Monday 27th March, 2017
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Corruption: Nigerian Stock Exchange stinks

Corruption: Nigerian Stock Exchange stinks

·    Stockbrokers defraud investor N10bn
·    SEC intervenes as investors’ confidence wanes
 
For the Nigerian invest­ing public, it is a sea­son of nightmares and dashed hopes as crit­ical operators of the Nigeri­an Stock Exchange (NSE) mis­manage and deny them returns on their hard-earned resources through dubious transactions.
Both individuals and cor­porate bodies which stake their funds in shares and oth­er investment openings have lost them to fraudulent stock­brokers who appear to enjoy the support of some officials of the industry’s regulatory agencies.
In the few cases where the regulators struck and sanc­tioned the offending stockbro­kers, the losing investors were never reinstated to their origi­nal positions.
An extensive investigation carried out by The AUTHORI­TY have revealed that a particu­lar bank (names withheld) lost over N1 billion investment to a stockbroking firm and upon the intervention of the Securi­ties and Exchange Commission (SEC), it returned only N300 million to the bank.
In the same vein, the fortunes of the NSE have continued to dip as market capitalisation this year dropped to an all-time low of N9.6 trillion from N14.8 trillion in 2008.
It was also discovered that part of the causes of the huge loss­es beside the current economic challenges, is the “huge corrup­tion and shady deals” which have dominated the capital market for a long time. The development kept many shareholders on the edge as their stocks continued to lose val­ue in terms of price.
Documents available to The AUTHORITY showed that in spite of the measures adopted by the Council and the management of the NSE and the Securities and Exchange Commission (SEC), some stockbrokers have contin­ued to shortchange their clients through questionable transactions that run into billions of naira.
A case which generated seri­ous heat in the sector, after it was let out, involved a securities’ com­pany and three of its subsidiaries, where about N10 billion belong­ing to one of their clients was mis­managed.
The scandal came to light from petitions written by some of the shortchanged companies.
One of the companies, a sub-regional bank, whose 96,077,872 shares valued about N1.2 billion and additional $80,000 (N40 mil­lion) from accrued dividends was allegedly diverted. These shares al­legedly belonged to a former chief executive of the bank.
Incidentally, the offending company admitted through a let­ter signed by one of its top officers (names withheld) that “the shares were sold by us for a total sum of N1.537 billion, of which N300 million has been paid.”
It however did not say when the outstanding balance of N1.24 billion and $80,000 will be paid back to the client.
Inspite of this, what has be­come of this case is not clear as the regulatory body is yet to sanction the defaulting firm, after its own investigators confirmed that the diversion was true.
Indeed, a report accessed by The AUTHORITY, quoted the defaulting company as saying through a letter to the regulato­ry authorities: “We confirm that outstanding proceeds from the sale have been misappropriated by us” with a promise to pay later.
SEC had in a memo dated No­vember 18, 2016 to the managing director of the offending stock­broking company, indicated that the amount involved could be over N10 billion which was the original figure mentioned.
The commission had consti­tuted a “Joint Target Inspection” to investigate the matter which stated partly in its report that: “Findings of the Special Examination con­ducted on the company between 7th and 11th November, 2016, confirmed alleged shady activi­ties of the company.”
The fact also showed that many other companies have con­verted their clients’ sales into their pockets.
Chief Abel Nkemjika, a top in­vestor in the stock market and a member of the Shareholders’ As­sociation of Nigeria, told The AU­THORITY in Abuja that the prob­lem had been there and all efforts by the regulatory authorities to stem it had failed.
He said: “The rule is there and the punishment is also there in the rule book but nobody has been punished severely because of this kind of infractions”, lamenting that many investors had been de­frauded by stockbrokers and the money not recovered after the fraud was discovered.
According to him, “Many of our members have fallen victims of some of these crooks operat­ing in the market. Shares are sold without authorisation and even unclaimed dividends not prop­erly accounted for have been re­ported severally in spite of many innovative policies, but no serious action to stop them has been un­dertaken”.
Nkemjika therefore called on the NSE and SEC to check the ugly trend if it is not eradicated.
Further findings showed that under the Central Securities Clearing System rules, cash pay­ments from the NSE’s Automat­ed Trading System (ATS) are au­tomatically made to the client’s account, except if declined by the client and then paid into the bro­ker’s account in compliance with Rule 16.3 of the Direct Cash Set­tlement.
“Many stockbrokers have breached this rule and nothing has happened and it will contin­ue to occur whereby sales go into the broker’s account in some cas­es instead of the investor’s account. This has eroded confidence of many stockholders in the country in stock market,” Nkemjika said.
It was however discovered that two securities’ firms which were found guilty of breaching this rule were sanctioned recent­ly as their dealing licences were re­voked. The companies were alleg­edly involved in unauthorised sale of their clients’ shares.
Confirming the development, the Head, Legal and Regulation Division of the NSE, Ms. Tinu­ade Awe, told our correspond­ents that the NSE “is committed to restoring investors’ confidence in the capital market.”
She pointed out that “the NSE will not hesitate to bring the full weight of its regulatory powers to bear on any dealing member that commits regulatory infractions.”

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