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Regulatory lapses threaten efforts to restore investors’ confidence


Mounir Gwarzo, Director General Securities and Exchange Commission

Regulators’ poor handling of infractions and enforcement of discipline among operators has been blamed for the recent scandal involving over N10billion, through the diversion and misappropriation of funds by Partnership Securities Limited (PSL), and its subsidiary companies – Partnership Investment Company Plc; Life Care Partners Limited; and SBDC Microfinance Bank Limited.

Investors also believe that the Securities and Exchange Commission (SEC’s) inability to upgrade its operational guidelines through the use of modern Information Technology (IT) facilities to monitor day-to-day market operations, especially the trading platform; will continue to undermine efforts to restore confidence in the market.

Given the level of infraction perpetrated by some operators, the investors wondered why the regulators, SEC; the Nigerian Stock Exchange (NSE); and the Central Security Clearing System (CSCS), are unable to effectively deal with such sharp practices over the years.


For instance, over 300 investors of Partnership Investment Plc, whose stocks worth N4.8billion were used for in a ‘shady’ deal are currently facing excruciating hardship, urging the regulator to ensure that investors are protected from suffering losses arising from fraudulent actions.

The investors, who used PSL as their broker, said they were persuaded by the company to deposit their portfolio with the Partnership Securities Deposit Account (PSDA) for trading activities.

PSDA used the deposits for trading while it pays interest for the shares. Also, the value of the shares in terms of dividend is maintained under a 365-day tenor for such investments.

One of the investors, Sola Alabi, whose investment portfolio worth N36million is stuck in the deal, said at a press briefing in Lagos, that when it became obvious that PSL was no longer following the terms of agreement, he had written to it last year, demanding a termination of the investment.

He had also requested that the shares should be returned to the CSCS to enable him to claim the shares, but the request was not granted. The National Coordinator, Standard Shareholders Association, Godwin Anono, who invested N160million, admitted that after the PSDA agreement, he had received payment on the initial sale of his shares, but PSL subsequently defaulted afterwards.

A widow, who claimed her husband invested about N4.1million in the company, noted that “Even organised and regulated institution can defraud investors, not only MMM. We were not driven by greed, it is our money, and a topmost brokerage firm is involved in this mess, it is quite unbelievable.”

The NSE, in efforts to increasing market confidence, had spent a lot of energy building the foundational of the market in terms of transparency, orderliness, fairness, disclosure, and more importantly, enforcing rules and regulations, and strengthening intermediaries.

“The initiatives we have introduced include XBoss, X-Alert, issuers’ portal, compliance status indicator, whistle blowing portal and launch of NSE Rule Book, among others,” NSE said.

But investors, who spoke with The Guardian, urged SEC must deploy IT infrastructure to enable it detect infractions and other fraudulent activities perpetrated by stockbrokers at the time of the action.

For instance, a former ETI Chief Executive, Arnold Onyekwere Ekpe, based on previous relationship, gave PSL an exclusive mandate to dispose of his shares in ETI after retiring from the company at N16 per share within three months spanning July to September, 2016.

The shareholders noted that in compliance with the CSCS rule for such transactions, Ekpe, had filled in a number of forms including the CSCS account creation form, client’s bank details, and the investor’s bank account update form for direct settlement, which mandates payment into the brokers account.

Regrettably, the proceeds were eventually paid into Ogiemwonyi’s account rather than Ekpe’s, which, according to them, portrayed high level of regulatory weaknesses in the operation of the automated trading system (ATS) and direct cash settlement (DCS), which are meant to stamp out misappropriation of investors’ funds by stockbrokers.


Investors wondered why the market regulators could not detect the misappropriation of the proceeds until the complainant reported the case.

In a two-paragraph letter, on his company’s letterhead, to Ekpe, dated October 17, 2016, and titled: “Admission of Outstanding Indebtedness of N1,237,245,095 and $80,000 to Mr. Arnold Ekpe,” obtained by The Guardian, Ogiemwonyi had acknowledged the mandate.

Apart from confirming that the shares were sold at a fixed price of N16 per share, the letter, signed by Ogiemwonyi, read in part: “The shares were sold by us for a total sum of N1,537,245,952 out of which N300,000,000 has been paid.”

