Last week’s indictment and expulsion of Managing Director of Partnership Investment Company Plc and Partnership Securities Limited, Mr Victor Ogiemwonyi, has opened up the capital market to public scrutiny, writes Capital Market Editor Taofik Salako.
Suave, knowledgeable and amiable, Victor Ogiemwonyi was unmistakably one of the leading lights of the capital market. His knowledge about the capital market is vast and he rises almost spontaneously to defend the market interest.
A fellow and former council member of the Chartered Institute of Stockbrokers (CIS), former council member of the Nigerian Stock Exchange (NSE), former president of the Association of Issuing Houses of Nigeria (AIHN), member of the Capital Market Masterplan Implementation Committee and member of the board of the NASD Plc among others, Ogiemwonyi was one of the leaders of the market during his time. His company-Partnership Investment Company Plc was one of the few stockbroking-originated investment companies that were listed on the NASD Plc-the alternative over-the-counter (OTC) securities exchange for listing of public limited liability companies that are not listed on the NSE. All these came crashing last week with the announcement of his indictment by the Administrative Proceedings Committee (APC) – the adjudicatory arm of the Securities and Exchange Commission (SEC).
Long-awaited rulings
After more than a year of wide-ranging investigation, SEC last week indicted Ogiemwonyi, banning him from engaging in capital market activities and from holding directorship position in any public company in Nigeria. SEC also withdrew the operating licenses of his companies. The commission also suspended the chairman of the companies, Mr. Henry Omoragbon, from engaging in capital market activities in Nigeria for five years.
Ogiemwonyi and his companies allegedly engaged in unauthorised sale of clients’ shares, failure and refusal to resolve clients’ complaints, performance of a capital market function without registration, non-compliance with the Code of Corporate Governance of the commission, filing of false and misleading information and non-compliance with the commission’s rules relating to assets-mix ratio.
They were also accused of non-compliance with the commission’s rules on disclosure of transactions valued at N50 million and above executed in a single day, soliciting deposits from the public and other violations of the Investments and Securities Act, 2007, SEC Rules and Regulations, the Code of Conduct for Capital Market Operators and their Employees and Code of Corporate Governance for Public Companies.
Ogiemwonyi was also ordered to pay a penalty of N100, 000 for breach of Rule 1(iii) of the Code of Conduct for Capital Market Operators and their Employees as contained in the SEC Rules and Regulations made pursuant to the Investments and Securities Act 2007. Omoragbon was also ordered to pay a penalty of N100, 000 for breach of Rule 1(iii) of the Code of Conduct for Capital Market Operators and their Employees as contained in the SEC Rules and Regulations made pursuant to the Investments and Securities Act 2007.
Some Directors of the company, Mr. Ojetunde Taiwo, Mrs. Ogiemwonyi Olufunke, Mr. Ogiamien Frank, Mr. Adeusi Aladejola Alexander and Mrs Arese Ugwu, were also suspended for five years from engaging in capital market activities. They were also banned from holding directorship positions in any public company in Nigeria for the period of five years and were ordered to pay a penalty of N100, 000 each for breach of Rule 1(iii) of the Code of Conduct for Capital Market Operators and their Employees as contained in the SEC Rules and Regulations made pursuant to the Investments and Securities Act 2007.
Also, Mr. Eseha Augustine Enejeta, a manager in the company, was suspended for a period of one year from engaging in capital market activities. He was also ordered to pay a penalty of N100, 000 for breach of Rule 1(iii) of the Code of Conduct for Capital Market Operators and their Employees as contained in the SEC Rules and Regulations made pursuant to the Investments and Securities Act 2007.
The commission also ordered Partnership Securities to restore to Mr Cletus Mbaji Uchendu 48,200 shares of Forte Oil Plc, which were allegedly sold without the client’s authority. The order for restoration also included all accrued benefits to the client such as bonuses and dividends from May 23, 1997 to date.
Road to infamy
The composition of the APC was sequel to several complaints filed by investors against Ogiemwonyi and his companies. Some 300 investors alleged that they were swindled of more than N4.8 billion in investment schemes promoted by Partnership Securities Limited (PSL). Representatives of the investors alleged that they were approached by Ogiemwonyi to surrender their shares to him for management under his Partnership Securities Deposit Account (PSDA) with a promise to provide a guaranteed return periodically. Shares worth more than N4.8 billion were misappropriated through this scheme.
SEC and NSE in the last quarter of 2016 conducted joint investigations into the activities of PSL. Preliminary investigations by the capital market regulators said the authorities had established a case of illegal activities against Partnership Securities as the operation of the scheme and guaranteed returns ran contrary to the mandate of the securities firm. Guaranteed investment scheme is prohibited by the Rules of the Exchange, and violation under this rule may fall under engaging in illegal activities and transactions. Such violations carry wide-ranging fines and sanctions under the rules of the market, including monetary sanction, revocation of dealership license and cancellation of stockbroking license.
