NSE tackles unresolved share frauds

By Taofik Salako

The  Nigerian Stock Exchange (NSE) is dealing with multiple unresolved cases of unauthorised sales of shares and misappropriation of investors’ funds by 11 stockbroking firms.

The Investors’ Protection Fund (IPF), the special-purpose fund set up by the NSE and stockbroking firms to compensate investors, waded into the matter and restituted investors who had suffered similar losses in 12 stockbroking firms.

The restoration of the shareholdings marked the end of the owners’ complaints while the NSE continues its disciplinary actions against the delinquent firms.

A regulatory report at the weekend indicated that the NSE over the past eight years has dealt unresolved cases of share fraud, otherwise known as unauthorised sale of shares and misappropriation of clients’ funds.

Under its zero-tolerance policy, the NSE suspends any dealing member or stockbroking firm that is proven to engage in unauthorised trading on client’s shares with or without misappropriation of the proceeds of such illegal transaction. A similar sanction applies to diversion and conversion of client’s funds.

Stock market rules require stockbroking firms to maintain separate clients’ accounts from their individual corporate accounts with relevant institutional walls to demarcate and protect clients’ accounts from abuses. For any transaction to occur on a client’s account; there must be a proven mandate from the client and the transaction must be in line with the details on the mandate.

The NSE Rule 11 prohibits unauthorised sale of client’s securities, unauthorised use of client’s funds and other unethical practices. It also mandates segregation of client’s funds.

The report indicated that the NSE has taken the 11 firms through its adjudicatory and disciplinary processes and have applied initial sanctions on the firms including suspension, monetary fines and demand for restitution of the affected clients. The report covered January 2012 and last month.

The firms involved in the unresolved cases included Adonai Stockbrokers Ltd, ECL Asset Management Limited, GMT Securities and Assets Management Ltd, ITIS Securities Limited, Maven Asset Management Limited, Mayfield Investment Limited and Partnership Securities Limited.

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The IPF stepped in for restitution of investors in some 12 firms, most of which have been expelled by capital market authorities. The NSE had indicated that it recovered about N1.44 billion worth of shares for investors under the IPF last year alone.

The firms involved in the restitution by IPF included Best Link Investment Limited, Bytofel Trust and Securities Limited, De-Canon Investment Limited, First Alstate Securities Limited, Fittco Securities Limited, Gosord Securities Limited, Lakesworth Investment & Securities Ltd, Lion Stockbrokers Limited, Mact Securities Limited, Maninvest Asset Management Limited, Omas Investment and Trust Limited and Securities Solutions Limited.

The NSE had in 2012 inaugurated its IPF, in line with the provisions of the Investment and Securities Act (ISA). Part XIV of the ISA requires the Exchange to establish and maintain an investors’ protection fund to compensate investors with genuine claims of pecuniary loss against dealing member firms resulting from insolvency, bankruptcy or negligence of a dealing member firm of a securities exchange or capital trade points; and defalcation committed by a dealing member firm or any of its directors, officers, employees or representatives in relation to securities, money or any property entrusted to, or received by the dealing member firm in its course of business as a capital market operator.

The board of IPF consists of a maximum of nine members, including a representative each from dealing member firms, NSE, Central Securities Clearing System Plc, SEC, Institute of Capital Market Registrars, one person representing institutional investors, one person with proven integrity and knowledgeable in the capital market matters, one person representing registered shareholders association and one person who shall be a legal practitioner knowledgeable in capital market matters.

The board of IPF is the most important organ of the IPF and it is responsible for the management of the IPF as it holds, manages and applies the fund in accordance with the provisions of the IPF rules and the ISA.