N700 billion trapped in private placement scams
• Investors seek probe of defaulting firms
• SEC dissociates self from offers, warns public
Investors in Nigeria’s capital market say N700 billion have been trapped in private placements by firms. They urged industry regulators to wade into the perceived scam.
In response, the Security and Exchange Commission (SEC) warned the investing public to steer clear of such private placements, as many of them have not been approved.
Trapped funds in Nigeria’s capital market — especially when it happens in less than transparent manner — is considered a failure of regulation part of which contributed to the market crash eight years ago. Continued scam in Nigeria’s ailing capital market could also erode confidence and deprive the Nigerian Stock Exchange (NSE) of the much-needed recovery in recession time.
Private placement is a common method of raising business capital through offering equity shares. The offer can be done by either private companies wishing to acquire a few select investors or by publicly traded companies as a secondary stock offering.
Specifically, the investors are urging the regulators to ‘wield the big stick’ on the firms that reneged on the promise to list their shares in the secondary market of the NSE, which offers a comprehensive range of products, including shares or equities.
The shareholders, who spoke in telephone interviews with The Guardian explained that companies which had undertaken private placement during the stock market boom period had tied down their funds without listing the shares on the Exchange to generate returns as stated in the prospectuses.
They maintained that the situation has created much liquidity problem for the equities segment and further depressed the market, as these retail investors do not have the purchasing power to patronise the market.
According to them, if part of the money is recovered and deployed to the stock market, the bourse would have the needed funds to spur activities in the market, attract more investors and bolster the economy. They added that the funds, if ploughed back, would also mitigate the proliferation of ponzi schemes in Nigeria, because investors would channel their money to the market.
Ponzi is a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
Checks by The Guardian revealed that many of the firms were successful in their bids and sourced over N700 billion, but a large portion of the money was diverted into other investment outlets outside the objectives declared in the prospectuses.
The President, Nigerian Shareholders Solidarity Association, Timothy Adeshinwo recalled that between 2007 and 2009, several companies deceived investors to take equity interest in their firms through private placements.
According to him, these firms lured investors with the promise that their shares would be listed on the floor of the NSE after a period of time. But seven years down the line, they have defaulted.
Citing IGI as an example, he alleged the firm had been holding its yearly meetings behind closed doors, and unannounced, while the participants are not the real shareholders of the company.
“They promised to list under one year and that at the completion of the issue, they would list the shares on the NSE. It was on their undertaken. They should fulfill their promise. They have been holding annual general meetings and they will not call shareholders.
“After the death of their chairman recently, they held an AGM and it was stage-managed. It was after the meeting that shareholders will hear about it. It is a very dishonest investment,” he said.
But in a response to The Guardian’s enquiry, the spokesman for IGI, Steve Ilo said the decision not to list the shares on the Exchange was based on shareholders’ resolution during a meeting.
He did not give further details even as he expressed surprise that the issue came up again, after the National Assembly had earlier absorbed IGI of any wrongdoing after investigating the matter.
The President, Constance Shareholders Association, Mallam Abubakar Maikhil noted that “there are laws that guide the principle for companies that issue a private placement and SEC do always warn investors against the private placement.”
The President of the Proactive Shareholders Association, Taiwo Oderinde urged the regulators to review the prospectuses of the firms and compel them to comply.
In its reaction, the commission, in a statement said it did not regulate private placements by private companies. It urged the investors to contact the respective companies for their share certificates.
“The SEC received various complaints against AIMS Asset Management Limited, who solicited and marketed private placements for two private companies namely Petdrill Development Company Limited and Aims Assurance Company Limited.
“The commission, while investigating the activities of AIMS Asset Management Limited (a registered capital market operator), observed that the said private placements and the securities of the private companies were not under the regulatory purview of the commission.”