Oteh fingers Onyuike-Okereke as mastermind of capital market crash
Okereke-Onyuike presided over a rotten market, allowing abuses that eventually destroyed the market and eroded investors’ confidenceFormer head of the Nigerian Stock Exchange (NSE), Ndidi Okereke-Onyuike, led a debilitating era of broad financial abuses and violations of processes, which in large part accounted for the capital market crash that cost investors billions of life savings and funds, Director General, Security and Exchange Commission (SEC), Arunma Oteh, said on Monday.Under Mrs. Okereke-Onyuike, particularly between 2006 and 2008, Ms. Oteh told the House of Representatives Committee on Capital Market investigating the near collapse of the sector that the market was characterized by financial slimmings, misappropriations, false accounting, misrepresentations, and questionable transactions.The former Director General of the NSE was removed in August 2010 following the appointment of Ms. Oteh. But the violations perpetrated under her tenure, many of them reportedly in connivance with commercial banks, continue to haunt the nation’s capital market today, the SEC boss 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,” Ms. Oteh said.The SEC DG resumed testimony before the House panel on Monday after a botched hearing that was suspended in March following the controversial N41million bribery allegation between the SEC boss and former members of the House capital market committee.Under a new leadership led by Ibrahim El-Sudi, the committee pledged to adhere to only the details of the how the capital market operated over the years, with exchanges with Ms. Oteh lasting several hours into late evening to shed light into the abuses that allegedly perpetrated at the NSE.Ms. Oteh herself provided no satisfactory answers when accused by the lawmakers of causing heavy loss of investors’ funds by handing over the mediation duty of the regulatory commission to the Investment and Security Tribunal (IST) resulting in delayed treatment of complaints, while in many cases, grievances received no attention.Again, the SEC boss did not explain why more than 260 individuals and organizations indicted by the commission as having perpetrated violations under her predecessor are yet to be prosecuted.Recalling some of the monumental fraud that took place at the Stock Exchange under Mrs. Onyuike-Okereke’s tenure, Mrs. Oteh said the NSE bought a yacht for N37million and wrote down the book value within one year by recognizing it in the books as a gift presented during its 2008 Long Service Award (LSA), without any records of the beneficiary till date.Besides, she said the Exchange spent about N186million on the purchase of 165 Rolex wrist watches presented as gifts for awardees, out of which only 73 were actually presented to the beneficiaries, while the outstanding 92 watches valued at N99.5million are still unaccounted for.“These were the kinds of financial imprudence that were perpetrated at the NSE,” she said. “These transactions were routed through companies owned by some senior officers of the Exchange. In 2009, several billions of the year 2008 operational surpluses were distributed to the Council members and employees of the Exchange in violation of Capital market and SEC rules.”Other fraudulent transactions, Ms. Oteh said, 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 capitalized.Some of the most shocking abuses were amongst the banks, according to the SEC boss. For instance, Defunct Afribank (presently Keystone bank), Afribank Trustees, Afribank Registrars and their Directors, who committed various infractions in share buyback schemes, as well as misrepresentations in the returns to the SEC to prevent detection that the bank funded its public offer.“Shares owned by 1,258 entities (some fictitious) and individuals were merged into 14 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.“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 against SEC Rules.“Between June 2007 and December 2008, Intercontinental Bank (now under Access 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.“Then, in 2007, Union Bank borrowed amounts totalling £430.4billion from two foreign investment banks. The funds were transferred to Union Trustees, which in turn transferred the funds toFalcon Securities. In four days in November 2007, Falcon purchased 620.4million units of shares worth $430.8 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 $423.30 in January 2007 to £450.33 in November 2007, in other words, a price appreciation of over 110% within 11 months.The breaches were uncovered by an investigation ordered by the SEC. When meetings were scheduled to address the issues, Mrs. Okereke-Onyuike, according to Ms Oteh repeatedly refused to attend the meetings.Mrs. Okereke-Onyuike is expected to appear before the committee Tuesday.BUSINESS DAYTUESDAY, 08 MAY 2012 00:00 KEHINDE AKINTOLA
Aruma Oteh, Director- General of the Securities and Exchange Commission (SEC) yesterday gave a vivid account of how owners of rescued banks defrauded unsuspecting Nigerians of the sum of N106 billion, as revealed by the investigation conducted on the near collapse of the nation’s capital market.
According to the report of the external auditors’ initiated by the commission, in response to the statement of account presented by the Nigeria Stock Exchange (NSE), the defunct Finbank executive team engaged six law firms to incorporate 95 companies and transferred over N25 billion of depositors’ fund to nine of these companies and purchased 2.8 billion units of the bank’s shares between August 2006 and December 2008.
