Arunma Oteh at House capital market probe, Okereke-Onyiuke blew N186m on Rolex watches

Mrs. Ndi Okereke-Onyuike. 

 

-Stock Exchange ‘spent N37m on yacht’ -Council members ‘shared N1.7b surplus’ -N1.3billion spent on business travels.

FOR those seeking answers to the sudden crash of the stock market, some came yesterday.
The market succumbed to a combination of ailments - sensational lifestyle and financial recklessness, among others  - according to the Director–General of the Securities and Exchange Commission (SEC), Ms. Arunma Oteh. 

Oteh was explaining why SEC eased out the former DG of the Nigerian Stock Exchange (NSE), Mrs. Ndi Okereke-Onyuike. 
Oteh, in a presentation before the House of Representatives ad hoc committee probing the near collapse of the Nigerian Capital Market, said: “There were incidents of financial skimming, misappropriation, false accounting, misrepresentation and questionable transactions against the former NSE DG. 
“For instance, the NSE bought a yacht for N37million and wrote down the book value within one year by recognising it in the books as a gift presented during its 2008 Long Service Award (LSA), yet there are no records of the beneficiary. 
“The Exchange also spent N186million on 165 Rolex wrist watches as gifts for awardees out of which only 73 were actually presented to the awardees. The outstanding 92 Rolex watches valued at N99.5million remain unaccounted for. 
“This happened in previous years. Other notable fraudulent transactions include the reclassification of the sum of N1.3billion originally expended on business travels. Of this sum, N953million was reclassified under “Software Upgrade” and subsequently expended as against being capitalised. There were other cases of such unethical accounting practices.
“In 2009, N1.7billion of the 2008 operational surplus was distributed to Council members and employees, in violation of CAMA and SEC rules which preclude the NSE from such, given that the NSE is a company limited by guarantee. 
“Given the foregoing, it was important to me that we engage the NSE to address these weaknesses. Unfortunately, the former CEO of the NSE did not attend most of the meetings we scheduled. 
“These were the kinds of financial imprudence that were perpetrated at the NSE. These transactions were routed through companies owned by some senior officers of the Exchange,” she said. 
Oteh said the SEC launched a forensic investigation to examine the allegations of financial irregularity and mismanagement. 
“While these investigations have been concluded, the results are unavailable because the former CEO of NSE, Mrs. Ndi Okereke-Onyiuke, and three other former employees have an injunction against releasing the report.” 
The SEC DG said while all the fraudulent practices were going on, the SEC, which was at the time headed by Musa Al-Faki, did not do enough to stem the irregularities. 
On Market abuses by banks between 2006 and 2008, Oteh said:
“The extent and nature of the market abuses carried out between 2006 and 2008 are the primary reasons for the continuation of the investor apathy that we see today. I will give examples of some of the market abuses that the SEC investigation of the intervened banks uncovered. 
“Afribank: With respect to Afribank, Afribank Trustees, Afribank Registrars and their Directors, committed various grave market infractions in share buyback schemes, made misrepresentations in the returns to the SEC to prevent detection that the Bank funded its public offer, violating Section 106 (4), and Section 110 of the ISA 2007 as well as Rule 109B of SEC Rules. 
Shares owned by 1,258 entities (some fictitious) and individuals were merged into fourteen accounts of nine companies, some of which were owned by Afribank and its directors. These transactions were done outside the floor of the Exchange. Falcon Securities, Fidelity Finance and Spring Capital were some of the entities used. 
“Finbank: Between August 2006 and December 2008, the Executive team of Finbank engaged six law firms to incorporate 95 companies and transferred more than 4425 billion of depositors’ funds to nine of these companies and purchased 2.8 billion units of its own shares, violating Rule 109b of SEC Rules. The Bank also violated Section 105 of the ISA 2007, which prohibits a person from creating a false or misleading appearance of active trading of a listed  security.
“Intercontinental Bank: Between June 2007 and December 2008, Intercontinental Bank, its directors and principal officers engaged in unlawful share buyback schemes, buying about 3.4 billion units of shares using depositors’ funds. It violated Section 105, 106 and Section 110 of ISA 2007 as well as Section 160 of CAMA and Rule 109b of SEC Rules. 
“Union Bank: In 2007, Union Bank borrowed amounts totaling N30.4 billion from two foreign investment banks. These funds were transferred to Union Trustees, which in turn transferred the funds to Falcon Securities. In four days in November 2007, Falcon purchased 620.4 million units of shares worth N30.8 billion, ahead of a public offer/rights issue. In 2007, Falcon Securities carried out 181,088 transactions with respect to Union Bank shares. This drove up the share price of Union Bank stocks from a low of N23.30 in January 2007 to N50.33 in November 2007, in other words, a price appreciation of over 110% within 11 months.” 
On “wonder banks”, Oteh said: 
“Wonder Banks, Umana Umana, Ponzi or Pyramid Schemes are unsustainable fraudulent schemes that use funds from new investors to pay off older investors at high rates of return, thereby quickly attracting new investors. 
“A total of 440 wonder banks were identified in Nigeria and these had defrauded the unsuspecting public to the tune of £4106 billion. The Commission, in addition to spearheading efforts to track and bring to book operators of such scams, is also a member of an Inter Agency Committee consisting of representatives of financial services regulators and law enforcement agencies such as the Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), Economic and Financial Crimes Commission (EFCC), Corporate Affairs Commission (CAC) and the Police.
“So far, the Committee has obtained court orders to wind up the identified outfits. The Committee continues to make more recoveries as investigations progress. Furthermore, promoters of the schemes are also being handed over to the relevant law enforcement agencies for criminal prosecution. 
According to Oteh, part of SEC’s actions included dragging 260 entities and individuals to the Investment and Securities Tribunal (IST) 
She said: “As a result of the SEC investigations with respect to the intervened banks, we instituted legal proceedings, at the Investment and Securities Tribunal (1ST), against 260 entities and individuals. The Commission is alleging that these individuals and entities were involved in different forms of market abuse including insider dealing, pump and dump, wash sales and share price manipulation. We are seeking declaratory orders for the illegally gained profits that were made to be disgorged to restitute poor 