One of the highpoints of the cases involved the former chief executive of Ecobank Transnational Incorporated (ETI) Plc, Mr Arnold Ekpe, an ally and client of Ogiemwonyi. Ekpe mandated his stockbroking firm, Partnership Securities Limited, to sell his 96.08 million ordinary shares of ETI. Ogiemwonyi allegedly sold the shares but only remitted N300 million of the total proceeds of N1.54 billion to Ekpe. Ekpe, in a complaint lodged at the Exchange dated October 16, 2016, alleged that PSL misappropriated N1.237 billion being part of the proceeds of sale of Ekpe’s 96.08 million shares of Ecobank Transnational Incorporated Plc and dividends of $80,000. Ekpe also alleged that although he completed a form indicating that the proceeds of the share sales should be paid into his bank account under the Direct Cash Settlement system, PSL elected to pay the proceeds into its own account and misappropriated the funds.
The Exchange on October 18, last year suspended PSL from trading on all its floors nationwide. The Exchange also on October 19, last year informed SEC of the complaint and requested for a joint examination of PSL and its associated companies. SEC as early as first quarter of 2016 started conducting silent investigation on PSL. SEC already saw a clear-cut case against Ogiemwonyi. In a February 2016 letter, SEC noted that available documents indicted PSL and that the broker-dealer was liable and would be held responsible for the defalcation of illegal conversion of sales’ proceeds.
The Ekpe case against Ogiemwonyi appeared iron cast and he allegedly admitted culpability. “Further to our mandate to sell your 96,077,872 shares of Ecobank Transnational Incorporated at the fixed price of N16 per share, we confirm that the shares were sold by us for a total of N1.537 billion out of which N300, 000,000 has been paid to you. We confirm that outstanding proceeds from the sale have been misappropriated by us and we undertake to meet the obligation of N1.237 billion and $80, 000,” Ogiemwonyi stated in one of the documents tendered.
SEC took advantage of the existing agreements between the capital market regulators and the Economic and Financial Crimes Commission (EFCC) to lodge a direct complaint with the anti-corruption agency. EFCC conducted preliminary investigation and arraigned Ogiemwonyi before the High Court of Lagos for sundry offences, including stealing and dishonest conversion of proceeds of share sale. Ogiemwonyi was ordered remanded in Ikoyi prisons.
The Ekpe case appeared to blow the lid off the can of iniquities at Ogiemwonyi’s companies. Other investors appeared with allegations of fraud and mismanagement. Some of the other victims included Mr. Godwin Anono, Chairman, Standard Shareholders Association of Nigeria, who claimed N160 million worth of shares, Mr. Alabi Olusola with over N12.540 million worth of shares and Mr. Solesi Samuel with over N40 million worth of shares among others.
Olusola said Ogiemwonyi called him to deposit his shares, which had not been traded over the years, in the custody of his stockbroking firm to manage those shares and generate 10 per cent returns, which would be paid to Alabi twice a year.
“When I look at the proposal, it was reasonable and the man involved is a prominent council member of the NSE. I trusted him. I did not enter the deal with an unregistered operator and it was not that he offered me a fantastic return, but a reasonable return. The deal was such that I can back out at any time I wish. When in 2014 the returns were not forth coming, Ogiemwonyi started giving one excuse or the other; that the returns are being reinvested; it was then I realised that he was playing foul, hence I demanded for my shares which could not be returned to me,” Alabi said.
After excruciating investigation, the Head of Enforcement Department at SEC lodged complaint at the APC, which invited all respondents to submit their claims. In the matter, the respondents included Partnership Investment Company, 1st respondent; Partnership Securities Limited, 2nd respondent; Mr. Henry Omoragbon, 3rd respondent; Mr. Victor Ogiemwonyi, 4th respondent; Mr. Allan Omorogba, 5th respondent; Mr. Ojetunde Taiwo, 6th respondent; Mrs. Ogiemwonyi Olufunke, 7th respondent; Mr. Ogiamien Frank, 8th respondent; Mr. Adeusi Aladejola Alexander, 9th respondent; Mr. Eseha Augustine Enejeta, 10th respondent; Mr. Odihi-Ogiemien Frank, 11th respondent; Dr. Bello Aliyu Gusau, 12th respondent; Mr. Olafisika Akinkugbe, 13th respondent; Mrs Arese Ugwu, 14th respondent; Mrs. Yinka Omoragbe, 15th respondent; Mr. Justus Olu Paul, 16th respondent; Mr. Clem Baiye, 17th respondent and Mr. S.C. Irune, 18th respondent. The APC concluded that “by their actions and or omissions the 1st, 2nd, 3rd, 4th, 6th, 7th, 8th, 9th, 10th, 11th, and 14th respondents engaged in acts capable of adversely affecting the investing public’s image of, and confidence in the capital market”.