Directors and principal officers of the defunct Intercontinental Bank engaged in unlawful buy-back schemes worth 3.4 billion units of shares, using depositors’ fund between June 2007 and December 2008 in violation of sections 105, 106 and 110 of ISA 2007 as well as CAMA and Rule 109b of SEC Rules.
Also, Union Bank borrowed N30.4 billion from two foreign investment banks and transferred the fund to Union Trustees, which in turn transferred the money to Falcon Securities, which bought 181,088 shares of Union Bank for as low as N23.30 in January 2007 to catapult it N50.33 per share in November 2007, a price appreciation of over 110 percent within 11 months.
For its part, Afribank, Afribank Trustees, Afribank Registrars and their directors allegedly committed “grave market infractions in share buy-back schemes and misrepresentations in the returns to 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.
She added that Falcon Securities, Fidelity Finance and Spring Capital were some of the entities used.
The external auditors’ investigation of the Nigeria Stock Exchange (NSE) also revealed the distribution of accrued sum of N41.2 billion to employees and council members as bonuses and share of surplus for the 2009 financial year.
In her submission, Oteh, at the resumed hearing of the House of Representatives adhoc Commmittee on capital market, also alleged that “the Exchange (NSE) also spent N186 million 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 N99.5 million remain unaccounted for.”
She stated that the commission has established a National Trust Scheme (NTS) while the NSE has also floated an Investor Protection Fund (IPF) as part of efforts to insure investors, adding that Section 13(k) of the Act empowers SEC to set up a fund to compensate investors for other pecuniary losses suffered, besides those which arise on account of insolvency or bankruptcy caused by a dealing member and defalcation committed by a dealing member in relation to securities, monies or properties entrusted to it by an investor.
“Compensation for specific losses – insolvency and defalcation are the exclusive responsibility of the NSE under ISA 2007 section 195,” she said.
She observed that over 2,700 investor complaints lodged with the previous management of the NSE, including unauthorised sale of shares, to withholding of proceeds of sale of shares were not treated, adding that NSE investor protection fund was not being properly administered.
Other notable fraudulent transactions by the former NSE management, Oteh said, included “the reclassification of the sum of N1.3 billion originally expended on business travels. Of this sum, N953 million was reclassified under “Software Upgrade” and subsequently expended as against being capitalised. There were other cases of such unethical accounting practices.
“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”, he said.
Oteh also acknowledged receipt of a number of complaints “about an imminent bankruptcy of the Exchange. This concern was reiterated in a letter dated 21 July 2010, that we received from a council member who indicated ‘that unless something was done urgently, the NSE may soon face bankruptcy’. A number of stakeholders had also reported these concerns to SEC’s supervisors and in some cases, were already alleging that SEC was unwilling and unable to intervene despite its powers to do so and the grave circumstances that the NSE faced.”
Oteh also noted that the commission did not give approval for the nationalisation of some rescued banks which was done by the Central Bank of Nigeria (CBN).
Speaking earlier, Oscar Onyema, NSE director- general, while responding to allegations on the SEC’s appointment of eight members of the Exchange, disclosed that there was no plan to demutualise the Exchange without the approval of the owners of the exchange.
He explained that the Exchange needs appropriate structure to approve demutualization, adding that six committees were set up, namely audit and risk management, disciplinary, finance and purpose, techonology, discipline and rules and adjudication, to drive an efficient organisation.
He also emphasised the need to invest part of the proceeds of the Sovereign Wealth Fund and pension fund in the capital market, as well as the listing of some companies operating in the telecommunications, power as well as oil and gas sectors on the stock market.
He also expressed support for the prosecution of those involved in sharp practices in the capital market, saying “It will be interesting to see prosecution of such”.
On the share of the capital market controlled by foreign investors, Onyema disclosed that “majority of our market is controlled by foreign investors.”
He however stressed the need to review the extant laws by giving incentives and encouraging more local and foreign investors, especially in the oil and gas industry through tax holidays.
The NSE boss disclosed that the N2 billion capital pay up set by SEC in 2009 for market makers and N10 billion at all times have been suspended and that SEC is expected to harmonise the proposal with the N570 million net capital (near cash asset that can be readily deploy) recommended by the NSE.
He said “We approached the SEC and it agreed and we expect that they have harmonised their rules, so what you just read is not true.”
Members of the Adhoc committee on Capital Market had expressed concerns over the skewed process in the appointment of NSE council members (eight out of 17) in favour of some people, asking “Is that not a move to hijack the demutualisation process?”
They also expressed concern over the glut in shares and $15 billion capital flight after the share boom.
The committee however requested for details of the lost foreign direct investment.