However, the Ibrahim El-Sudi-headed eight -man ad hoc committee took the SEC DG to task over her decision to take 260 entities and individuals to the Investment and Securities Tribunal. 
According to the committee members, the SEC had no right to move the cases particularly as the issue was being investigated by the Administrative Committee. 
The SEC DG also washed her hands off the nationalisation of Afri bank, Bank PHB and Spring bank.
The Committee wanted to know the roles played by the SEC being the body responsible for mergers and acquisitions in the process of taking over the three banks by the Asset Management Corporation of Nigeria (AMCON).
The process was concluded within three days over a weekend but the SEC boss said her organization was not involved.

“So, it is safe to say that your organization is not involved in the Nationalization process of those banks,” Dogara said.
When further prodded on the role played by the SEC to protect the interest of investors in the affected banks while the Central Bank (CBN) and the Nigerian Deposit Insurance Corporation (NDIC) were protecting the interests of their primary responsibilities, she said her organization played the role of protecting public interest.
Saying that the three banks were no longer listed on the stock exchange, Arumah said she was not aware of what became of their investors.
“It was an industry-wide decision and if I were to insist on protecting the investors’ interest, then they would have to give something back because the three banks’ shareholder’s funds were in the negative of over N600b,” she added.
On Project 50 which was meant to celebrate 50 years of Capital market in Nigeria, she said it was not against the rules to receive donations from potential investors and industry players to fund the project.
“There was no compromise, there is no conflict of interest and it is not abnormal to partner with others toward the development of the market”
However, to the disappointment of the committee members, she failed to obliged the Committee with the list of contributors to the Project, saying she would have done so if she had been earlier informed.
Meanwhile, reminiscent of what led to the personalization of issues that eventually culminated in the stepping down of the previous committee probing the capital market, the DG was reproached for evading questions.
She also evaded a question on when the SEC would conclude its intervention programme in the NSE and disengage its nominees from the NSE Council where the regulatory body has 8 members out of 15.
According to her, the intervention and the inclusion of eight members from SEC on the Council of NSE was to strengthen and professionalize its oversight function of the NSE. 
“It’s our bid to strengthen and professionalize the NSE and for our nominees to bring their expertise to that organization. We have a report and we will do justice to it”. 
There were however moments of friction between the committee and the SEC boss. Problem began when the DG was asked why its powers to resolve conflicts between industry players and in her extended explanation alluded that the committee lacked confidence in the Investment and Security Tribunal (IST).
She also failed to state the extant rule that empower SEC to abort an administrative proceeding established by SEC to handle a particular dispute between a bank and its investors that was transferred to the IST.
She however said that unclear definition of responsibilities between conflict resolution bodies in the sector. 
Though she posited that it would assist the market to see culprits punished, Arumah however confirmed that convictions are yet to been seen in the sector.
She also mentioned that her organization has resolved over 1,700 disputes though her organization was not meant to guarantee investors’ funds.
On another occasion when the confronted her with the issue of labour as contained in a petition, she told the committee that the right thing was for the committee to give her the document to go through.

“I take exception to that remark. We have rules here and it is not for you to dictate to us how to conduct proceedings here,” El Sudi warned. 
Earlier during the presentation of the Director-General of the Nigeria Stock Exchange, Oscar Onyeama, had explained to the committee that the SEC had 8 nominees in the Council of the 15 members does not mean they will exert any untowards influence on the NSE. 
The committee had expressed the fear that it may affect the daily management of the NSE and open the organization to overt influence from the SEC which is meant to be a regulator. 
“People say because there are 8 members nominated by that SEC, that SEC owns NSE. It’s wrong. They have been professional in their conducts. 
“So far, we have not received directions on what management should do on a daily basis. Besides, I think I am known globally as being independent.” 
A member of the committee, Yakubu Dogara noted that those who were responsible for the crash of the Capital Market should be brought to book.. 
His words: “Those that cooked up phantom figures that caused the crash of the Capital market must be brought to book. Because if we are not careful, we will be back here doing another public hearing on this issue.” 

The hearing continues today.