floor of the Stock Exchange, which the plaintiff refused or failed to do.

“In my humble view, such refusal or failure to comply with a term of a contract could at best be treated as a contractual breach to which the 1st to 3rd defendants have no business entertaining any grievance. In this context, the 4th to 8th defendants must go through the civil procedure route and not the criminal flag they seemed to have thrown up here.

“Nevertheless, it also appeared to me that the petition of the 4th to 8th defendants to the 1st defendant cried for public fraud. This seemed to have been investigated with alerts of use of subscribers’ funds, by the plaintiff to purchase real properties at the expense of their shares not being listed at the floor of the Stock Exchange.

“It, then, dawned on me that if such allegations of fraud could be investigated and found to be true, the 1st to 3rd defendants would be justified into committing resources to curb such a seemingly financial crime in the security exchange sector. I am not oblivious of the position of the law that vests wide powers to the 1st defendant in matters of investigation and prosecution of economic and financial crimes, which include section 6(b and h) of the EFCC Act, 2004.”

In dismissing the plaintiff’s prayers, Justice Ringim held that he does not see the infringement or the threat to infringe on its fundamental rights beyond being invited by the 1st to 3rd defendants such as to conclude investigation to which progress was being made. “In the light of the above, this application fails and same shall accordingly be dismissed with no order as to cost,” he held.

IGI in 2006 made a request for private placement of funds and issued a public prospectus to that effect for individuals and corporate bodies to subscribe. The company had sought to raise N2.9 billion by selling ordinary shares for 50 kobo each at N2.00 per shares.

Because the condition for the placement of the fund was that the shares bought would be listed on the floor of the Nigerian Stock Exchange (NSE) not later than 12 months after the offer, the defendants, namely Osom Properties Limited (20million ordinary shares); Fando Construction Limited (20 million ordinary shares); Frososom Nigeria Limited (20 million ordinary shares); Royal Descent Limited (10 million ordinary shares) and Osaretin Ilekhuona (575 ordinary shares), bought shares amounting to N141 million.

However, seven years after the purchase and the obligation to enlist at the NSE failed, the shareholders through their counsel, Mr. Tony Odiadi on March 15, 2013 wrote to the managing director of the IGI, demanding for a refund. That was followed with another letter dated May 6, 2013, demanding for a refund and threatening to file formal complaints against the IGI to the regulators and the anti-graft agencies. The IGI responded via a letter dated May 16, 2013, saying the funds cannot be refunded, that they are equity contributions and not bank deposits that can be withdrawn at will.

The firm, however, stated that it was still planning to enlist at the NSE, adding that but for the NSE amended listing rule that requires companies seeking to list their shares to have made profits in the preceding three years, it would have done so. “Unfortunately, IGI made losses in the last three years up till 2011. Hence, IGI cannot seek to have its shares listed on the exchange for now,” the firm stated in its letter signed by Tit Hassan and Doyin Adebambo, legal services and deputy director, finance and investment respectively.

After 14 years of waiting, Odiadi, on June 17, 2020, on behalf of the companies lodged a petition to the EFCC, having petitioned Central Bank of Nigeria (CBN), Security and Exchange Commission (SEC), House Committee on Capital Market and the National Insurance Commission (NAICOM).

In the petition, the petitioners evidenced claims of diversion of funds, in alleged violation of several provisions of the law such as section 22 (5) (a) and (b) and 125 (c) of CAMA 2004; section 44 (1) (b), 52(1) and 60 of the Investment and Securities Act, 2004 and section 49 of the Insurance Act, 2003 among others.

“It turned out that IGI, rather than list the shares, diverted the funds (billions of naira) gathered from our client and other unsuspecting members of the public to purchase properties (real estate) in Lagos and several locations across Nigeria and Africa.

“Enquiries have revealed some of these properties dotted across the country. By seizing our client’s funds and denying them the use of the funds, IGI has caused our client’s to lose billions of naira return on the investment, which properties worth N141 million over 14 years ago would have delivered.

“Recently, our client indicated interest in collaborating with a foreign company to acquire and develop a housing scheme. To our client’s surprise, the properties brought to our client with offer letters were properties belonging to the IGI. That is, IGI bought the properties and have been selling without rendering account.

“This offer shows that the IGI has kept a lot of properties and assets acquired with funds raised from our clients and other members of the public. In all of these, IGI in its conduct so far has perpetrated fraud against our client and other subscribers. It has violated several provisions of the law for which a thorough investigation needs to be conducted to ascertain the extent and nature of its activities against public interest,” Odiadi wrote to the EFCC.

On account of this petition, the EFCC invited the managing director of the IGI and its Chief Finance Officer for questioning. Unhappy with the invitations, IGI sued the anti-graft agency and the share subscribers at the federal high court, praying the court to restrain them from harassing them or inviting them over the share dispute anymore.

But the court said no to their application, maintaining that the anti-graft agency has the powers to investigate transactions that have elements of public fraud.

Still dissatisfied, IGI said it has filed Notice of Appeal at the Court of Appeal against the decision, but the defendants insist that the EFCC is now free to continue and complete its investigation as such notice of appeal does not stop it from carrying out its statutory mandate until the Court of Appeal makes a contrary order.