By Richard Ihediwa and Lawrence Olaoye
When the House of Representatives opened its investigation into the causes of the prevalent near collapse of the Nigerian Capital Market, many Nigerians did not expect the revelations of colossal fraud and smelly deals that have continued to surface at the hearing.
While people were still shuddering at the unearthing by the Senate, of massive stealing of over N150 billion pension fund by a handful of government officials at the expense of ageing and dying pensioners, the House of Representatives was reeling out figures amounting into trillion of naira siphoned by officials through the controversial subsidy scheme.
As if these were not enough for a quarter, more smelly deals are now being unearthed in the capital market probe by the House of Representatives with revelations of how a few have been plundering funds entrusted in their care by investors.
The investigation into the handling of the activities of the Capital Market followed the rapid dive in its fortune in the recent years resulting in the crashing of value of equities, leading to massive loss by investors.
Reports have it that since the spiral fall started in 2009, investors have lost over ten trillion naira. Many Nigerians have not been able to recover from the anguish of the collapse of share prices as people invested life’s savings, gratuities, borrowed funds, inheritances and business capitals in the market and watch helplessly while they go down the drain.
Prices of shares fell by over 80 percent with many equities dropping from two digits to one digit in value. Worst hit were banking and manufacturing sectors as they were also very much exposed to the vagaries of investment manipulations.
Consequently, many of the quoted stocks lost liquidity as their holders are trapped, not being able to convert them to cash to meet their domestic and other investment needs. On the other hand, fresh investors are cautious of jumping into a vehicle that does not seem to have a brake should they wish to disembark.
Initially, those who manned the Market made Nigerians believe that the fall was basically as a trickling effect of the then much orchestrated global financial meltdown, giving a little consolation to the unwary investor.
However, with the recent revelations at the hearings, Nigerians now know better; the crash of the Market now have a new culprit as the blame is now heaped on the feet of those in charge who are now being questioned for alleged malpractices such as tripping, price manipulation, outright abuses including, unauthorized sale of shares, to withholding of proceeds of sale of shares, withholding of share dividends among others.
Currently, former red necks at the Nigeria Stock Exchange (NSE) are now trading words with officials of the Market regulator, the Securities and Exchange Commission (SEC) with accusations and counter accusations of colossal fraud while the nation again watch with utter disbelief as figures of stolen or mismanaged fund continue to run into trillions of naira.
Public attention was drawn to the Capital Market probe when the Director General of SEC, Ms. Arunma Oteh threw cautions to the winds and pointedly accused the Chairman of the disbanded House of Representatives Committee on the Capital Market, Herman Hembe of demanding for bribe of N44 million as well as taking millions of money as estacodes for trips he never made.
Oteh’s allegation came in reaction to allegation by Hembe initial allegation that Oteh was involved in series of financial abuses running into millions at SEC. Hembe had put it to her that she spent as much as N30 million on hotel accommodation in eight months and N850,000 on meals in one day.
“You stayed in a hotel for 8 months and spent over N30 million. In one day you spent N85,000 on food at the hotel; the other day you spent 850,000 on food. These are the things we should look at to see how you will regulate a market that is collapsing,” Hembe said to Oteh pointedly.
Another revelation was that Oteh, recruited staff of Access bank, Charles Ughele and Titi Olubiyi, as SEC’s advisers, who were said to be receiving salaries akin to those of directors in addition to their salaries from their banks, a move that goes against the regulatory role of the commission over the bank.
Ms. Oteh was accused of multiple violations, flouting of rules, compromising of position and spending spree in the last one year she has held office. Lawmakers said the DG’s unbridled spending and her relationship with some of the organizations she oversights have eroded the commission’s regulatory role and eventually led to the inability of the capital market to recover.
But it later became a story of the hunter hunted as Oteh looked at Hembe in the face and accused him of financial impropriety.
“Hembe collected estacode and other travel allowances from the Securities and Exchange Commission (SEC) to travel to the Dominican Republic on a capacity enhancement conference for capital market regulators. He did not go neither did he return the money collected. Also, he asked the commission to contribute N39 million towards the ongoing charade of a public hearing and demanded another N5 million cash on Tuesday, March 13, 2012. He made both demands by proxy”, she alleged.