“The letter further admitted: “We confirm that outstanding proceeds from the sale have been misappropriated by us,” and the writer promised to meet the obligation of the outstanding balance of about N1.24billion and $80,000.

Given the huge amount involved in the PSL infractions and similar ones being perpetrated by stockbroking firms, investors stressed the need for the market regulators and other stakeholders to approach the National Assembly (NASS), to review all out-dated laws.

They are particularly concerned about the penalties imposed on operators, who mismanage investors’ funds, so that it will be very expensive for stockbrokers to mess up clients’ investment.

In this regard, respondents on the recent penalties including banning Ogiemwonyi from further market activities for life, feel the sanctions are belated.

An investor with PSL, Sola Alabi, while reacting to SEC’s recent decision on the company, its board, and some management staff said: “The decision is welcome, but it is belated in view of its main function as a regulatory body. In fact, its verdict on the company and its management could be likened to shutting the barns doors after the horses have bolted.

“Investors have lost billions of naira either in stocks or cash that Partnership Plc was managing for them. One would have expected the regulatory body to have got wind of the sharp practices of the company before it became disastrous if the Commission is alive to its responsibility.

“Some investors reported the company to SEC for unprofessional conducts, but the Commission was slow in taking action. As for the penalties imposed on the directors, the N100,000 fine is ridiculous for people, who mismanaged billions of investors fund.

“The statues of the Commission should be amended so that it will be very expensive for stockbrokers to mismanage clients’ investment.


“In addition SEC should pursue offenders to the end of the world to pay for their crimes by being active in the prosecution of the culprits. I will also suggest that an insurance scheme to protect investors should be put in place and funded by the stockbrokers.

“The insurance scheme should be made compulsory for them. This will be an additional protection for investors because the insurance companies will want to protect their risk.”

The President, Proactive Shareholders Association, Taiwo Oderinde, urged SEC to review its operational guidelines by using modern IT facilities to monitor day-to-day market operations especially the trading platform.

He also stressed the need for SEC, and other capital market stakeholders to approach the NASS to review all out-dated laws to meet current realities such as penalties for the offenders and a host of others.

“Lastly, SEC should always organise annual stakeholders’ retreat or trainings for update, and development as started by immediate past DG, Oteh.”

The President, Rennaissance Shareholders Association, Timothy Olufemi, decried SEC and NSE’s inability to detect infractions committed by operators until they are reported to them.

“The regulators do not monitor the day-to-day operations of the market. I have said it in different fora that regulators should not just sit down in their Abuja office, and leave the operations of the market in the hands of the operators alone without having a monitoring unit.

“It goes to the financial market regulators. They just sit down in their offices without monitoring; at the end they blame shareholders that they did not report the activities of these operators to them.

“They should install an information technology network for monitoring operations so that before an infraction takes place, they will see it online. But they will not do that, they do not know who is buying what, and who is selling what, is that a regulator?” he queried.

The National Cordinator, Constance Shareholders Association, Shehu Mallam Mikail, on his part, said: “It is highly ridiculous that a regulatory agency like SEC will depend on complaints and reports to keep abreast of what is happening in the capital market. SEC should be able to monitor market activities from the Abuja head office, it is investors’ fund we are talking about and it needs maximum protection.


“The decision taken in respect of Partnership Plc is much welcome, but the fine is too low to be compared to the gravity of infraction being committed. SEC should review the fine upward to serve as a lesson to others and build confidence in the minds of investors that wants to invest in Nigeria stock market.”

Reacting to the life ban from market activities slammed on PSL’s Ogiemwonyi, a senior stockbroker, who craved anonymity told The Guardian that the punishment was indeed a deterrent to other fraudulent operators.

“This one has opened the eyes of other operators that will sell investors shares and decide to keep back the proceeds. When they see this kind of punishment, they will sit up and become more careful. This one was a pure fraud, the man gave a mandate for the transaction and he was not paid.”

Another operator, who also spoke on the condition of anonymity said: “When it happened, we were waiting to see what SEC will do. There are actually fraudulent dealers in the market, but with this drastic decision taken by SEC. I believe that sanity will return to this market.”

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