No sacred cow
The latest indictments reechoed the tough stance of capital market regulators on fraudulent practices, especially unauthorised sale of client’s shares and misappropriation of client’s funds. SEC and the NSE as well as the CIS have been combative when it comes to infringement on market integrity. With some N13 trillion equities listed on the NSE and the almost limitless capacity of the primary market to raise funds, the market thrives on integrity and all stakeholders are usually unanimous on this. So, when the hammer falls, there is usually no comradeship and sacred cow. In another high-profile case, SEC had earlier this year banned ebullient investment banker, Mr. Albert Okumagba and Mr. Chibundu Edozie and their companies, BGL Assets Management Limited and BGL Securities Limited from ever participating in the capital market. Okumagba and Edozie were also banned for life from holding office in any public company in Nigeria. Okumagba was also a force to reckon with in the capital market, having served at the top echelon of the organs including as president of the CIS.
Okumagba’s case was however quite different, because it involved no unauthorised sale or diversion of client’s funds but rested on equally dangerous terrain of asset management. Even though a client or an investor can willingly sign on to an investment management agreement, the onus rests on the capital market operator to ensure that the investment agreement is in line with capital market rules and the operator’s registered function. That was the Achilles heel of BGL-one of Nigeria’s most robust investment banking firms.
SEC had received 32 complaints between 2012 and 2015 against the BGL companies over certain conducts in relation to operations of their Guaranteed Consolidated Notes (GCN) and Guaranteed Premium Notes (GPN).
SEC had, through the EFCC, pursued and secured conviction of a stockbroker and former managing director of First Alstate Securities Limited, Mr Tajudeen Folaji, who was sentenced to seven years imprisonment by the Lagos State High Court over fraudulent sale of his client’s shares. The Lagos State High Court presided over by Justice Kudirat Jose found Folaji guilty of unauthorised sale of shares and stealing for fraudulently converting 31,886,200 shares of IPWA Plc valued at N331.3 million belonging to an investor on April 3, 2008. The court also has imposed a N20 million fine on First Alstate Securities Limited where he was the managing director and dealing clerk. Besides, the court directed the EFCC to trace and liquidate properties belonging to the convict to restitute the investor.
The NSE has this year expelled not less than 88 stockbroking. The expulsion also implies that the expelled firms will not be able to act as stockbroking agent in other countries that have Memorandum of Understanding (MoU) with Nigerian capital market authorities. Nigerian capital market has standing bilateral agreements with several other jurisdictions including Morocco, Angola, China, Ghana, Kenya, Malaysia, Mauritius, South Africa, Tanzania and Uganda.
President, Association of Issuing Houses of Nigeria (AIHN), Mr. Sonnie Ayere has called for a pragmatic approach to address the problem of illiquidity by reviewing the practice rules and scope of operations of stockbroking firms to make them more viable and profitable.
Ayere, who is also Managing Director of Dunn Loren Merrifield Group, cited the example of Malaysia that reformed the stockbroking ecosystem with the introduction of universal brokers, which were allowed to access the interbank market to undertake borrowing or lending of funds.
Many stockbroking firms and stockbrokers have been found to be carrying out transactions at the equities market without adequate funding of their accounts, thus exacerbating settlement risks at the market.
A pact for investor’s protection
While few untoward cases like Ogiemwonyi’s highlighted market risks, a cursory review undoubtedly shows that the Nigerian capital market has comprehensive internal and external frameworks to safeguard investors and market integrity. While subsisting MoUs with not less than 10 other countries grant Nigerian capital market regulator international leverage to checkmate domestic illegalities, SEC and NSE have subsisting cooperation agreement with the EFCC that enables the capital market regulators to pursue further enforcement of regulatory actions. While the ISA empowered SEC protect investors, it has limitations over criminal cases. The agreement with the EFCC covers the loopholes.
Director General, Securities and Exchange Commission (SEC), Mr. Mounir Gwarzo, said key initiatives such as recapitalization of operators, direct cash settlement, e-dividend, national investors protection fund (NIPF), and code of corporate governance among others would help to strengthen investor’s protection and block loopholes.
Chief Executive Officer, Nigerian Stock Exchange (NSE), Mr Oscar Onyema, said authorities at the Exchange have implemented far-reaching transformational programmes that have improved market access and provided products that are aligned to investors’ requirements. He added that the introduction of several transparency initiatives such as BrokerTrax, X-Compliance, X-Whistle, Compliance Status Indicator symbols, X-Issuer and X- Alert among others have brought significant sanity to the market place and provided for a fair and orderly market.
Managing Director, Solid-Rock Securities and Investment Plc and President of the Association of Stockbroking Houses of Nigeria (ASHON), Mr. Patrick Ezeagu told The Nation that the involvement of some capital operators in illegal activities was an exception rather than the norm.
“In any association or group, there is bound to be few bad eggs and the actions or activities of these few do not criminalise the entire members. We have, in conjunction with the regulators, put in place a robust compliant management framework to ensure the quick resolution of complaints in the market. We have zero tolerance to infractions and if you check very well, you will see that the rate of infraction is probably the lowest in the capital market. There are many structures put in place to safeguard investors and their investments,” Ezeagu said.
President, Chartered Institute of Stockbrokers (CIS), Mr Oluwaseyi Abe said investor protection would always remain a topmost priority for the regulators and operators in the capital market. He said the CIS would continue to collaborate with the regulators to ensure that stockbrokers keep to the dictum: “My word is my bond”.