Following the finger pointing, the House of Representatives had disbanded to committee and set up a new one led by Ibrahim El-Sudi to dig into the issues while Hembe and his deputy, Chris Azubogu are now to face criminal charges over the allegations as the court on Thursday granted the Economic and Financial Crimes Commission (EFCC) powers to go ahead with the prosecution.
However, with the inauguration of El-Sudi committee came the unearthing of more under hand dealings by managers of the capital market. In fact, rather than being the cause of the collapse, the pulling of funds from the market by foreign investors which led to the eventual crash was occasioned by loss of confidence in the management of the market and the regulators agencies.
Witnesses after witnesses reeled out to bewildered Nigerians how those entrusted with the jobs of ensuring standard, fair play and sanity in the system engaged on abuses and reckless spending that eroded confidence and led to the fall of fortune at the market.
First to unearth the rot in the market was Oteh, who accused the former Stock Exchange Director General, Prof. Ndi Okereke-Onyiuke of crass mismanagement of the market’s fund and went ahead to paint a graphic picture of how the alleged looting spree went.
Oteh told the lawmakers that the former NSE DG shared N1.7 billion to the members its governing council and employees.
She also accused her of other fraudulent transactions, including alleged reclassification of N1.3billion originally expended on business travels.
The SEC Director General explained that she met a rotten NSE when she assumed office in 2010 and that the fraud at the Exchange accounted for the removal of Prof. Okereke-Onyiuke before the end of her tenure by the regulatory agency.
According to her, in 2009, N1.7billion of the 2008 operational surplus was distributed to Council members and employees in violation of CAMA and SEC rules which preclude the NSE from such given that the NSE is a company limited by guarantee. This happened in previous years. Other notable fraudulent transactions include the reclassification of the sum of N1.3billion originally expended on business travels.
“It was also brought to our attention that there were incidences of financial skimming, misappropriation, false accounting, misrepresentation, and questionable transactions. For instance, 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), yet there are no records of the beneficiary.
“The Exchange also spent N186million on 165 Rolex wristwatches as gifts for awardees out of which only 73 were actually presented to the awardees. The outstanding 92 Rolex watches valued at N99.5million remain unaccounted for. These were the kinds of financial imprudence that were perpetrated at the NSE. These transactions were routed through companies owned by some senior officers of the Exchange.
“Of this sum, N953million was reclassified under “Software Upgrade” and subsequently expended as against being capitalized. There were other cases of unethical accounting practices.”
She stated that when she joined the SEC in January, 2010, she was giving briefings including a report of an inspection of the Nigerian Stock Exchange undertaken in September 2009.
“The findings of that inspection were shocking, she said, adding that they included weak corporate governance, risk management and internal controls, insufficient oversight of brokerage firms and listed companies, inability to enforce its rules. The inspection team also found that more than 2,700 investor complaints lodged with the NSE had not been treated. These complaints ranged from unauthorized sale of shares to withholding of proceeds of sale of shares”.
During that regime, the market was characterised by round tripping and price manipulations even in the face of regulations. While brokers were said to have been engaged price manipulation in collaboration with officials of SEC and the NSE, some companies also engaged in round tripping by using investors money to buy shares of the same company which in effect leads to drastic upward movement of prices to attract other investors after which the company pulls out its fund and cared less if the prices crashed back to actual values.
Most investors fell victims of price manipulation as investigations have shown that most of the prices listed for many companies were not real.
However, when she appeared before the House panel, Onyiuke-Okereke under whose watch the market nose dived had a different opinion as she defended her regime and insisted that SEC had no powers to query her spending since the NSE was a private concern with the power of approval of expenditure residing with the governing board.
“The SEC has no business in how a private company decides to spend its money; it is not government money and the approval for the spending rests on the Governing Board,” she said.
Onyiuke- Okereke, who said she is not afraid of anybody insisted that she did not want to go back to the as DG of the NSE despite the court ruling that he forceful removal was illegal fumed that she was an international figure and well respected in the society because of her work.
She said “I do not want to go back to the Stock Exchange otherwise a federal high court has made declarative judgment that I am still the substantive of DG NSE, so whether they remove or not I am still the DG, NSE has no DG yet and the man that is there is not DG.”
“I am an international figure, I am known all over the world because of my work in the Stock Exchange and elsewhere. I made pronouncements in the media 2008, 2009, 2010 that I am retiring. Why will I now turnaround because the court said that someone’s claim that she removed me is illegal and unconstitutional and so I am still the DG”
“A lot of people advised me to go back, but I felt that people that know me will be disappointed in me, that is why I didn’t go back not because I am afraid of anybody”.
However, critics have continued to wonder why the capital market under her watch went down despite her “globally recongised prowess”.
Onyuike-Okereke blamed the problem on the banks which she accused of issuing out loans to people indiscriminately. She also blamed the Central Bank of Nigeria (CBN) and SEC for refusing to act when such was going on.
“While these were happening CBN refused to act. It was the margin loans that destroyed capital market. It was recently that CBN and SEC reacted but it was too late, the damage had already been done. SEC did not guide people that were doing the business. SEC must compel all those companies to get listed so that the stakeholders could trade their shares”.
Asked about her involvement in the TRANSCORP, Okereke-Onyueke told the committee that she was appointed to the Board of the corporation on national assignment. She however added that she got the nod of the members of the NSE Governing Council before she accepted the assignment.
Reacting to the allegation that she raised funds for United States President Barak Obama when he was campaigning for office, she denied insisting that she merely organized a concert to drum up awareness for Nigerians and Africans living in America having forged a personal relationship with him in the past.
On the whole, it appears that the gate keepers are all playing politics with peoples investments as there are currently discordant tunes in the SEC team looking after the market.
Observers believe that the uncoordinated running of the SEC, as revealed by the hearing was largely responsible for its inability to put checks on the NSE so as to guarantee the safety of investment and boost the market.
At the hearing on Wednesday, Oteh was shocked and visibly dazed when all SEC management team disowned her and openly accused her of running the organisation as a one man business and that they were not being carried among in the formulation and implementation of policies aimed at revamping the market.
They criticized Oteh for introducing an alien management style that has alienated the management team just as they alleged that her attitude has eroded trust and administrative conviviality in the Commission.
This is in addition to alleged violation due process in the recruitment of strategic staff and other activities in the commission. Issues not far from pecuniary interests have been blamed for the lack of cohesion in the sector.
First to fire the salvo was Mr. Charles Udora, Executive Commissioner, Legal and Enforcement who told the committee that there was regulatory comatose in SEC under Oteh.
“There is presently what I can refer to as ‘regulatory comatose’ in SEC. The manner in which things are being handled in SEC, today, is causing disharmony and disaffection among staff members,” Udora disclosed that the commissioners were not being carried along in the decision making process and that suggestions and new ideas are being received by Oteh in anger. He added that the exclusion was also extended to the employment and engagement processes, stating that these have brought to the fore a number of issues in the organization.
He said: “This has brought in its wake, irregularity in staff promotion exercise. There is a case where a staff who graduated in 1998 was promoted above a very qualified staff that has a combined experience of 20 years, working in SEC and in other places.
“The issue of contract staff employment is negatively affecting the morale of staff. It is causing disaffection, disharmony and friction among SEC’s staff. The disharmony has led to a situation of regulatory comatose.
“Unlike in the past, SEC’s staff members no longer feel obligated to perform their responsibilities and duties. It is now a case of the staff saying ‘it is their SEC, if not for the money I am earning here to take care of my family, I will not be here.’ This is negatively affecting how SEC regulates the market, especially as this is depriving it of vital information among many others,” he said.
The five commissioners also denied being involved in the preparation of the new blueprint of the organisation as well as the organization and celebration of Project 50, a Golden Jubilee celebration to mark 50 years of the existence of SEC.
One after the other, they described as untrue Oteh’s claim that the celebration which she chaired had the support and participation of the management and staff of the Commission.
Currently, the House committee is expressing doubts if the current team at SEC would actually achieve the much desired revamping of the market. On the other hand, some stakeholders are insisting that unless something drastic is done to criminally investigate and prosecute all persons that would be indicted in the probe and to recover all looted funds, confidence might not be restored to the market. The question remains, when will these looting sprees stop?